HomeMy WebLinkAboutStory Mansion commission memo-remedy for Exergy Friends default on agreement
REPORT TO: Honorable Mayor and City Commission
FROM: Chris Kukulski, City Manager
SUBJECT: Determine Remedy for Exergy Friends of the Story Mansion's
Default on Agreement to Purchase the Story Mansion and Develop
a Permanent Plan for the Story Mansion.
MEETING DATE: April 8, 2013
AGENDA TYPE: Action
RECOMMENDATION: Terminate the agreement between the city of Bozeman and Exergy
Friends of the Story Mansion (EFOS) then clearly define a set of
options for the staff to investigate to develop a permanent plan for
the Story Mansion.
RECOMMENDED MOTIONS:
City Attorney Greg Sullivan advises that the Commission first act to determine the preferred
remedy for EFOS's default on the Agreement to Sell and Purchase Real Estate (the
"Agreement"). The default was due to EFOS’s failure to close by February 28, 2013 as required
by the October 2, 2012 Addendum to the Agreement. The City Attorney advises that the
Commission may discuss long term options for the Story Mansion in its deliberations regarding
the proper remedy to seek for EFOS’s default but must determine the proper remedy prior to
moving forward on any option other than extension of the existing Agreement. As such, should
the Commission determine to terminate the Agreement for EFOS’s default the City Attorney
recommends the Commission consider the following motion:
"Finding Exergy Friends of the Story Mansion in default of the Agreement to Sell and Purchase
Real Property for not having closed by the time required in the Addendum to the Agreement, I
move the City terminate the Agreement."
If the Commission adopts such a motion, I request the Commission then consider the following
motion:
"I move to direct the City Manager to investigate option numbers [insert numbers here]
presented in this memorandum to develop a permanent plan for the Story Mansion."
BACKGROUND ON EFOS DEFAULT:
The City entered into the Agreement with EFOS on May 31, 2012. The initial closing date was
June 30, 2012. The Commission authorized an Addendum to the Agreement on September 24,
2012 which, among other revisions, extended the date for closing to February 28, 2013. On
February 21, 2013 FOS informed the city "the terms of the current Sale Agreement won't be
satisfied” and proposed that the expired sale agreement be converted to a contract for deed.
Then, on February 28th, FOS submitted a letter requesting an additional 30 days to close to
develop a new partnership with Big Sky Youth Empowerment. On March 1, 2013 a letter was
sent from the City to the president of EFOS informing them the Agreement was in default
because they had failed to close as required by the terms of the Addendum. In addition, that letter
indicated EFOS had failed to demonstrate their financial and organizational ability to restore the
Story Mansion, a condition precedent to closing.
On March 5th, City Attorney Sullivan forwarded the notice of default to FOS. Also on March
5th, FOS emailed notification that the possible partnership with Big Sky Youth Empowerment
was "off the table" and they would like the City to consider their proposal to "convert the expired
sale agreement to a contract for deed" as indicated in their February 21, 2013 letter. FOS also
requested the Commission move the date of this action and discussion to March 25th or later.
REASONING FOR RECOMMENDED TERMINATION:
EFOS defaulted on the Agreement by not closing within the time required by the Addendum. In
addition, EFOS has not demonstrated their financial and organizational ability to restore and
preserve the Story Mansion. I believe that EFOS inability to produce a renovation partner/major
donor, or document the financial ability to raise the required $392,000, leaves the city with no
choice but to conclude that they cannot raise the required funds to complete the renovation of the
Mansion and the Carriage House. The promise of future improvements at EFOS’s expense are
one of the main reasons the City agreed to sell the property to EFOS at less than market value.
FISCAL EFFECTS OF TERMINATING THE AGREEMENT:
Terminating the agreement with EFOS results in the following financial implications:
1. The agreed upon balance of the purchase price of $390,222 will not be received.
Upon receipt, this money would have been deposited to the General Fund, increasing
the City's cash reserve.
2. The Mansion property will continue to be owned and controlled by the City. The
property, excluding the Story Park area, has a "book value" (historic cost less
depreciation) of $2,135,000. Depreciation charges of $636,000 have been incurred
since purchase; for fiscal year 2012, $126,000 was charged in annual depreciation on
the facility.
3. Costs for insuring, maintaining, and operating the facility will continue to be borne by
the City.
4. Revenues derived from facility rental will continue to be received by the City.
Obligations for rental reservations will continue to be honored by the City.
