The Empire Parking Garage is a project that started in 2010 with completion of a parking demand study.  The City purchased land on Montana Avenue in 2011, broke ground in 2012 and should finish the project this month.  An unusual feature of this structure is that there will be at least 5 owners; the City, Alley Cat Investments (Honaker), Zootist Hospitality (Northern Hotel), Kelly Donovan and Asian Sea Grill.  This requires that the owners form an association for management and maintenance (M&M) of all common areas and each unit owner can maintain his/her own area or the owners can contract for M&M.  

The City will own most of the parking but Zootist will own 187 spaces.  Since it is a four (4) star hotel, the Northern has a high level of interest in making the garage inviting, safe, easy to use and keeping it well maintained.  The Northern owners manage and maintain multiple properties in Billings and Bozeman.  City staff requested that the company submit a M&M proposal.  Working with the preliminary budget that was developed for the initial filing of the Declaration of Unit Ownership (condo), the company submitted a proposal to the City and the other owners.  The owners must decide whether to contract with Zootist, contract with another management company or appoint one of the members/owners to manage the association.  Staff is recommending that the Council approve a three year agreement with Zootist so that the garage will have an experienced property manager in place when the garage is completed and begins operating in August, 2014.

Staff considered three alternatives: City management, contracting with a third-party property management company or contracting with Zootist.  The City has no expertise in managing mixed use, mixed ownership property.  The City could manage its own property but that would duplicate a lot of what the association will do for the common areas.  As part of preparing the preliminary condo documents, the prospective owners requested a M&M proposal from a local property management company.  The annual management fee would be approximately $75,000 and maintenance costs would be the same as established by the Declarations.  The company expressed some concerns about the assignment because no one locally has experience with mixed-use commercial condos and parking garages.   Zootist owns and operates the Hart-Albin parking garage, has M&M personnel in the hotel, has a vested interest in the Empire's appearance and function as well as keeping M&M costs as low as possible since it is a property owner and member of the owners' association.  The proposed management fee is $6,300/month, which will be distributed among the owners according to the percent of the property that each party owns.   Total annual M&M costs are $250,000 plus the management fee.  The City owns 53% of the area, so its maintenance share will be approximately $132,500/year plus $40,100/year for management. 

The estimated annual revenue is $251,000.  The first full year of operating income and expenses are based on estimates prepared in late 2012, as part of the negotiations that created the condominium units.  It will take 1 - 2 years to determine if the expenses and income are accurately estimated and if the M&M contractor is performing as expected.

Staff recommends that the City Council approve the Empire Parking Garage Management Agreement with Zootist Hospitality LLC.