City may lose money in selling Downtown buildings Since 1999, the city's Urban Redevelopment Authority has spent nearly $14 million buying properties Downtown in hopes of enticing a developer to remake the Fifth and Forbes corridor."May have been right" is the understatement of the decade.
All the while, critics said the city was paying too much.
Now that the URA is working to finalize an agreement with Washington County developer Millcraft Industries and partner Ira Morgan to redevelop the 19 city-owned buildings, it appears the critics may have been right.
Back in 2000 we KNEW the city was going to loose it financially. Then came the overlords.
In 2002 we KNEW the city was going to fumble the ball on its REC Centers and Swim Pools -- and put them to the test for the installing free mini-computer labs in eight sites -- and the city proved us right again.
We knew we were right on city wide wi-fi -- which won't come nor happen by the All-Star Game.
We knew we were right with Lazarus dealings.
We knew we were right about the continual population loss. People are still voting with their feet.
We knew we were right about the Pay Raise.
We nay-sayers are able to think again.
The deal that is most advantageous to the city is to REPLACE -- then REFORM. We're not getting anything that is splendid from the big-picture when looking at what's still in the pipeline from these folks.
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City may lose money in selling Downtown buildings
Sunday, June 04, 2006
By Mark Belko, Pittsburgh Post-Gazette
Since 1999, the city's Urban Redevelopment Authority has spent nearly $14 million buying properties Downtown in hopes of enticing a developer to remake the Fifth and Forbes corridor.
All the while, critics said the city was paying too much.
Now that the URA is working to finalize an agreement with Washington County developer Millcraft Industries and partner Ira Morgan to redevelop the 19 city-owned buildings, it appears the critics may have been right.
URA Executive Director Jerome Dettore said last week that the agency could end up getting less than it paid for the properties. The agreement is expected to go before the authority's board Thursday.
Mr. Dettore said he hoped the city would make money eventually, perhaps by becoming a part owner with Millcraft.
"We're going to try to make the deal that's most advantageous to the city," he said.
The URA started collecting the properties under former Mayor Tom Murphy, hoping to amass enough holdings to attract a developer to revamp the corridor, now mostly boarded-up buildings and low-end or run-of-the-mill retail spaces.
According to the Allegheny County property assessment Web site, the agency spent $13.8 million acquiring the buildings. Together, the properties are assessed at $9.5 million.
The city paid $4 million in 2002 for what is known as G.C. Murphy's -- actually five buildings on Fifth and Forbes avenues. Besides that, the largest single purchase was $1.6 million in April for a building at 236 Fifth Ave., most recently occupied by a D&K discount store.
In 2001, URA officials paid $1.5 million for the former Revco building on Fifth Avenue, which had been purchased by a private buyer three years earlier for $1 million. It paid $246,000 last year for the Candy Rama building on Fifth, less than the $300,000 a private buyer paid 23 years before.
Mr. Dettore said the URA's goal was to sell the properties at fair market value, but he added that was not as simple a determination as it would be for a single-family home. Appraisers not only look at comparable sales, but also at the potential property use and the income it generates, he said.
In its effort to assemble enough property Downtown to interest a developer, Mr. Dettore said, the city may have overpaid for some key parcels. He said it was not uncommon for private developers to do that when they have a particular need for a certain property.
"That's just part of the real estate business," he said. "You need a particular property to create a better development site, sometimes you have to pay a little more."
Mr. Dettore isn't shutting the door on the possibility of getting $13.8 million for the parcels.
"Conceivably, an appraisal could approach that," he said. "I can't say that absolutely we'll get less. We need to work through the numbers."
The city's purchase of Downtown properties long has been controversial, starting with Mr. Murphy's unsuccessful efforts.
In March, state Sen. Jim Ferlo, D-Highland Park, a new URA board member, complained that the authority was overpaying for buildings and should get out of the real estate business Downtown.
He said he was not surprised that the agency could take a loss on the properties in the Millcraft deal.
"I don't think there's any question that they overpaid," he said.
Nonetheless, Mr. Ferlo said he believed the city "should be reimbursed for the significant amount of investment it has made in the corridor to the fullest extent possible.
"The last thing we should do is a deal like Lazarus," he said, referring to the heavily subsidized construction of the department store, which closed in 2004. The building is being redeveloped by Millcraft.
Mayor Bob O'Connor said getting back the $13.8 million the city paid for the URA properties is a "reasonable goal," but added other factors were at work, such as environmental and remediation issues in some of the buildings.
"Our mission is to make sure we have a first-class operation at Fifth and Market, and it enhances other private development," he said.
Whatever agreement is reached, Millcraft is interested in providing a fair return to the city for the properties, said Brian Walker, chief financial officer and vice president of finance.
"It is our desire to reimburse the city for fair value. The thing we're discussing right now is how we go about doing that," he said.
Asked if the city would end up selling the properties at a loss, Mr. Walker replied: "There's a lot of things we're discussing that could change that answer. We're not asking for the properties for free. We're not asking for city subsidies, for county subsidies."
Mr. Walker said that, once Millcraft gains control of the properties, the city would see an immediate return in the form of real estate tax payments in the case of a sale or payments in lieu of taxes if the buildings are leased. Those annual payments would be in addition to whatever the city gets for the buildings.
Because they are publicly owned, the properties currently do not generate tax revenue for the city, the county or city schools.
As part of a deal for the properties, Millcraft is looking into arrangements with the city, including outright acquisition, land-lease options or, possibly, an equity stake, Mr. Walker said.
The goal is to find a "good return capability" for the developer while at the same time providing the city with fair value for its properties.
That might not fly with city Councilman Bill Peduto. At minimum, he said, the city should get back what it paid. Mr. Ferlo said the city should consider moving ahead with the PNC office tower on Fifth, the redevelopment of Lazarus-Macy's and, perhaps, Murphy's and let the market do the rest.
"I don't know why we have to rush into this," he said.
Millcraft is proposing to spend $21 million to turn Murphy's into 50 apartments and condos, 25,000 square feet of stores and 50 parking spaces. It is proposing to spend $50 million to build 150 apartments and condos and 20,000 square feet of retail space on Forbes Avenue.
(Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262. )
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