Council Postpones Decision on Fitz Garage

In what were some tense moments in the council chamber, the council voted today to continue a decision regarding the lease agreement and possible sale of the parking garage to the owners of the Fitz until May 11th, when a ReTRAC cover programming management agreement will also be before the city council. They decided to vote on both issues May 11th.

A brief history:

1. In 2005, Reno needed the land underneath the Fitz parking garage for some kind of supports for the ReTRAC trench. The land was currently owned by a company called G & S and leased to the Fitz.
2. On 8 September 2005, the City of Reno issued an order of condemnation taking the Land Lease, and G & S received a payment of $4,700,000 The City assumed ownership of the Land Lease, and title to the land itself was transferred to Reno as part of the ReTrac deal with Southern Pacific.
3. In late 2006 and early 2007, Reno raised a $7M bond through Depfa Bank (or $6.7 or $6.1 – sources vary) using the garage lease and revenue string as collateral.   The Land Lease was extended for an additional 20 years at that 31 January 2007 Council meeting to meet the demands of the bond issued, and the money used for improvements downtown. I'm not entirely sure but I think the money was used to build the Ballroom and narrow and beautify Virginia Street and West Street.
4. In Late 2007 L3 Development/DRW Fitzgeralds buys the Fitz. In late 2008 the Fitz closes.
5. DRW Fitzgerald Virginia and Plaza LLC stopped paying rent when they were in negotiations on the Land Lease in October 2009, and as a result, the terms of the bond issue on the garage with Depfa Bank went technically into default. At this same point in time, an agenda item about a downtown parking garage appeared on Redevelopment Agendas at least twice that I can count, but nothing ever came to fruition and the item was pulled before the meeting occurred.
6. With the absence of lease payments, the city moved to foreclose on the lease-hold improvements (the parking garage on the land).
7. At the same point in time according to John Shipman's explanation to the council today, staff was apparently negotiating behind the scenes to come to a last minute agreement and halt the foreclosure process.

This agreement, which addresses the back rent owed, a new 2-year land lease, and the option for the Fitz to buy the garage, was presented to the city council today. You can grab a copy of it here...it's basically its own staff report document. The guts of the document are summarized here:

- Existing lease is terminated.  All back rent is forgiven if DRW Fitzgerald's buys the garage with the 2 year option period.
- New 2 year lease is $165K per year, paid in full in advance.  Letter of Credit of second year of lease due at lease signing.  
- During the first year of the two-year but option, DRW Fitzgerald's can buy the garage for $2.5M.  $250K down payment required.  Rent payment is NOT credited towards purchase price.
- During the second year, DRW Fitzgerald's can buy garage for full market value less improvements if full market value is over $2.5M, or $2.5M if full market value is less than that. Included in the staff repot are a few examples of this. Whoever wrote it did so in a very clear and easy-to-understand dialog.
-  City can repurchase the garage during the first 5 years (of sales or lease period) if the garage is not maintained.
-  Proceeds of sale would be used to buy-down principal on the Garage Bond issue.  Depfa still has to approve in writing all terms of the sale, lease, and forbearance agreements. It was mentioned in the council meting today the bank agreed verbally to the deal.

In a total blindside shocker, before the council even started discussing the deal, during the public comment period, a guy named Hardy (who I think owns the gift shop on the bottom floor of DRW Fitzgerald's parking garage, and also owns Beverly's Gifts) stepped in during public comment and said HE could offer a better deal to the city for the garage, and that the city should have publicly offered the land. Whoa! He mentioned last he had heard, the city was foreclosing on the lease hold improvements, and Hardy was apparently waiting on the sidelines to possibly snatch the property up if it went to auction.

When it came time to bring it back to the table for discussion, the council immediately became wary of the deal, with Councilwoman Jessica Sferrazza pointing out that buy selling the land to DRW Fitzgerald's, the city would eat $3.5 million (the difference between the sale price of the garage, and the remainder left on the bond note the city took out against the garage). Welcome to the world of real estate. Everyone has lost money on their properties. This is why the city shouldn't play real estate agent and own so much property downtown.

Fernando Leal spoke at the meeting, and mentioned that for the project to move forward, this agreement and the ReTRAC Rental Management Agreement (to be heard May 11th) have to be in place. When it was brought back to the table for discussion, Councilman Hascheff mentioned that he would feel more comfortable continuing this decision until May 11th. This prompted Leal to urge the council not to delay this decision until May 11th.

However, the council wasn't in the mood to rush anything this time around. In fact, one could say the mood was perhaps even a bit hostile toward the deal. Aiazzi, Sferrazza, Hascheff, and Dwight Dortch all questioned the benefit to the city. Aiazzi was leaning toward not supporting it "as it stands right now" as he put it, Hascheff kept mentioning there might be better deals for the city out there.

Leal mentioned that he missed the window to build the wall and open it by June, but that he could probably have all the other portions of CommRow open by August if the council grants him this deal. He excluded the wall from that opening date because it's subject to Entre Prise's schedule. They typically get busier in the summer constructing walls for colleges nationwide.

One thing that's interesting, it seems a commenter on a previous post of mine, Melissa, was correct. When you look at the staff reports, Leal's name is not anywhere on the signature lines for the deal, it's someone named Donald R. Wilson, who I believe is Leal's partner. In a particular exchange between Dortch and Leal, I got the impression that it's Don Wilson placing these ultimatums on the city, not Leal.

In any case, there's a lot of uncertainty going into the next two weeks. CommRow says they can't move forward without these two pieces in place, the council doesn't seem keen on giving them at least one of these pieces (the garage land lease sale), and now a third party has stepped in offering to buy the garage out from under CommRow. It's unclear how much of the council's resistance was based purely on politcal postering because no matter WHO the city sells the garage to, they end up losing money if they sell it, or how much of their resistance was based on true reservations about the proposed deal. The council could in theory come back May 11th with a totally different attitude and approve the garage deal. Maybe CommRow will give in and simply lease the garage from the city like before instead of owning it. An interesting fact...the land under the Fitz parking garage was never owned by the Fitz, and the Fitz always paid a land lease to a third party from the day the garage was constructed in 1976-ish.
I feel some flexbility here on the part of both CommRow and the City of Reno would go a long way.

I do not understand why the ReTRAC Trench Cover Programming Management Agreement is suddenly required for CommRow to proceed? The garage I sort of understand...but it almost seems like the guy in charge here, (DRW?), is pushing the city's buttons.

Of course, the true loser in this whole fiasco is downtown Reno, who is at the mercy of the city council and DRW Fitzgerald's decisions. Hopefully the two can reach a deal, so we can create a new attraction for downtown that is something besides gambling and drinking. Contrary to some of my commenters opinions, I still feel if CommRow is built as proposed, it would be a catalyst project that could bring other new business to our little strip of heaven on Virginia Street. We'll never attract new visitors with the same old bars and casinos, and that's a fact proven by our declining visitor count throughout the years.

Additional Coverage

I'm not the only one blogging about this! Check out these two posts as well:
CommRow Massacre
Council Delays CommRow Decision