Battle Brewing Over the Value of Projo Building - Major Implications

Thursday, December 03, 2015


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A battle is brewing between lawyers and appraisers - and the impact to the City of Providence is worth millions over the next decade and it all centers on the Providence Journal Building on Fountain Street. How this plays out may have far bigger implications on the value of commerical office space in Providence and the city's tax base.

In June, the Providence Journal’s former owner A. H. Belo sold the newspaper’s historic building to Providence developer Buff Chace’s Cornish Associates and Boston-based Nordbloom for $3.3 million according to records with the City of Providence.

GoLocal has exclusively secured a copy of the 100-page appraisal of the Fountain Street property completed by the commerical real estate service firm, Keystone Consulting Group.

Significantly Different Values

The City of Providence last pegged the value of the formal Providnce Journal building at more than $10 million. The building was assessed at $9.25 million for the structure and $1.113 million for the land. The present total assessed value is $10,409,400.

"I just got the [new] appraisal last night," City of Providence Tax Assessor Dave Quinn told GoLocal on Wednesday. "The value we'd last had as of December 31, 2012 was $10 million."

Now, the new ownership group who operates under the name Fountainview Owner LLC, wants the assessed value lowered to a number closer to the actual purchase price. The owners are also pursuing a tax stabilization agreement [TSA] on the building as well. The building is more than 170,000 square feet and the cost of aquisition was just under $20 a square foot.

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For the City of Providence, a significant decrease in value on the building would be a major hit to the City’s already strained financial situation. On November 13, Moody’s Investor Services revised the City of Providence’s bond rating downward and changed the City’s outlook from stable to negative. 

“The revision of the outlook to negative from stable reflects the continued challenges the city faces achieving structural balance and improving its very weak reserve position. Rising pension and healthcare costs will continue to pressure the city's finances,” wrote Moody's in its Rating Action.

Presently, the annual taxes on the structure and the land is more than $382,500. A two-thirds decrease in the assessment would be a nearly $250,000 hit to the city's already upside-down budget situation. At a time when the City is scrambling for every dollar, the loss of more than $2 million over the next decade is an unanticipated and significant hit.

“It was open market offer and bid acceptance process, there was nothing unique,” said Chace's attorney, Zach Darrow, of the purchase.  “In dealing with the valuation by the city -- the purchase price wasn't sufficient, so we went out and got an appraisal.”

Keystone Appraisal

Keystone's appraisal is bad news for the City of Providence as the firm conducted industry standard approaches to valuation. On a sales comparison approach the property has a value of $3.290 million in value and on an income capitalization approach value, the Providence Journal has a value of $3.820 million. At a final reconciliation, Keystone valued the property at $3.560 million. 

The Keystone final value represents a 65 percent decrease in value in the assessed value.

Comps used to determine the value included properties such as 275 Westminster Street, 2-4 Richmond Square, 10 Dorrance Street and 6-10 Weybosset Street.

Implications are Huge

If the Providence Journal building has lost two thirds of its value in the past few years, will the appraisal be used by other commercial real estate owners to argue that their property is equally depressed?

A report issued by Commercial Real Estate mega-firm CBRE in January, characterized the market as recovering, “The expected decisions of several large tenants with 2015 expirations have not yet filtered into the market and it is unknown whether there will be corporate contraction, renewal or relocation. These decisions could have a material effect on vacancy rates in the Class A sector, potentially pushing the vacancy (rate) back into double digits.”

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Related Slideshow: The Ten Most Politically Powerful in Providence

A new group of leaders is taking over the City of Providence - take a look at the top 10.

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Buff Chace - Developer

Regardless of who is the Mayor, the Downcity developer flexes his economic muscle and constantly wins superior tax agreements. 

The visionary developer transformed Westminster Street from a blighted dead zone to a tony-neighborhood.

He has realized tens of millions in benefits in tax breaks from the City over the past two decades and will be back again this year. He still has open issues on a range of properties and is the likely candidate to take control of the Providence Journal’s building on Fountain Street.