5. There is no-longer a dedicated source for funding historic renovations to the property.
The Agreement called for EFOS to invest a minimum of $1.5 Million in
improvements to the second or third floors, or the Carriage House. Without the
Agreement, funds for renovation are uncertain.
During the course of the City’s relationship with EFOS, EFOS funded improvements to the
Carriage House roof (in addition to the hail damage repairs the City made) and installed an
irrigation system and landscaping on the Mansion and Story Park properties. The Agreement
provides for these improvements to the Story Mansion property revert to the City if the sales
transaction is not completed.
PROPERTY RESTRICTIONS:
The Story Mansion property is subject to the following restrictions:
1. 50-year and five year historic preservation easements with the Montana State Historic
Preservation Office. Easement restrictions include:
exterior and interior alterations to the buildings and property that would affect
historically significant components, as identified in the easement, are subject to
the Secretary of Interior Standards for Historic Preservation and require the
approval of the Montana State Historic Preservation Office;
a duty to maintain the property;
ability for the public to have access to the property for no less than 12 days a year;
and
The Montana State Historic Preservation Office has the right to inspect the
property.
2. The property is subject to the conditions of approval for a community center conditional
use permit (CUP).
This CUP for a community center was only approved for the first floor of the
Mansion. See the linked CUP for all restrictions.
3. The property is currently zoned R-1 (residential single-household low density).
See table 38.08.020 for authorized uses in this district.
4. A preliminary subdivision plat for the Story Mansion Minor Subdivision is subject to the
conditions listed in this linked Findings of Fact and Order.
Other restrictions may apply as the property is subject to normal zoning and use conditions.
OPTIONS TO CONSIDER IF THE AGREEMENT WITH EFOS IS TERMINATED:
The following options could be further investigated to develop a permanent plan for the Story
Mansion if the Commission chooses to terminate the agreement with EFOS. While staff is not
prepared to provide full details of these options now, it would be helpful if the Commission
indicated through motion and vote if they are interested in considering all or some of these
options.
Option One
Sell the Story Mansion by negotiated sale without relying on the "historically significant
building" provisions of Sec. 2.06.870.D, BMC, thus selling at no less than 90% of appraised
value.
Option Two
Repeat the request for proposals (RFP) process used in 2011 wherein the City solicited proposals
from non-profit organizations and other groups interested in purchasing the Story Mansion.
If the Commission determines the RFP process is preferred, the Commission may discuss how
far to deviate from the 2011 RFP. Staying with the same RFP process and entering into a
purchase and sale agreement under substantially the same terms as previously entered into with
EFOS will minimize staff time to develop new agreements. If the Commission requests revisions
to the 2011 RFP, staff time will be directly proportional to the complexity of the required
changes.
Option Three
The City retains, operates and renovates the Story Mansion and Carriage House as a community
and cultural center indefinitely.
ALTERNATIVES:
a. FOS requested the City "convert the expired sale agreement to a contract for deed" as
indicated in their February 21, 2013 letter. If this option is chosen, the Commission
must direct staff to directly negotiate such a deal with FOS and to draft a new
Ordinance to approve the new agreement.
b. As determined by the City Commission.
HISTORY:
Please see the following timeline of Commission actions related to the City’s ownership,
restoration, and sale of the Story Mansion:
On March 31, 2003 the City Commission received a report created by The Bozeman
Historic Preservation Advisory Board titled "Essential Questions and Answers.”
During that same meeting the Commission authorized and directed then City
Manager Clark Johnson to negotiate an agreement to buy the Story Mansion.
On April 18, 2003, the City purchased the Story Mansion for $1,316,000.
On July 11, 20013 the City entered into an agreement for $52,250 with Comma-Q
Architecture for an architectural assessment of the Story Mansion and Carriage
House.
The City received two federal awards through the Department of Housing & Urban
Development for exterior building stabilization and window replacement totaling
$753,000. The work spanned fiscal years 2005 through 2007 and required no
matching funds.
The City accepted the Department of Interior's Save America's Treasurer's grant in
the amount of $493,000. In 2008, the grant was combined with the required matching
dollars of $493,000 and an additional $391,222 of General Fund money to fund the
basement and 1st floor renovations. The purpose of the renovations was to make the
property and grounds usable as a community center and park facility.
