The sale last month of a nearly 11,000-square-foot, city-owned building and large lot in the middle of downtown for $255,000 has raised questions about whether it was handled in a way that is usual for the transfer of city property.
When the former owners and operators of Gulf Coast Ducks exercised a “right of first refusal clause” in their rental agreement, it allowed them to purchase the building known as the St. Anthony warehouse at 650 St. Anthony St., and the nearly block-sized piece of land it occupies, without having to go through a bid process and without the land being publicly advertised as being for sale. While the new owners did pay what an independent appraisal said the property and large vacant lot were worth, after three weeks of inquiries into the sale, the city has been unable to tell Lagniappe if it has ever offered other renters a similar right of first refusal.
The building and land were purchased by Activation Maintenance, whose owners currently run a for-profit restaurant out of city-owned Fort Conde without any annual rent, which has brought more scrutiny to the deal. The owners of Activation Maintenance also have a $1-per-year rental agreement with the city for space to run The Fuse Factory, a home for nonprofit startup companies and startups that serve a public purpose.
Lagniappe detailed last week how the Fort Conde deal has brought complaints from local restaurateurs who feel Activation Management has been given a free place to run a restaurant. The board chairman of the History Museum of Mobile says they have not lived up to expectations for running the colonial fort as a tourist attraction.
The purchase was made just after Gulf Coast Ducks announced they would stop running due to an explosion in insurance costs following a deadly duck boat accident in Missouri. Co-owner Grant Zarzour told Lagniappe he holds out hope Gulf Coast Ducks will be back, but said as of now they are worth “zero.” The duck boats were being housed inside the warehouse as of last week, but Zarzour and his partner, Scott Tindle, have also launched an auto garage in the space, although no signage indicating it is an operating business had been erected as of the beginning of this week.
Zarzour said Five Star Auto Care serves as a way for them to keep their duck boat mechanic employed while waiting to see if the popular tourist attraction can get up and rolling again. He said the garage has been advertised on numerous websites and Facebook pages associated with Tindle’s various ventures. Zarzour did not say why his company chose to exercise its right of first refusal to purchase property it had rented for two years just as Gulf Coast Ducks announced it would no longer operate.
Some sources familiar with downtown development have questioned whether the city got the best price possible for the property by not opening a normal bid process, and it isn’t clear why it would be in the city’s best interests to sell property without holding a public bid.
While the elevation of the building in question is below the city’s base flood elevation, a fact that might hurt its value, such large open pieces of land in downtown Mobile are a rarity. One local developer familiar with 650 St. Anthony St. suggested the price of $255,000 was low. Another person intimately familiar with downtown property said the appraisal done by Courtney & Morris also seemed low. By law, the city is required to get an appraisal before selling or vacating property no longer needed for public use.
But more at issue is the city’s use of a right of first refusal when it initially leased the property to Activation Maintenance. Lagniappe has asked multiple times over the past three weeks if the city could provide examples of similar leasing situations, but they have been unable to do so. They also have not definitively said whether there are other examples.
City attorney Ricardo Woods, who accompanied Zarzour to a meeting with Lagniappe last week, said there is no legal prohibition against it. He added that the city doesn’t have to take bids on property sales like this.
“City-owned property does not have to be bid out,” he said. “So, if you look at it, what you have to do is sell it for fair market value. “So, what we typically do and what we did in this case is got an appraisal, and you get an appraisal and you say ‘hey, this is the appraised value’ and if there’s an instance where multiple people want to buy it, we’ll say, ‘OK’ and auction it off to the highest bidder. That’s how we sell our property.”
While there was no formal bid process, Woods and Zarzour both defended the deal, saying the sale, which was approved by the City Council, was on a public agenda for 12 days before it was finalized. Zarzour recalled seeing high-priced vehicles pulling into the parking lot during that period, with drivers presumably taking a look at the property in question.
“We thought for sure people are going to put forth bids and everything will be done in the light of day, which it was, but nobody came forth,” Zarzour said. “[Council] normally [has] a seven-day layover, but with Christmas and the New Year [they] had a 12-day layover.”
As the city did not advertise the sale in local newspapers or place signs on the property saying it was for sale, a potential buyer would have only the information provided on the agenda to know it was on the block and make a better offer. But if that had happened, Woods said the city would have gone back to Zarzour to see if he would match it, opening up a de facto bidding process.
“So to the extent that there’s a first right of refusal, what that means is if somebody else comes in and wants to purchase it for 275, we say ‘do you want it for 275?’ No? OK,” Woods said.
As part of the purchase agreement, Activation Maintenance will lease a 1,360-square-foot portion of the building back to the city for $366 per month, or $4,392 per year. The city houses two floats in that space, city spokesman George Talbot wrote in an email.
“We are working on the lease back now,” he wrote. “It covers two floats: the float used by the council for Mardi Gras [and other District parades] and also the Christmas float.”
When asked if Mayor Sandy Stimpson’s office was concerned about an added expense to the city the sale causes due to the storing of a Mardi Gras float, Lagniappe was reminded repeatedly that Stimpson pays for his own throws.
Stimpson has been open about his desire to sell city-owned property, especially since an assessment by CBRE, a commercial real estate firm, documented close to $200 million in future maintenance costs at these facilities. The CBRE study for 650 St. Anthony St. found more than $140,000 in both short-term and long-term maintenance costs. The largest cost for the city, if the building wasn’t sold, would’ve been in the electrical system, which was estimated to cost $12,000 over the long term. The building itself was in “fair” condition, though, CBRE found.
It doesn’t appear the city put out a request for proposals (RFP) on 650 St. Anthony St. and no advertisement for the sale appears in the legal advertising database, but the city has gone through the RFP process for other properties. One such property is referred to as the Norfolk Southern Building near the GM&O property.
The city put out an RFP on that property in October, asking $400,000 for it, but couldn’t get any takers at that price, Talbot said. The building may be put up for auction in the future.
The city also routinely advertises for the sale of other pieces of property, although it is still not clear if all such sales are advertised.
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