On September 25, 2008, the Star Tribune published an article about the Minneapolis Park Board’s 201 Building, but the article did not elaborate on the circumstances that were responsible for the problems that caused it to be an eight-year white elephant. Here’s the story as documented by Park Watch.
The 201 Building at Fort Snelling was acquired by the Minneapolis Park and Recreation Board in 2000 and it has been a series of costly problems ever since. There were problems with the purchase, problems with the lease and problems with the selling of the building. It was called “an enterprise project” which meant that it was supposed to make money for the Park Board. However, it’s never made one cent for the Park Board. It’s not even broken even. During the eight years the Park Board has owned it, it has only racked up huge debts. It has been a monumental failure. And what is appalling is that Superintendent Jon Gurban has never done a cost analysis of the project or attempted to establish any honest understanding of what the problems were.
Park Watch has been monitoring this failed enterprise project since the liens against it were filed in 2004. Last year Commissioner Walt Dziedzic mentioned to me that he was told that when the building is sold the Park Board will make money on it. He was not told the truth. The accrued debt on this building is so great that the best that can be hoped for is that it is a wash.
OUTLINE/OVERVIEW OF THE FAILED ENTERPRISE PROJECT KNOWN AS THE 201 BUILDING
Chapter 1. PURCHASE OF 201 BUILDING. Mistake #1 was MPRB’s General Manager Don Siggelkow’s moving ahead with the purchase of the 201 Building and land in 2000 BEFORE the anticipated contract with the Wild hockey team was signed and sealed. When the deal with the Wild fell through, the Park Board was left with an empty building, no income stream and no recourse.
Chapter 2. RENTING OF 201 BUILDING. Mistake #2 was the drafting of a lease in July of 2002 with The Fort LLC, a company headed by Robert Naegele III, for the creation of an athletic facility, but FAILING TO INCLUDE A PROVISION FOR A CONSTRUCTION BOND. It was Shawne FitzGerald’s research that brought to light the omission of the construction bond.
When Naegele’s company abandoned the project before completion but after significant improvements were made, the Park Board was again left with an empty building, no income stream, unpaid bills, lawsuits for $1.8M and no construction bond. In a later conversation that I had with John Erwin, a former park board commissioner who voted for the skate park, I learned that John voted in favor of the project after he and other commissioners had been assured at the time that there was “no exposure” for the Park Board. They had been misinformed.
Superintendent Jon Gurban never initiated an investigation of this failed project; so there was never any accountability or understanding of why the project that was supposed to make money failed. In a Star Tribune article about the lawsuits in June of 2004, Siggelkow was quoted as saying: “…but there’s nothing the Board could have done to protect the contractors.” Siggelkow was wrong. The construction bond would have saved the Park Board and the contractors a lot of grief. Neglecting to require a construction bond was a serious and costly omission.
Meanwhile, the Park Board was (and still is) paying interest on $2.2M worth of bonds for the 201 Building. The annual payment is $94,500 and that payment is for interest only. The bonds run for 20 years with two balloon payment of $1M each due in 2020 and 2021. Since the bonds were issued by the City of Minneapolis in 2002, the Park Board has paid out approximately $575,000 in interest on the 201 bonds.
At a Park Board meeting in August of 2006, it was estimated that at the time, the 201 Building had so far cost the Park Board $3,075,000. It is important to note that this figure, which included the $945,000 settlement figure, did not take into account the bond interest of $575,611 or escalating legal fees paid to Brian Rice’s law firm. We have just completed reviewing the 201 Building’s legal fees (acquired through the MDGPA) from June of 2004 to July of 2008. The total for this period is $229,152. The 201 Building’s total debt is now approaching $4,000,000, which contradicts the $3,000,000 figure provided by the Park Board for the Star Tribune article. And this $4,000,000 figure does not take into account the building maintenance costs, other miscellaneous costs, the brokers’ fees and the countless hours of staff time spent on this project over the eight years of its existence.
Chapter 3. ATTEMPTING TO SELL THE 201 BUILDING. This chapter is marked by confusion over the brokers’ fees and the actual selling price. On July 21, 2007, the Park Board entered into a brokers’ agreement with Colliers Turley Martin Tucker to sell the 201 Building and adjacent land. In August of 2007, a letter was sent out by the brokers requesting purchase offers for the 201 Building and land. A number of offers were received and the Park Board accepted an offer by the North Star Council of the Boy Scouts of America. This offer by the Boy Scouts was for $2,000,000 for the 201 Building and part of the land with an option to purchase the remainder of the land for an additional $2,000,000, contingent upon a clear title.
But when the purchase agreement was signed on October 31, 2007, it was different from the offer price. The price of the original $2,000,000 option had increased to $2,250,000. So the selling price went from $4,000,000 to $4,250,000.
The October 31 purchase agreement is clear that the $80,000 brokers’ fee is to be deducted from the $2,000,000 purchase price. However, for the option, the exact amount of the brokers’ fees is unclear.
But when we attempted to get more data about the brokers’ fees, we ran into a brick wall. The Park Board ceased providing us with any information in response to our numerous requests under the MGDPA. And oral questions have been ignored. This sale has not been a straight forward sale with a stated selling price and a stated brokers’ fee as one would expect. And Park Watch questions whether the Boy Scouts’ complicated purchase agreement represents the best offer possible for the 201 Building.
What is important to remember about the 201 Building disaster is that it could have been prevented. Had staff waited until AFTER the lease with the Wild was signed to complete the purchase of the building, the Park Board would not have been stuck with a costly empty building. And later on, a requirement for a construction bond in the 2002 lease would have protected the Park Board in the event of a default by The Fort LLC.
Co-founder of Park Watch