The 201 Building in Review

THE 201 BUILDING IN REVIEW

Occasionally, there are still references to the unfortunate history of the MPRB’s 201 Building at Fort Snelling that the Park Board owned for nine years with no tenant or income.  Recently, there was a reference to the 201 Building at a Lake Nokomis CAC meeting; and at the last Park Board meeting on September 19, 2012 there again was a reference to the 201 Building.  During the September 19, 2012 Park Board meeting, Commissioner Liz Wielinski referred to the 201 Building and then Commissioner Bob Fine attempted to correct her.  However, both Commissioners Wielinski and Fine were correct in speaking of the unfortunate history of the 201 Building because there were TWO unfortunate incidents in the MPRB’s history of the 201 Building.

For the purpose of clarification, here is a brief review of those two incidents.

The 201 Building at Fort Snelling (also known as the Old Calvary Building) was acquired by the MPRB in 2001 with the intention of leasing it to the Wild Hockey team for practice sessions.  However, the Park Board’s Enterprise staff implemented the purchase of the building BEFORE the lease with the Wild was signed.  So when the deal with the Wild fell through, the Park Board was left with an empty building, no income, financial commitments–and no recourse.   Many blamed the Wild for walking, but the reality is that Park Board staff should have had the protection of a signed lease prior to making the significant commitment that it did.

Then, in July of 2002, Enterprise staff recommended that the Park Board enter into a lease for the 201 Building with The Fort, LLC, a company headed by Robert Naegele III, for an athletic facility, but the lease drawn up by the Enterprise staff failed to include a provision for a construction bond.   So when Naegele’s company abandoned the project before completion but after significant improvements were made, the Park Board again was left with an empty building, bonding payments and no income stream.  But this time there were also contractor lawsuits for $1.8M.  Again many blamed Naegele, but had there been a construction bond the Park Board would have been protected.

The 201 Building was eventually sold to the Boy Scouts in 2009 for $4,299,652.  After fees, the Park Board’s proceeds from the sale were $4,104,064.  According to Enterprise staff, the Park Board had a profit of $1,221,954; but, according to Park Watch’s figures, the profit was only $209,313.

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Here is a summary of the MPRB’s  sale of the 201 Building:

THE SALE OF THE 201 BUILDING–SUMMARIZED ON 12-22-09
 

The 201 Building at Fort Snelling, which the Park Board acquired in 2001, was intended to be a profit-making venture.  However, it never was occupied and it never made any money.  It turned out to be an expensive white elephant.  In June 2009, the Park Board completed the sale of the 201 Building and adjacent land to the North Star Council of the Boy Scouts of America.

According to the Park Board’s calculations, there was a profit of $1,221,954, but according to Park Watch’s calculations, there was a profit of only $209,313.

BACKGROUND

To understand the sale of the 201 Building, one needs some background information about the acquisition of the 201 Building and the Fort Snelling Athletic Complex, known also as Neiman Sports Complex.

The Neiman soccer fields were developed first.  The bulk of the land for the entire Neiman Complex is rented from the DNR and is not owned by the MPRB. Twenty-year bonds in the amount of $11,270,000 were issued on August 29, 2001, to pay for the project’s improvements.  Semi-annual payments for these bonds were allocated to both principal and interest.

The acquisition of the parcels comprising the 201 Building and adjacent land occurred during 2001 and was a separate transaction.  The 201 Building was acquired in anticipation of an agreement that General Manager Donald Siggelkow was negotiating with the Minnesota Wild hockey team.  It was the cash flow from the lease with the Wild that was to pay for the interest on the second bond offering.

Twenty-year bonds in the amount of $2,200,000 were issued for the acquisition of the 201 Building and adjacent land on July 11, 2002.  Payments for these bonds were for interest only with two balloon payments of $1M each for the principle due at the end of the bonding period in 2020 and 2021.

But the negotiations were never consummated and the deal with the Wild hockey team fell through, leaving the Park Board with an unleased building, $2,200,000 of bonds and no income to cover the yearly interest payments totaling $94,500.

