The Empire Parking Garage is being constructed with approximately 15,650 sq. ft. of retail/office space on the ground floor, facing Montana Avenue.  The garage ownership has already been divided under a declaration of unit ownership (condo) and this retail area is one of the spaces that it created. The City Council previously approved marketing the space under a contract with NAI Business Properties.  The City received three (3) offers for some or all of the property and staff is recommending that the Council accept two (2) of them that equal 100% of the available space for a total price of $767,090. 

The City Council may approve, disapprove or modify and approve the offers/counteroffers.  If the Council disapproves or changes the sale terms, staff will need additional guidance from the Council.

The project budget includes $500,000 from selling the retail unit.  The two (2) recommended offers equal $767,090.  Net proceeds will be used for the project and will help to pay for winter weather delays/costs and reduce reliance on the tax increment fund, leaving more money available for other projects and for reimbursements under existing development agreements.  The sales commission and settlement costs will be approximately $62,000, so the net payment to the City will be $705,000, or about $45/sq. ft.   

The Empire Parking Garage is being constructed with approximately 15,650 sq. ft. of retail/office area on the first floor, facing Montana  Avenue.  The area can be divided into as many as 10 smaller spaces.  The retail area is one of the four condominium units under the Declaration of Unit Ownership that Council approved for the entire property.  From the project's outset, the City's intention was to sell the retail area and to use the proceeds as part of the financing for the parking garage.  

On October 28, 2013, the City Council approved a contract with Mike Walker/NAI Business Properties to market and sell the retail unit to one or more parties.  Mr. Walker started actively marketing the unit in January and soon received three (3) offers; two for part of the space and one for the entire unit.  One of the parties that wanted to purchase a portion of the unit subsequently offered to purchase the entire space.  Each of the offerors would occupy at least some of the space but could sell or lease excess space if desired.    

Both offers to purchase the entire unit are at prices below the estimated value of $45-$50/ sq. ft.  Those offers reflect the risk that a single owner would take in attempting to sell or lease the space that the owner doesn't need for his/her own business operation.  The two recommended offers are within or above the target value.

The approximately 7,750 sq. ft. on the east end of the property would be purchased by Asian Sea Grill Shorelong.  The City received an unsolicited offer from the same party in July, 2013, which the Council rejected and directed staff to actively market the property before accepting any additional offers.  The current offer is for the sub-units labeled F, G and H for $52/ sq. ft.  The offer for the west 7,910 sq. ft., sub-units A-E, is from Kelly Donovan (First Montana Title).  That offer is priced at $46/sq. ft.  Neither offer is conditioned on supplying parking spaces in the Empire Garage.  However, the Parking Advisory Board (PAB) and staff are working on allocating the public parking spaces in the garage and recognize that these two businesses will need employee parking, so they will be accommodated if possible.

Jason and Amy Pawlowski made an offer for a portion of the eastern space.  Their offer was for approximately $56/sq. ft., which is a higher price than the recommendation.  The drawback to their offer is that it was for sub-units G and H.  That would leave sub-unit F unsold.  It is a mid-block, 1,400 sq. ft. space that would have been difficult to sell or lease and even if successfully marketed, it would probably sell for a much lower sq. ft. price than the adjacent properties. 
           
The City purchased the underlying properties in April, 2011, from Alley Cat (Honaker or Securities Bldg) and from Zootist (Northern Hotel).  The land held an office building, a surface parking lot and a parking garage, all of which had to be demolished before starting the new parking garage's construction.  The purchases contained several special features, including options to purchase parking spaces and retail space and a first right of refusal to purchase some of the new retail area.  Both parties responded that they intend to exercise their options to purchase parking spaces; 25 for Alley Cat and 187 for Zootist.  Neither party accepted the City's proposal that they purchase the retail space for $45-$50/ sq. ft.  The final step in this complex process is to honor first rights of refusal that both parties enjoy.  Those rights require the City to notify Alley Cat and Zootist that it has received and is willing to accept other offers to purchase the retail space.  

Alley Cat has first right of refusal for at least 4,000 sq. ft. of property on the 27th Street corner and Zootist has the same right for at least 1,500 sq. ft. on the Broadway corner.  Their rights allow them to buy the spaces for the same price that the City is willing to accept from other buyers.  Since these first rights were negotiated before the garage was designed, the parties estimated the square footage of the entire retail/office area and the potential divisions.  As designed, the 27th Street corner is approximately 5,000 sq. ft. and the Broadway corner is approximately 2,200 sq. ft.  The positive aspect of the first rights of refusal is that when the offered price per sq. ft. is applied to the subject spaces, they equal prices of approximately $260,000 for the 27th Street corner and $101,200 for the Broadway corner.  Both parties are reputable businesses and they will complement other development on Montana Avenue.  The potentially negative aspect is that the corners are the most desirable and valuable parts of the space and if both rights are exercised, the City will need to re-market the remaining 8,400 sq. ft. of property, all of which is mid-block property that may sell for a lower price.  

If the City Council approves the two recommended sales, staff will  notify Alley Cat and Zootist that the City received offers for the property that it is willing to accept and that they may exercise their first rights of refusal.  Zootist has 30 days to respond or the right is forfeited.  There is no time limit for Alley Cat, but Mr. Honaker stated that he should be able to respond promptly.  If either party exercises their right of first refusal, staff will inform the City Council and will commence re-marketing the remaining spaces.