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2009-03-11 SRA MinutesCity of Salem Massachusetts Public Meeting Minutes Board or Committee: Redevelopment Authority, Regular Meeting Date and Time: Wednesday, March 11, 2009, at 6:00 p.m. Meeting Location: Third Floor Conference Room, 120 Washington Street Members Present: Chairperson Michael Brennan, Conrad Baldini, Michael Connelly, Robert Mitnik, and Russell Vickers Members Absent: Others Present: Executive Director and City Planner Lynn Duncan, Economic Development Manager Tom Daniel Recorder: Andrea Bray Chairperson Brennan calls the meeting to order. Executive Director’s Report Lynn Duncan states that because of all of the energy directed at the Old Salem Jail, she has postponed the discussion of the parking management study, originally scheduled for this month. Old/New Business Development Project Review 1. 50 St. Peters Street (Old Salem Jail): Discussion and vote on amendment to land Disposition Agreement Duncan explains that the SRA will conduct two votes: (1) to authorize the Chair to execute the amendment to the Land Disposition Agreement (LDA), and (2) to authorize the Chair to execute the conveyance of the deed to NBV by the end of March, subject to conditions, which will be reviewed. Daniel recaps the issues that have been resolved since November when the SRA last discussed the LDA: • Purchase Price: At the November SRA meeting, there was concern about the payment of the purchase price if the property is sold as a rental development, or if it is not converted into condominiums within 10 years. The LDA has been amended to specify that payment will be made to the City at the time that the property is sold as a rental development, or converted to condominiums, or after 10 years, whichever comes first. • Driveway Issue: The City Engineer has issued a Driveway Modification Permit, so this item has been resolved and is not included in the LDA amendment. • Affordable Unit: The affordable unit will be affordable for 99 years. SRA February 11, 2009 Page 2 of 7 In addition to the issues from November resolved above, Daniel explains that NBV had two additional requests: (1) they wish to have the SRA waive the performance bond, and (2) if the restaurant space cannot be leased within one year of closing, NBV’s lender is requiring that the space be converted to residential use. Dennis Kanin explains that they have worked hard to finalize the project and have the closing this month with the construction beginning in April. He states that NBV is committed to doing what was originally proposed, and there will be a restaurant, a jail history exhibit, and an artist’s live/work space. He adds that NBV has hired commercial real estate broker Charlie Perkins to locate a restaurant tenant, and Citizens Bank wants reassurance that if they cannot find a tenant at $20/sf, the SRA will allow the space to be used residentially. Regarding the jail history exhibit, Kanin explains that three jail cells will be open to the public, and the artist’s live/work space will open onto the jail history exhibit space. Kanin thanks all of the people involved with this transaction including the SRA, the Planning Department, the Mayor, the City Council, Representative John Tierney, Historic Salem Inc, and many other individuals. Mitnik asks if the $20/sf lease price will include restaurant fixtures. Kanin says the restaurant equipment will not be provided but the ductwork, the venting, and the plumbing will be included in the lease price. Mitnik inquires about the bank’s contingency regarding the restaurant lease, asking why they are acting conservatively there and yet ready to waive a performance bond. Kanin states that any bank will be conservative in this environment, but it is a different story with the performance bonds because they are dealing with a contractor that they have worked with many times in the past. Mitnik expresses concern with this point stating that the project has thin margins and can’t afford a performance bond, yet how will they handle any cost overruns, which are likely with restoration projects on old buildings. Kanin explains that the money portion of this transaction is structured differently because of the historic tax credits, so the bank is putting money in up front and the rest of the money will come in at the end through the tax credits. He adds that if a catastrophe occurs and the contractor could not finish this project, the bank would step in and find someone else to finish it because the money from the tax credits will come in at the end and is dependent upon the project being completed. Mitnik, speaking from experience, states that every state project requires a performance bond and he doesn’t know why the public should take a greater risk for this. SRA February 11, 2009 Page 3 of 7 Vickers states that once this is closed it is a private project and the bank is probably in first place on the loan and would have every interest to finish this. While he acknowledges Mitnik’s concern, he explains that the ownership for this property is different, and it is pretty much in private hands after