9-26-09 - I caught up with Fernando Leal of L3 Development today, to ask a few questions about the Montage, the Fitz, and downtown in general. I hadn't talked to any of the Corus or Montage staff since the transfer of the Montage to Corus and then FDIC, so I was eager to see what was up and how things were going.
DTM: You kind of disappeared from the limelight.... The Montage first being acquired by Corus, and then Corus being acquired by the FDIC I am sure wasn't easy. How are you doing these days?
LEAL: I am almost fully recovered. It was a very emotional and exhausting time, given the amount of time, capital and effort that went into the project. After the Deed in Lieu, I focused on assisting the buyers that wanted to close in getting the best pricing. Once those buyers closed there was very little for me to do there So I began working on projects outside of Reno and outside of real estate. However I remain as committed to downtown Reno as ever.
DTM: Let's talk about downtown Reno. A lot of my readers became concerned when it was announced by the City of Reno that you would not be submitting a bid for the retail portion of the retail cover, and also did not submit a STAR Bond request for the retail portions of the Montage and the Trench Cover Retail. Did the events at the Montage spoil your plans for these two properties? Or did the credit Market in General? Or are they not 'spoiled' and just delayed?
LEAL: If there is one thing the last 24 months has taught me, is that development timing trumps location. I thought the political and economic timing was way off to pursue STAR Bonds or to contemplate initiating a development project in the near future. That said, I wish all the developers well and hope the community supports their efforts. STAR Bonds are one of the most misunderstood redevelopment tools. This contributes to creating a negative and visceral response form many because they are viewed as 'handouts.' I assure you that the positive economic benefits of STAR Bonds are only a small, yet important factor, that a developer weighs when determining the feasibility of a project.
DTM: The Fitz was originally conceptualized as being part of this STAR Bond district before the STAR Bond request was nixed. There is a lot of concern about the Fitz being dark next to the Reno Arch, which has a lot of symbolism for this city. Last we chatted, there were plans for a Lucky Strike element inside the Fitz. Is this still happening and is Cashell Jr still a part of it?
LEAL: Rob Cashell hasn't been involved with project since the casino closed in November. Since then, we have done quite a bit of work on the Fitz as far as planning and development. We even built out a model room that came out great. However, I am in no hurry to do anything right now given the instability in the economy. I remain in contact with Lucky Strike, and worked with their architects over the past 90 to 120 days to redesign the Fitz into a non gaming hotel with the Lucky Strike bowling venue on the 2nd floor. It would be nonsensical to move forward right now, given the state of hospitality nationwide and especially in our region. I am weighing every option, including holding the property for development later, leasing to another game developer or an outright sale.
DTM: Speaking of outright sales, It would be a dream scenario for a Reno based developer or firm to purchase the Montage from the FDIC. I know the FDIC would like to unload their assets within 30 days. Do you have an interest or are you actively pursuing buying the Montage back for far less than what it cost to build?
LEAL: The Montage is being sold as part of a bulk package that includes between 100 to 105 projects. The bids were due in yesterday and they expect to announce winning bidder within next couple of weeks. Then it will take 30-45 days to actually complete the sale. At that point, it will be up to the new owner and the FDIC which will remain as a 60% partner, whether they will manage the project themselves or sell it. I would have bid for the Montage had it not been part of the bulk sale. I look forward to working with the new owner as either a potential buyer, Joint Venture Partner, consultant or concerned citizen.
DTM: I talk with folks who live at the Montage quite often, and even attended a pool party and have been invited over for drinks by a weekend resident there. Despite all the recent events, they seem quite happy with their purchases and living at the Montage. If it's not you, do you see a new owner of the Montage drastically changing its game plan and affecting the residents that live there?
LEAL: I talk with many of the owners on a regular basis. The vast majority are very happy with purchase and most bought the property under a long term buy and hold strategy. I think the sale of the Montage is the best thing that could happen to the project. I think it would make no sense for the new owner to do anything to diminish the value of their newly acquired asset.
DTM: On the point of diminishing assets - The HOA Dues - Is the building at risk of falling into disrepair?
LEAL: The FDIC is very proactive in maintaining HOA fees and “preserving the asset value”. Corus also put $1 million into escrow specifically for this situation, but at this point I don't think that will even need to be tapped.
DTM: Let's pull back from the Montage a bit and talk about downtown in general. More and more businesses are closing downtown, increasing the vacancy rate and number of empty buildings downtown. I've been wondering if it's such a good idea to be potentially adding thousands and thousands of square feet of NEW retail with these two STAR Bond projects, when so much of 'old downtown' is still left vacant. What are your thoughts on this?
LEAL: Real estate development is not excluded from adhering to the most basic of economic principles; supply and demand. We have a tremendous amount of supply and very little demand. For this reason and many others, I put a low probability on any new major development in the next couple of years. Despite these unfortunate closings, this town is very fortunate to be filled with many creative entrepreneurs that will continue to open great new places in existing “in fill” locations.
DTM: Focusing on that keyword 'demand', I consistently get people searching for the Montage on my web site, and keywords like 'Montage Reno Pricing', even to this day, over 500 people a month, and I'm not even the Montage's 'official' web site. There's obviously interest of some kind. What do you think it will take for people to start buying? I've heard on blogs that prices under $160,000 would really make the units start moving. As gut wrenching as that is to for you to hear considering the Montage is a premium product, do you agree? How do we get people in that building and downtown?
LEAL: What is gut wrenching to me is seeing the building empty and not providing the economic and social vitality that was always intended. Regardless of who the owner ultimately ends up being prices will need to adjusted significantly to reach a point where buyers feel comfortable going forward. The real estate market has swung dramatically and sitting around contemplating when it might swing back is not a subject I will expend my few remaining brain cells on.
DTM: Do you think downtown Reno will survive this recession, in your opinion?
LEAL: Downtown Reno and its growing number of supporters are much bigger than this recession.
DTM: What's the most important thing the city council should be focused on to break the 11-year trend of declining tourism?
LEAL: Listening to the marketing experts that have been hired to FINALLY address the negative image/branding/reputation that has plagued this beautiful City for decades. Everyone needs to lighten up.