The saga of the McIntyre federal building redevelopment project continues ever onward, from one Portsmouth City Council to another. Portsmouth has again reached a particularly sensitive moment in time for the council. As a member of city staff, after the special meeting of March 11, stated in passing, “we’re trying to thread a needle.” This after an evening of listening to more “in good faiths” from the City Council than Hallelujahs sung in Handel’s Messiah. I’m sure they were sincere.
So where are we? Most of us don’t know due to the lack of transparency. Case in point, when the city posted the Settlement Agreement (April 6, 2022) they left out Exhibit 2 of the agreement. Why? It appears that exhibit 2 was the original Community Plan design. It would provide residents the ability to compare the original Community Plan with the city’s most recent plan — looks like, smells like, but certainly isn’t. Maybe smoke and mirrors.
So what do we know? Early in January 2022, the developer was still “fired” by a vote of the previous council (the ability provided by “out clauses” in the development agreement and draft form of the ground lease). Of course it can be assumed the developer was grossly unhappy with the course of events. The ability to terminate perceived by some to be in the documents currently in play.
The mayor on behalf of the new council, city staff and the estranged development partner met privately early the morning of Jan. 11, 2022 at City Hall. From that meeting and others, the settlement agreement was crafted; submitted to the city; and signed by our city manager with what appears to be little negotiation. Buckle up. The developer wanted $2 million for the work done on the original plans (settlement agreement of April 6, 2022). As per the agreement, $2 million to pay for his plans not used and in turn the development partner drops his lawsuit.
What happened? With a large legal department at the city’s disposal and two lawyers on the council, the city manager signed an agreement with no out, exit clause or off ramp. Who bears the responsibility? The city manager apparently in her haste to sign on behalf of this current council bought the taxpayers a $2 million needle with no eye. For the last 12 months, it appears the city legal department has been trying to thread a very expensive needle with no eye. The city is on its second extension with federal General Services Administration regarding the McIntyre property, and it may need a third extension.
It’s painful to say this, but if you were the GSA would you give the city a third extension? It becomes apparent the development partner and city could lose the $1 project. In this case, the property would go directly for public dispersal by auction or sealed bid. This is perfectly spelled out in the Lease Agreement with GSA (see number 2.) Under that same number, there will also be no more extensions. The city should read its lease agreement and extension contract with the GSA before suggesting we get right of refusal. We don’t. One can only assume how the developer might feel should the city lose the property. Yet should GSA grant a third extension, the developer could conceivably sue, regardless. The city has admitted having been warned by the developer once already on extension 2.
So despite what this council may think they’ve done, this is real. This developer is in possession of an agreement that appears to put him firmly in control. He apparently created the rules and the City Council agreed to them. He’s also had a fair amount of time to think through his position. One can only hope this council really understands the ability of their development partner: $2 million may just be the start. What will the city do when he comes for his third-party expenses they promised; or for the value of the project they may have lost; the 7.4% unlevered profit they promised? What will they do when he continues his negotiating? They’ve unfortunately signed their choices away and their ability to get out of this predicament.
And there’s potentially more unsettling news. Whatever the City Council thinks they might be doing, the development partner could stand to make far more without them as partner. The project might be expensive to pay for and build, but which is a more attractive investment? Forty-four luxury apartments by lease or 44 luxury condos owned? If the developer purchases this project by public auction, he may have to answer to the GSA/NPS for three years, but after that he and his investors would own outright the Thomas J McIntyre building and 2.1 acres.
This City Council will hopefully remember the future residents of Portsmouth as they move forward. This council has little time to thread that needle. Not sure why they ever bought it, but hopefully they’ll use it and the time they have wisely. No more history lessons. The only history this council should pay attention to is that history not yet made. Maybe this city simply needs an honest understanding and discussion of the path forward before the McIntyre is lost.
Paige Trace is a former member of the Portsmouth City Council who formerly served on the council’s McIntyre subcommittee.