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Myrth York - Politico

The former State Senator from the East Side and three-time failed candidate for Governor has become a major power in Democratic circles both in the city and statewide. She went all in for both Gina Raimondo and Jorge Elorza and she won big. 

Recently, she scored an appointment to the Beacon Insurance Board as a part of a Chafee-Raimondo agreement.

York has been the Chair of the Zoning Board during the tenure of Providence Mayor Angel Taveras. The changes to zoning on Federal Hill under the York leadership of the Zoning Board have been widely scrutinized.

York is seen as a major mentor and supporter to Brett Smiley, the City of Providence’s newly appointed Chief Operating Officer.

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Buddy Cianci - Former Mayor, Radio Talk Show Host

He lost the election, but make no mistake about it -- the two-time convicted felon and talk show radio host still casts a big shadow. He came within a couple thousand votes of winning the Mayor’s office again.

Cianci still talks to every player in the City nearly every day. He strategically uses his radio show to set the agenda.

The new Council leadership has a number of Cianci supporters among their ranks. 

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House Majority Leader John DeSimone 

With the resignation of Gordon Fox in 2014, the City of Providence’s influence in the legislature took a big hit losing the Speaker’s office. DeSimone rose to majority leader as part of the Speaker Nick Mattiello leadership team.

DeSimone will be the key to the City of Providence’s financial well-being. Elorza and Smiley will need to quickly build a strong relationship with DeSimone.

With the State of Rhode Island facing a $200 million budget deficit as well as a potential further hit due to the loss of gaming revenue with Massachusetts facilities coming online, the appeals of the City of Providence for financial support will be difficult.

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Joe Paolino - Former Mayor and Developer

The former Mayor of Providence upped his investment in the City of Providence with a $60 million deal in January of 2014 to purchase three major buildings in the financial district.  

That investment further extended the Paolino empire in Providence.  He continues to be a national player in Democratic politics and fundraising, but his economic interests are embedded in Providence.

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Sabina Matos, Council President Pro Tempe

Matos, who will be formally elected President Pro Tempe of the Providence City Council, has firmly established herself as the most influential Latina in the City of Providence. 

Her savvy strategy to team with Aponte creates a trifecta of Hispanic power in the City of Providence - the three most powerful positions are all lead by Hispanics.

The Rhode Island College grad who represents the 15th Ward - the Olneyville and Silver Lake neighborhoods,-- is emerging as Providence’s most influential woman.

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Tony Simon, Chief of Staff

The Chief of Staff for Mayor Elorza comes to the City from Sheldon Whitehouse’s office. He served as Rhode Island Deputy State Director for the junior senator and his transition to City politics should be smooth.

He is knowledgeable about the City’s politics and obviously well-connected with the Congressional delegation and the State House. 

His challenge may be will he -- or Smilley -- have the Elorza’s ear.

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Brett Smiley - Chief Operating Officer

The former political fundraiser, then candidate for Mayor, and now the City of Providence’s Chief Operating Officer knows a lot about politics, but has no experience in running a city. 

Smiley and Elorza’s relationship will be critical to the the new Mayor having a productive agenda.

Smiley has to be careful to serve the Mayor and foster Elorza’s agenda. As a consultant he had many masters. As a candidate he had many plans, now he has to be staff.

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Luis Aponte - City Council President

Aponte was first elected to the Providence City Council in 1998. He is one of the first Latino candidates ever elected in Rhode Island and the true trailblazer in Providence when he was elected as Providence’s first Latino member of the City Council.

Aponte is seen as thoughtful and progressive. During the course of his tenure he has often been the bridge between the neighborhoods and downtown.

With nine votes on the Council, Aponte can at a minimum share with Elorza setting the City’s agenda. 

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Jorge Elorza - Mayor of Providence

The former RWU Law Professor and Housing Court Judge is facing a tremendous number of difficult and complex problems:

  • Budget shortfall
  • Poor performing schools
  • One of the highest commercial tax rates in the nation
  • Concerns about crime
  • Decaying city infrastructure
  • Unfunded pension liability

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