Next chapter was the leasing of the 201 Building for the development of a skate park with no provision for a construction bond.  When the tenant abandoned the project mid-construction, the Park Board was left again with an unleased building, $2,200,000 of bonds and no income stream.  But this time there were also construction lawsuits for $1.8M.  The lawsuits were eventually settled and a lien for $945,000 was placed on the building.

THE PARK BOARD’S CALCULATIONS ACCORDING TO PUBLIC RECORD(1):

The selling price for the 201 Building and adjacent land was $4,299,652.  After the brokers’ fee and closing costs of $195,588 were deducted, the total sale proceeds were $4,104,064.

According to the staff study report presented to the Administration and Finance Committee on September 16, 2009, the total costs outlined for the 201 Building were $2,882,110.  After subtracting this figure from the total sale proceeds of $4,104,064, there was a profit of approximately $1,221,954.

201 Building Acquisition………………………………………$780,000

Land Acquisition ($5.73 * 97,789 SF)……………………..$560,970

Parking Lot Improvements(3) ($2,000 * 176 stalls)……$352,000

Building & Property Improvements(2) (Lien Payoff)…..$945,000

Legal Fees (201 Lien)…………………………………………$105,968

Legal Fees (Sale)………………………………………………$138,172

Total MPRB Costs……………………………………………$2,882,110

Net Proceeds for the Sale of the 201 Building…………………………….$4,104,064

Total costs for the 201 Building……………………………………………….$2,882,110

Net income or profit…………………………………………………………….$1,221,954

PARK WATCH’S CALCULATIONS BASED ON THE INFORMATION ACQUIRED FROM THE PARK BOARD:

However, Park Watch has been tracking the disposition of the 201 Building for the past three years.  Park Watch has been attending meetings and reviewing extensive data acquired through the Minnesota Government Data Practices Act.  The Park Board’s figure asserting a profit of $1,221,955 does not correspond with the figure that Park Watch arrived at.

The total costs according to Park Watch’s calculations are approximately $3,903,751.  And the resulting profit was only $200,313, considerably less than the Park Board’s figure of $1,221,954.

The following figures are based on information acquired from the Park Board:

201 Building Acquisition (same as above)………………………………$780,000

Land Acquisition of “GSA” property, based on
Don’s August 2006 figures………………………………………………………………………..$1,100,000

Parking lot and moving the road(3), based on
Don’s August 2006 figures…………………………………………………………………………..$250,000

Lien payoff(2), based on Don’s
August 2006 figures………………….$945,000

Total, based on Don’s August 2006 figures……………………………$3,075,000

Approximate bond interest(4)………………………………………………$575,611

Legal fees (Lien), based on the September 2009
staff report……………………………………………………………………………$105,968

Legal fees (Sale), based on the September 2009
staff report……………………………………………………………………………$138,172

Total costs for the 201 Building and Land………………………………$3,894,751

Net proceeds for the sale of the 201 Building…………………………………………$4,104,064

Net income or profit…………………………………………………………………………..$209,313

CONCLUSION

The Park Board’s calculations do not take into account the annual interest payments on the $2,200,000 bond issue, which was the issue for the 201 Building and adjacent land; these annual interest payments total approximately $575,611.  It appears that there was some rearranging of figures to create the impression that the project made more money than it did.  For instance, the two separate bond offerings were merged to create the impression of just one bond offering, which obfuscates the issue of bond interest.

And nowhere is there any line item for the countless hours of staff time expended planning, developing, negotiating, etc. this unsuccessful project.

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Footnotes:

(1) Park Board Committee Study Report, Property Sales Analysis, dated and presented on 9/16/2009, to the Administration and Finance Committee of the MPRB

(2) Line Payoff, based on MPRB Meeting Handout 8/2006, from Don Siggelkow

(3) Note difference from one MPRB report in 2006 to the MPRB Report in 2009

(4) Refer to document obtained from the MPRB, Schedule of Interest Paid on 201 Building and Land Bonds

 

Arlene Fried

Co-founder of Park Watch