Southwest Journal: Park Board Goes to Trial October 31 Over Ft. Snelling Development

photo of 201 building
201 building

« A group of contractors is suing the Minneapolis Park and Recreation Board to recover $1.8 million in unpaid work they did on a proposed indoor/outdoor skateboard park at Ft. Snelling, a private facility on Park Board land. A settlement could come soon.

The issue is a flashpoint for Park Board critics, who charge the Board has wasted money.

Problems center on the Fort LLC, one of the Park Board’s public-private partnerships designed to add amenities and revenues to the cash-strapped system. Fort was going to offer a space for action sports, such as skateboarding and BMX biking, at Ft. Snelling, in what is known as the 201 Building. The Park Board was supposed to get 15 percent of the project’s gross revenue, according to the 2002 lease signed by Fort Chairman Robert Naegele III.

Construction was stopped far short of completion.

Fort and the Park Board are among several named parties to the suit. However, Fort has no assets; the Park Board has the deep pockets.

At a minimum, the lawsuit is a Park Board embarrassment. Instead of raising money, the Park Board will at least pay legal fees to defend itself.

At worst, the Park Board will pay contractors nearly $2 million for a project that was never built.

It points to pitfalls in public-private partnerships.

Subcontractors filed suit in 4th District Court Dec. 3. A five-day trial is set to start Oct. 31, according to Judge Isabel Gomez’ staff.

The parties have been in mediation.

Don Siggelkow, Park Board general manager for administration and finance, said in late July that he believed there would be a tentative deal before the trial. A Board vote could happen as early as Wednesday, Aug. 17.

Kyle Hart, an attorney for the subcontractors, was less optimistic. “As we sit here today, there is no settlement agreement,” he said July 29.

(Hart represents C.S. McCrossan Construction, Ankeny Kell Architects, Lloyds Construction, Steenberg-Watrud Construction and Rainbow, Inc.)

John Holper, attorney for Associated Contractors, the general contractor, declined comment as did Mary Schwind, Naegele’s attorney.

Park Board critics such as Shawne Fitzgerald call the Park Board’s deal with Fort “a scandal.” Fitzgerald, who extensively researched the project, said the Park Board should have required Naegele to post any bonds prior to starting work, because Fort LLC was a shell company with no assets to attach.

“These people need to be held accountable for such poor government,” she said,

The best laid plans?

The lease between the Park Board and Fort provides the following history.

The Park Board acquired the 201 Building from the Bureau of Mines on Sept. 19, 2000 for $780,000, for an indoor athletic venue to complement the Park Board’s Neiman Sports Complex.

The Park Board spent $95,000 to move a roadway and $1.1 million to acquire additional properties adjacent to the 201 site.

The Park Board commissioned Miller Dunwiddie Architects to assess the 201 Building’s reuse. The architects found it needed $1.4 million for exterior improvements and up to $2.3 million for indoor athletic use.

Fort submitted a proposal to redevelop the 201 Building and the adjacent land in November 2001. The Park Board granted Fort exclusive development rights in March 2002.

“Tenant has proposed to use its own funds to renovate and build an alternative sports center in the 201 Building,” the lease said.

According to Park Board minutes, the Board approved it on a voice vote. Walt Dziedzic, Ed Solomon, Jon Olsen, John Erwin and Vivian Mason apparently backed the deal. The minutes said Marie Hauser voted no, and Rochelle Berry Graves abstained. (Then-President Bob Fine and Annie Young were absent, staff said.)

Hauser raised concerns that the skate park use was too narrow, the minutes said. Graves unsuccessfully requested a vote delay so the Board “would have a chance to better review the lease agreement.”

Naegele and Fine signed the lease July 24, 2002.

Fine said he opposed the lease on several grounds and would have voted against it, but he had to sign it because the Board approved it. He didn’t like the proposed skateboard park, preferring an indoor soccer and basketball facility that would fit better with other sports complex uses, he said.

Initially, the Park Board had talked to the Minnesota Wild hockey team about using the Ft. Snelling building as a practice facility, Fine said. The Wild talked about pumping in as much as $5 million into the facility, he said.

“But all of a sudden, the Wild wasn’t going to use it,” he said.

Robert Naegele III, son of the Wild’s owner, was aware of the property because of the hockey discussions and came forward with the skate board park proposal, Park Board leaders said.

Fine said although the lease gave the Park Board 15 percent of the gross revenues, Fort got to deduct all costs from “qualified improvements” from its payments. The Park Board would not have seen any money for several years, he said.

“I thought it was a big financial risk,” Fine said, “Their names may have been Naegele. But they were not personally guaranteeing anything.”

A Nov. 4, 2002 Minneapolis-St. Paul Business Journal story said the 26,000-square-foot facility would include a rock-climbing wall and skateboard areas. The outdoor space would feature 75,000 square feet of outdoor skate park, inline skating and ice hockey rinks.

Fine said he thought the project foundered was because Fort couldn’t get the financing.

The Board’s President and Vice President, Olson and Erwin, declined to comment until the dispute was settled.

Mason, another yes vote, said, “At the time, it sounded like such a good idea. From kids, that was the request I got most often: What were we going to do about having skate parks?”

Mason said she anticipated a project similar to Ft. Snelling’s Fred Wells tennis center, providing opportunities for inner-city kids, she said.

“I don’t believe our staff and legal counsel did a good job on that contract,” Mason said.

Dziedzic, also a supporter, said he still didn’t think the Park Board was liable. “But we should have been a little more cautionary, yes,” he said. “Why we weren’t, it is a matter of conjecture. We should have been. We weren’t. But I can see where we were overwhelmed with the [Naegele] name.”

Mary Merrill Anderson, a candidate for an at-large Park Board seat, was Superintendent when the least was signed. “I am not sure of all of the details about why the Park Board wasn’t more protected,” she said. “I have been told different stories that the Park Board is protected in the lawsuit.”

(The contractors have filed a mechanic’s lien to recover their costs. A Siggelkow says the law doesn’t allow contractors to put a mechanic’s lien on public property. The contractors’ attorneys say in this case, the property was for a private, not public, use so the lien is allowed.)

Dziedzic is already looking for ways to recover any payments.

“I think we can still take the kid [Naegele III] to court,” he said. “The kid is going to inherit the money some day. The Park Board is going to be here a long time, and we will get our money someday. It may take awhile.”

Financially unprotected

Should the Park Board have required Fort to post construction bonds to guarantee the work?

“I think we had a good contract,” Sigglekow said. “The legal aspect is that it is not our project. We did not engage in any contracts. Š We don’t feel the liens are a legal remedy.”

He said the general contractor and the subcontractors would have known Fort was a shell company and they could have asked for a bond or money up front.

“If you are going to scratch your head and wonder how this happened, I would first go to the contracts and ask why did you perform the work without getting paid,” he said.

Hart said Fort sweet-talked the subcontractors into thinking the money was just around the corner. One firm even loaned Fort $300,000.

Hart, the subcontractors’ attorney, said the Park Board lease documents indicate its support for the project. “The Fort and the Park Board were working hand in hand to get this work done,” he said.

Why didn’t the contractors ask for a stronger money guarantee?

“My guess is that these parties all thought they had mechanic lien rights,” Hart said.

“Either way you go at it, the Park Board is wrong,” he said. “Either it is public property, in which case they should have required a bond, or it is not public property, in which case we are entitled to file the liens.” »

Southwest Journal: Public-private problems for the Park Board By Scott Russell

Original article at this link to the Southwest Journal web site.