In December, 2008 a motion was passed to “Authorize the City Manager to sign the
Award of Bid to R & R Taylor Construction as the General Contractor/Construction
Manager in the amount of $1,071,242 as authorized by the 2008-2009 budgets and
direct staff to bring back the necessary budget amendment from the General Fund
not to exceed $391,222 to be paid back within 24 months either through
fundraising or by selling the mansion starting on January 1 of 2011 (originally
stated 2010 but clarified later in discussion.)”
In May, 2009 a Conservation Easement was entered into for the Story Mansion and
Carriage House for a prior Save America’s Treasures Grant.
In July, 2009 upon completion of the construction work, the City opened the house to
public use and began operating the facility as a rented Community Center.
In December, 2009, a final plat for the Story Mansion Minor Subdivision separating
the Story Mansion from the grounds for a designated park.
In December, 2009 the City entered into a Memorandum of Agreement with Friends
of the Story, Inc. with the purpose of preserving the Story Mansion.
On June 21, 2010 the City received a Historic Preservation Grant from the Montana
Department of Commerce for 24,334 to insulate the attic, porch and second and third
floor walls.
On April 18, 2011 the Commission authorized the City Manager to submit a Request
for Proposals to non-profit organizations and other groups interested in purchasing
the Story Mansion with the requirement that the property be restored and preserved
and that the first floor of the Story Mansion be used primarily as a community center.
On July 18, 2011 Exergy Development Group, LLC, submitted a response to the
RFP. It was the only response obtained by the City.
On August 1, 2011, the City Commission passed a motion “authorizing the City
Manager to enter into negotiations regarding the sale of the Story Mansion property
to Exergy Friends of the Story Mansion, Inc. for $391,222.00 and schedule public
hearings to facilitate the sale of the Story Mansion consistent with the Bozeman
Municipal Code.”
On August 15, 2011, the City Commission adopted the following motions:
“That the real property known as the Story Mansion (Lot 1A-1 Amended Block 3
of Butte Add Lot 1A Block 3) located at 811 South Wilson Avenue is a
historically significant building and that: Sale of the Story Mansion pursuant to
the requirements of 2.05.030.D, BMC, to the soon-to-be constituted Exergy
Friends of the Story Mansion is in the public interest and based on the proposal
from Exergy and conditions of the sale requiring reversion to the City if Exergy
Friends of the Story does not preserve and restore the property the Story
Mansion is no longer necessary for the conduct of city of Bozeman business or
the preservation of City property.”
“The City Manager is hereby directed to proceed with direct negotiations
regarding the sale of the Story Mansion property to EFSM [Exergy Friends of
the Story Mansion] consistent with the Exergy’s submittal on the RFP and
Bozeman Municipal Code.”
On April 23, 2012, the City Commission adopted Ordinance 1821 authorizing the
City Manager to sign an Agreement transferring ownership of the Story Mansion
property to EFOS, authorizing the granting of a pedestrian easement across Story
Park, authorizing placement of restrictive covenants on the Story Park, and
authorizing the signing of reciprocal Rights of First Offer.
On May 31, 2012, the City entered into an agreement with EFOS with an initial
closing date of June 30, 2012.
On September 13, 2012, EFOS made a written request to extend the closing date to
"no later than June 30, 2013.”
On September 24, 2012, responding to a request from Exergy and Friends of the
Story Mansion, the Commission authorized the City Manager to sign an Addendum
to the Purchase and Sale Agreement for the Story Mansion extending the date of
closing for the sale to no later than February 28, 2013.
On February 21, 2013 EFOS informed the City it could not satisfy the terms of the
current sale agreement and EFOS proposed that the expired sale agreement be
converted to a contract for deed.
On February 28, 2013 Friends of the Story Mansion submitted a letter requesting an
additional 30 days to close.
On March 1, 2013 a letter was sent to the president of EFOS informing them the
Agreement was in default because they had failed to close within the required time
frame. The letter also informed EFOS they had not yet satisfied the condition
precedent to closing which required them to demonstrate their financial and
organizational capacity to restore the building as required in the Agreement.
On March 5th, City Attorney Sullivan forwarded the notice of default to EFOS at
their Helena, MT address.
On March 5th, FOS emailed notification that the possible partnership with another
local non-profit was now "off the table" and they would like the City to consider their
proposal to "convert the expired sale agreement to a contract for deed" as indicated in
their February 21, 2013 letter. FOS also requested the Commission move the date of
this action and discussion to March 25th or later.
Attachments: See hyperlinks throughout
Report Compiled: March 28, 2013