A week ago, I wrote about the sale of the local “Endicott/Pioneer” buildings.

The new owner plans to evict the current tenants (more on them later) and lease the building to people working on or about the upcoming GOP Convention.  My tone of approval for the deal drew one of my regular commenters, who took umbrage:

Buying a century-old piece of real estate with an agreement to do a short term lease to the RNC which will be flush with cash is indeed a great way to make a quick buck.

Of course, in a depressed commercial real estate market like downtown Saint Paul, a “quick buck” is hard to find under any circumstances.  But once you get into the actual circumstances…

…well, we’ll get back to that.

The commenter also sniffed…:

Talk about making assumptions. You do understand the difference between renting an apartment and staying in a hotel right?

I don’t do a lot of either.  But I digress. 

Since I hate making “assumptions”, I did a little poking around.

Yesterday and today, I got emails back from a person with long-standing ties to Saint Paul politics and urban development (who shall remain anonymous).  He was involved in the 1981 sale of the two buildings (and the adjacent Jackson Street Ramp), a transaction worth $5.6 million at the time. 

 > They just sold again
> for $10.00 TOTAL.

I assumed it was a typo.  It had to be $10,000,000.  Right?

Wrong.  Ten dollars.  A single Alexander Hamilton.

I asked what the story was – a nifty (judging by external appearances) old building, a historical landmark (it used to house the anscestor of the Pioneer Press) and piece of decent (to the layman) office space, going for less than the cost of taking two kids to Wendys?

The two things I figured were possibilities – a huge blog of debt, or political favoritism.

The answer, naturally, was neither.  My source wrote again (I’ve added some emphasis):

There was no debt for the buyer of the three buildings and parking
ramp.  Commercial property is primarily valued by the annual net operating
income the property provides.  This is true for both property tax and market
purposes.  The only real income produced is from the parking ramp.  The
rest of the buildings are 98% vacant. On a cap-rate approach to value, the property would have a negative value.  This happened because the US Bank knew about 10 years ago they would not renew their master lease of the
property.  They occupied most of the buildings.  For all those years they
spent a minimum on maintenance.  The current income doesn’t come close
to paying for even the operation no less improvements to the property. 

 In other words, in a market clogged with under-occupied big-buck property, the Endicott/Pioneer buildings came on the market out-of-date and poorly-maintained.

Corporate welfare, he says, is the culprit:

This is a good example of a public subsidy for a private corporation
which seriously damaged the city. The city provided $15,000,000 in TIF to
have them move out of the Downtown, across the river.  The new building
doesn’t even cover its own taxes; no less contribute to the city, county or
schools. The bank also vacated substantial space in the First National and First
Trust Center buildings, in the process seriously devaluing those
buildings.

In other words, the city abated millions in taxes to keep US Bank in the city, in a new facility, on which the bank will be paying reduced taxes for quite some time.

The Pioneer, Endicott buildings are worth nothing.

So in other words, the choice was:

1. Have a couple of worthless empty buildings in a glutted office space market continue to provide no revenue
2. Have a couple of worthless empty buildings provide a years’s worth of pretty decent revenue due to an accident of proximity, in a glutted office space market.

After the convention, the market will still be…glutted!

A quick buck beats no buck at all…