$250,000 Option to Buy Midtown for $6 Million

Last week Bob Duffy announced a bold plan to secure a $250,000 option to buy Midtown Plaza for $6 Million by February 13, 2007. Everyone knows that downtown Rochester will never become the bustling place that it once was until the Midtown and Sibley buildings have been intelligently redeveloped. The black hole of vacancy they create in the city's center is a cancer that scares off businesses and residents alike. I desperately want them both to be addressed. The question is how, and is this option the answer. Let's look at how this has played out to date.

Midtown was purchased in 1997 for $23.5 million and due to a steady exodus of tenants the owner filed for bankruptcy and the lender, Blackacre, took possession of the property in 2001. By 2005 the Rochester Downtown Development Corp. estimates that Midtown is nearly 90% vacant. Midtown Rochester Properties (the entity formed to manage the property) found out this year that the only remaining anchor tenant, JP Morgan Chase, will be moving out in the spring. The rents from the property can no longer cover even the property taxes. Property manager Lawrence Cohen tells the city in a letter dated November 9 that he is, "pleased to offer the City of Rochester the option to buy Midtown Plaza." As a real estate investor, I'd be pleased to dump a giant liability on someone else and charge them a premium to take it too!

In their defence, Bob Duffy and City Council, have the best intentions for Midtown. I know they want to step in and take control over what happens with the development there. The problem here is the nature of the deal. First a lesson in options. A buyer pays an agreed upon amount of money for an option. That option locks the purchase price and terms of sale for a period of time stipulated in the option contract. In this case it is a laughable 90 day window. Most options are measured in years, unless immediate action for development or flipping the property is planned by the buyer. In this case the city is paying the seller a non-refundable $250,000 that gives them the exclusive right to pay an additional $5,750,000 to buy Midtown before February 13th.

The D&C reported that the city worried about less than reputable developers buying Midtown and simply sitting on it to collect what little rents are coming in. I say we should be so lucky. Any developer who would buy a property with tens of millions of dollars in deferred maintenance and asbestos abatement liability coupled with roughly $800,000 dollars in annual tax liability will have to default on the taxes to break even. At that point, the city can take back Midtown for only the cost of completing the foreclosure. Another thing to consider is that the current owner is actually paying the taxes and is current on them. If the city buys the building, we loose nearly a million dollars a year in tax revenue.

City Council should either counter offer Midtown Rochester Properties LLC with a $25,000 option price with all the same terms, or call their bluff. Vacant buildings with a fraction of the risk exposure and complexity to rehabilitate sit on the market for years in this city. Let them try to sell it. After the city has collected another $800,000 in taxes next year, make an offer to buy it for $3 Million. For a 90% vacant asbestos liability needing tens or hundreds of millions of dollars in renovation that may still be too much. Furthermore, the city is about to pay $250,000 for the option before it actually conducts the due diligence to see what condition the property is in, what the rent rolls look like, or even have their consultants develop an informed estimate of fair market value.

If an employee of mine bought a $250,000 option before doing the due diligence and having all the information I would fire them on the spot.

Renaissance Square Resources

To compliment our previous post about demanding LEED Platinum Certification for Renaissance Square we wanted to provide you with some additional information about the project.

• Interactive overview of the project site from the D&C
• D&C special projects feature on RenSquare
• Architect's PowerPoint Presentation (finalized transit center on page 10)
• RenSquare's official website
• Lead Architect, Moshe Safdie's website (pronounced mow-sha sawf-dee)
• U.S. Green Building Council's LEED website
• World Trade Center to be LEED Gold Certified
• The Costs and Financial Benefits of Green Building (134 Page PDF)

The last link is a great report that studied the whole project lifecycle of over 30 building projects and has loads of information. Here's two of the graphs from that report illustrating the savings:

Could Renaissance Square Be a Turning Point?

RenSquare, as it has come to be known, has the potential to be a huge money pit that drives smaller theatre venues out of business and sinks like our last major experiment. It is also just as likely to serve as a beacon in the middle of downtown showing the resolve, commitment, and compassion that city residents feel deep down for our embattled city center. The difference is in the management and high-level decision making that will be ongoing until its completion some time in 2010.

Let's be honest, the business plan that preceded the fast ferry would not have gotten me a passing grade in my RIT business classes. Somehow, it was good enough for Bill Johnson to stake our collective financial futures on with no downside protection. Rochester could easily support a trans-Ontario ferry service to Toronto and make a buck doing it. If we had two smaller boats with mutually convenient schedules on both shores and the option of running one boat during off-peak periods at a fraction the cost of the "Cat." The planning and management were catastrophic and the ferry failed.

Now we find ourselves, as a community, at the brink of putting nearly a quarter of a billion dollars into Renaissance Square. Believe it or not, I am all for it and I am going to do everything in my power to ensure we knock this one out of the park.

Last night I attended the fifth public workshop for the project along with a pitifully small group of other interested onlookers and members of the media. While listening to the lead architect, Moshe Safdie, I realized that we had a very talented man at the helm of this project. Further research revealed that we have one of the most prolific architects in the world designing a complex for us that embodies more than a building. Safdie is a brilliant man who sees his creations as tools to improve the very substance of urban living. Late last night while watching video clips of Safdie discussing projects he completed in Toronto, Israel, Vancouver and Montreal it occurred to me that he seemed more alive than he did discussing Renaissance Square. Why?

I don't think that we, as a community, have demanded enough of this facility. Safdie has been described as a "maverick" and is undoubtedly one of the most innovative architects around. Our project may be huge by measure of dollars invested, but it is the innovators equivalent of being asked to design you a paperweight. We’ve invested millions of dollars in a very capable architect. Let’s make sure he invests his full attention and skill set in us. Safdie has a soft spot for cleaner, greener urban living and we are poised to become one of the leading alternative energy economies in America. Let's make Renaissance Square a beacon of progress and innovation, something to put us on the map and be proud of.

The U.S. Green Building Council has created the Leadership in Energy and Environmental Design (LEED) Green Building Rating System™ as the nationally accepted benchmark for the design, construction, and operation of high performance green buildings. The four levels of certification are Bronze, Silver, Gold and Platinum. Amazingly there are only 15 Platinum certified buildings in the US, and they can be seen on this map made by fundinggreenbuildings.com.

The notion of having a more efficient building in our city is not just some treehugger’s pipedream, but a commonsense solution for a number of our problems.

• LEED buildings have dramatically reduced total cost of ownership because of the green building materials and techniques that can save up to 100% of some utilities cost. The last thing this city needs is to be paying the bills for another albatross.
• Building the necessary excitement in the community to raise $30+ Million in private money will take more than your average public building project.
• Platinum certified buildings are rare enough that having one would put Rochester on the map for building innovation. As companies look for site selection, we will find ourselves on a very short list of sustainability-minded knowledge economies.
• This would do more to brand Rochester as a progressive place to live than any other initiative publicly discussed to date, especially as we try to re-brand ourselves for the clean energy economy.
• Once completed, RenSquare would be an iconic symbol of pride for the people of Rochester and lead to future pollution-fighting building development in our region.

For a building that tax payers will be paying operating costs for over the next century or so, I would say that Platinum LEED certification should be as high a priority as where to locate the bus terminal.

Let's make a stand, and demand more for our city. There aren't too many opportunities for the community to direct $230 Million in development downtown. We can't afford another fast ferry, and we really need a homerun to bring back some desperately needed civic pride. Mr. Safdie, please consider this a personal and professional challenge to deliver to Rochester one of the most innovative, sustainable, and pivotal green design projects in North America.