closing. He asks if the $20/sf lease price for the restaurant will be attractive to tenants. Charlie Perkins, commercial real estate broker, explains that he has sold about 550 restaurants and teaches courses on how to sell restaurants. He states that on this property of about 3,000 sf, the lease cost would be about $60,000/year. He provides a recap of the cost break down for all restaurants, stating that about 10% would be left over for debt service. He provides a general profile of the type of restaurant that would be a good fit for this space, stating that it should a bistro-style, casual establishment with a strong lunch business, and two dinner businesses (families with children early and older people later). He adds that the location sells itself. Duncan acknowledges that the SRA has been waiting to see the restaurant identified and asks Perkins when he will be ready to launch his effort. Perkins states that he will begin his search as soon as they break ground. He provides more information about the concept for this location, stating that it will probably base its income on 75% food, and 25% drinks, with a wine service and liquor. He adds that he plans to market it by telling a story about it in “North Shore Magazine” and on an official website. Vickers asks if this will be considered a restaurant sale. Perkins states that it would be considered a lease and he will put together a marketing package with a map. He explains that in normal sales he must be discrete because you don’t want the customers or the employees to know if a restaurant is for sale, but this is a new location so he can handle it differently. He states that every restaurant on the North Shore will get a flyer. Vickers asks if the restaurant could be opened in 12 months. Perkins says that it is possible and he will get the potential tenants lined up for the showing of the property. He speaks about his efforts in leasing the space for the Tavern in the Square, with Joey Arcari. Daniel asks if the concept will be a unique concept to this place. Perkins states that it will be unique and they will probably tie it in with the community and will have old pictures. Mitnik asks if measures are in place to make sure that these buildings will be preserved now that the City is giving up the ownership to a private entity. SRA February 11, 2009 Page 4 of 7 Duncan states that there is a preservation restriction on the property with the Mass Historic Commission. Kanin agrees that they cannot tear the buildings down. Mitnik states that he is concerned because of the economy and he would prefer to delay this until things get better. Duncan states that the most positive attitude that the City can portray now is in moving forward with this project. She describes it as Salem’s own stimulus package. She adds that the old Salem News building is nearing completion and this is a positive step. She explains that her concern about this site occurs every winter that these buildings are vacant, due to the likelihood of leaky roofs, fires, and occupancy by homeless people, and it would be less risky to move forward and have faith that things will absolutely get better. Brennan asks about the finances. Kanin states that they have a loan commitment through March 31, 2009, and there are many teams of attorneys working to accomplish a closing by March 31. Attorney Joe Correnti iterates that there are more lawyers involved with this project than any other project in the City. There is an unprecedented level of activity directed at this property, and now this is the real thing. Every entity is represented, and they intend to move full speed ahead toward the closing in the next couple weeks. Vickers asks if this complicated closing presents any concerns on Correnti’s part to mobilize this with all of the parties. Correnti agrees that it is a complex closing but there are many major law firms in the country working to put this together, and they all have joint checklists. Baldini agrees that this is Salem’s chance for a stimulus package. Connelly states that he can’t imagine any other developer showing as much commitment in this project as these people have. He adds that it is time to move forward and to reward the developers for their faith in this City. He thanks them for staying with the City. Vickers agrees that it is the time to move forward, and states that he is encouraged and comforted from hearing the presentation from Charlie Perkins. Brennan asks how the rental market is. Penn Lindsay states that the rental market is very strong, with a 5% vacancy rate about one year ago, and currently the vacancy rate is at a 2% at the Salem Station Apartments. SRA February 11, 2009 Page 5 of 7 Brennan asks about the estimated length of the construction period. Kanin states that the construction will take 12-14 months. Brennan asks how realistic the April start date is. Kanin states that it is very realist and the contractor wants to start as soon as possible. Duncan reads a portion of a letter from Mary Whitney, with Historic Salem Inc, in which she supports release of the restaurant lease for conversion to residential units if