Council Postpones Decision on Fitz Garage

by Mike Van Houten / Apr 27, 2011

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'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

Post your comments
  • April 28, 2011 - 10:35:32 AM

    Wow the one meeting I skip online and it turns out to be a real doozy.

  • April 28, 2011 - 11:07:11 AM

    I watched! This was the city's council's way of saying "you can't just slap a deal on our desk the morning of the meeting and say approve this or else". They were not very happy. You can tell by their lines of questioning. Jessica Sferwhatshername said the city would "eat $3.5 million" by doing this. I agree they should not have issued the bonds in the first place, but whats done is done. I think the council was doing due diligence and fiduciary duty by not haphazardly approving the deal on a whim. Good for them! They are learning and looking out for their own interests. But reality sucks and I doubt they will get much better of a deal, and they need the revenue to pay down the bond or they will be in hot water.

  • April 28, 2011 - 11:53:05 AM

    Seems to me that the City took advantage of DRW by taking the garage during their negotiations for a "grander scheme" that failed miserably - and is now in the unenviable position of trying to make good on a bad deal and avoid massive lawsuits. DRW in turn, is asking for more than they deserve as some sort of "make good" for the garage negotiation problems - which is leveraging something that's not part of the equation for practically nothing. That space is a key opportunity to bring new events and help build up the old ones again - and so far, it's been sitting empty for years without any interest. This deal has been in the making for months now - so it was no "surprise" to Council that it came forward yesterday. The fact there was opposition to the sale by a prospect kicked in the "what if" greed factor - and they backed off making the decision they knew they should for political reasons. Now that the eyes of the community are scrutinizing their every move, they've suddenly grown concerned about details...when details didn't seem to matter much when they were playing Monopoly with parcels in Reno before the real estate collapse. If CommRow is built, it will need a garage. Selling it to the owners of that trashy T-shirt shop would only breed more blight downtown, and kill any other investor's interest in buying the Fitz because of an obvious lack of public parking. Our City should not be known for the cheap t-shirt shops that are on every major corner - but for something much greater that CommRow provides - non gaming growth. You're right Mike...the losers in this deal will only be Reno if they don't put down their arms and start negotiating with a win/win scenario in mind. Part of that win/win is accepting that everyone will lose something in the compromise. Egos may prevent that, unfortunately. Let's hope they don't.

  • April 28, 2011 - 12:26:20 PM

    What a mess! 800K in back rent, no wall built, no real progress on the interior renovation and a shoe-string budget. Looks like everyone involved is between a rock and a hard place on this. The City needs to look long and hard at the potential long term implications if the end result is a shuttered Commrow with the worlds tallest climbing wall attached. Is it worth the lost revenue stream and forgiven back rent just get SOMETHING open on that corner? I can't wait to who blinks on this one.

  • April 28, 2011 - 6:44:52 PM

    We all just need to keep the faith and email the council members to do the right thing on May 11, even if you feel it won't work just do it. They need to know this is important and they should look at the bigger picture here and that is the project. It cant move forward without the garage, so we have two weeks. If you support the project send word to the council members to approve a deal. CommRow isn't dead yet...and in the grand scheme of things is too far along to fail. I feel some sort of deal will be worked out over these next two weeks and they will go to council once again on May 11 and perhaps have a better confrontation. All the best of luck to the developers! I see a light at the end of the tunnel.

  • April 28, 2011 - 7:26:01 PM

    Matt, I hope the council will do their fiduciary duty and do what's best for the city, and that might not include a sale to the CommRow thugs. The land lease under the garage was fine and dandy when the Fitz was slated to be an upscale boutique hotel, and I'm getting pretty sick of CommRow's posturing and whining about the issue now.

  • April 28, 2011 - 7:31:07 PM

    This is kind of surprising news to me! It would seem Mr. DRW is a man that is used to getting his way, and is being slowed down here by the locals. I actually kind of like the City is taking it's time here. I think the land should be offered up publicly, if for no other reason than to provide a little more transparancy in the City's dealings with Mr. Leal and DRW. I'm not sure of the deadlines that are pressing in but perhaps "Hardy" will come up with more cash, or someone else will. I doubt though no one will do anything but rent the place to Commrow. Gee I still hate that name. Great story Mike, thank you for the details and the history research!

  • April 29, 2011 - 9:30:37 AM

    For once, I actually applaud the city council. Great article DMD Dude. Very fair and balanced with all parties involved. I don't blame the council for not approving this deal without DRW Virginia Plaza L3 Blah Blah Blah committing to hard construction and opening dates. Making the ReTRAC part of this deal is pushing it IMO. Come on, start construction! The city will probably give you what you want. It's YOUR turn CommRow to show a little commitment beyond barking out demands to the city council.

  • May 2, 2011 - 1:56:05 AM

    As a participant in the Rock & River running event yesterday, I could see a lot of potential if CommRow with its climbing wall and boulder park was up and running. That site would have been exposed to thousands of fitness-oriented people, some of which may have an interest in climbing. It's really unfortunate that the developers are in a mess with the parking garage and seem to be pushing for too many concessions with the city, instead of trying to make good on resolving the back pay and moving forward with the renovation of the hotel with its planned upgrades. A fully functioning CommRow could be a real catalyst for a full revitalization of Virginia Street corridor between the train trench/arch and Second Street (I would also favor having this section of Virginia St. be permanently closed to vehicle traffic). The Little Nugget and Knitting Factory are probably here to stay, and infill of new and fresh businesses adjacent to these properties would be more likely to follow due to its heavy foot traffic. This area also would need to be cleared of the panhandlers (unless they show some musical or artistic talent).

  • May 4, 2011 - 10:49:37 PM

    I saw that there was supposed to be a meeting about changing the zoning of the area in between UNR and I-80 tonight. I hope that went well, as that is so important to the development of Reno in my opinion. UNR really needs a commercial district!