necessary. City Councilor Jerry Ryan, the Council’s liaison to the SRA, states that he is encouraged after hearing from Charlie Perkins that he will find a restaurant tenant. He adds that he supports the amendment and intends to keep the ball rolling. He explains that the City of Salem is now getting things accomplished that other cities don’t accomplish in a good economy. Duncan iterates the two motions needed from the SRA: (1) to authorize the Chair to execute the amendment to the Land Disposition Agreement (LDA), and (2) to authorize the Chair to execute the conveyance of the deed to NBV by the end of March, subject to conditions. Daniel reviews the draft conditions: - Old Salem Jail Ventures LLC shall agree in writing to prepare a monthly written report on the status of the restaurant and appear before the SRA in June 2008, September 2008, November 2008, and January 2009 and other such times as requested by the SRA; - Old Salem Jail Ventures LLC shall agree in writing to submit a redesign of the driveway, if proposed, for the SRA’s review and approval prior to submitting it to the City Engineer; - Old Salem Jail Ventures LLC shall provide evidence from its lender that reports on the construction progress shall be sent to the SRA on at least a monthly basis; and - Old Salem Jail Ventures LLC shall provide a mechanism that is satisfactory to the Executive Director and the City Solicitor to ensure the affordable rental unit continues to be an affordable unit at conversion to a for sale condominium. Regarding the approval of the deed, the following conditions apply: - The deed shall be reviewed and approved by the City Solicitor; - There is evidence of full construction financing being in place; and - There is evidence of property insurance being in place. Brennan asks what will be considered proof of financing. SRA February 11, 2009 Page 6 of 7 Correnti says it is a commitment letter and evidence that the money is in place for the construction, and that appropriate letters can be provided to give the SRA that assurance. Brennan asks about the process for determining the recipient for the affordable unit. Lindsay states that it will be done by a lottery. Kanin states that they will have their own Clerk of the Works. Correnti comments on condition #2, the redesign of the driveway, stating that they didn’t actually approve the existing design, and he doesn’t want his client to have to wait for a meeting if that contingency kicks-in. Much discussion ensues regarding the possible redesign of the driveway. Lindsay indicates that the driveway configuration won’t change even if the restaurant is converted to residential space. Given the fact that the driveway isn’t expected to change, Duncan states that they should remove this condition. Brennan states that they would need to come back if it changes. Mary Whitney of Historic Salem Inc asks if public access would remain for the jail exhibit if the space does not become a restaurant. Kanin states that the building will have public access and a jail exhibit anyway. The restaurant space is in a different location from the jail exhibit. Mitnik states that he will vote in favor of this project, even though he had previous concerns, because he understands that the City is optimistic and views this as a stimulus to the local economy which will benefit Salem. Regarding the conditions, Correnti states that they should be part of the LDA amendment. Much discussion ensues regarding the verbiage for the motion. Vickers: Motion to authorize the Chair to execute the amendment to the LDA as further amended below: - Old Salem Jail Ventures LLC shall agree in writing to prepare a monthly written report on the status of the restaurant and appear before the SRA in June 2008, September 2008, November 2008, and January 2009 and other such times as requested by the SRA; SRA February 11, 2009 Page 7 of 7 - Old Salem Jail Ventures LLC shall provide evidence from its lender that reports on the construction progress shall be sent to the SRA on at least a monthly basis; and - Old Salem Jail Ventures LLC shall provide a mechanism that is satisfactory to the Executive Director and the City Solicitor to ensure the affordable rental unit continues to be an affordable unit at conversion to a for sale condominium. seconded by Baldini. Roll call vote: Baldini–yes, Mitnik–yes, Connelly–yes, Brennan–yes, Vickers–yes. Daniel states that the second motion will be to transfer the deed with the following conditions: - The deed shall be reviewed and approved by the City Solicitor; - There is evidence of full construction financing being in place; and - There is evidence of property insurance being in place. Vickers: Motion to authorize the Chair to execute the transfer of the deed subject to the above conditions, seconded by Connelly. Roll call vote: Baldini–yes, Mitnik–yes, Connelly–yes, Brennan–yes, Vickers–yes. Approval of Minutes – February 11, 2009 and February 25, 2009 Meetings Connelly: Motion to approve the minutes, seconded by Vickers. Passes 5-0. Baldini: Motion to adjourn, seconded by Vickers. Passes 5-0. The meeting is adjourned at 7:10 PM.