The Future of 519 State Street

Forget all your troubles, forget all your cares and go…

I’m beginning this post with the acknowledgement that our petty disagreements on City Council compare nothing to the suffering that has occurred over the weekend in Israel. Those who have perpetuated these atrocities and those who support them are the emissaries of evil in our world today. Pray for Israel and those who have been brutally murdered, raped and kidnaped. Pray for justice and pray for peace.

In tomorrow’s Council Meeting, the fourth item on the agenda is the Purchase of Real Property and Approval of the Disposition and Development Agreement Related to 519 State Street, Garland, Texas. I have pulled this from the consent agenda so that it may be individually considered.

This property is strategically located on our renovated Downtown Square between the Plaza Theater and Rowlett Florist. (Someday I will have to dive into why a business named Rowlett Florist is located in the heart of downtown Garland.)

Let’s have a quick recap of Downtown Garland history and this property in particular.

(Queue the go back in time harp riff.) 

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According to the Landmark Museum, 519 State Street was built in 1900 after the Thanksgiving Day fire of 1889 destroyed many buildings around what was to be the future Square. The original building was divided into three parts serving as Garland’s first movie theatre — the Lyric Theatre — and H.W. Jones Hardware & Furniture store.

Another fire in 1918 caused damage to three buildings on the north side of downtown including the H.W. Jones Hardware & Furniture Store. Eventually, the building was remodeled in 1924, covering the original decorative corbelled brick parapets with two simple arch forms atop of the front face of the building.

In 1952, another renovation occurred to modernize all three bays of the building inside and out. This time the brick arches were removed from the façade and a uniform metal slip-cover was added across the front. Finally, in 2010, the entire parapet dating back to 1900 was dismantled thus removing the last original corbelled brick parapet structure on the square. The building has sat vacant since at least 2000 with the Jones family maintaining ownership of the property. 

(The facade of the H.W. Jones building as it looked in the first half of the 20th century. Photo from https://www.garlandhistorical.org/images/SquareResourceStudy.pdf)

(519 State Street from Google Streetview)

(Director’s note: Dissolve back to modern day.)

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That brings us to the site at 519 State Street. With the millions of dollars we have put into the renovation of the Square, the City of Garland has looked for opportunities to best use the buildings situated around the Square’s perimeter.

Since I joined the Council over four years ago (and for decades before then), the City has had ongoing and difficult conversations with the Jones family for the possible purchase of the property for redevelopment. 

Throughout the negotiations, the Jones Family has been difficult to work with to say the least. They have made many demands ranging from only wanting to negotiate with former City Manager Bryan Bradford to mandating what form the redevelopment of the property will take to even dictating the species of trees to be planted in the public right of way in front of their property during the Square’s renovation. However, it appears that Bradford’s years of negotiations may have proved fruitful as we will be asked to approve a contract for the purchase of that property at tomorrow’s council meeting. 

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Throughout the negotiations, the Council has been receiving briefings during Executive Sessions and our monthly lunches with the City Manger. Now I am finally able to fill you in on the details.

It is unfortunate that I am only able to bring you the details with less than 24 hours for the citizen of Garland to provide their input between the end of our Executive Session at 9:23 PM when this post goes live and when we must vote on it during our Regular Session which starts at 7:00 PM tomorrow. The stated reason for this is to have the deal closed during our Regular Session so we can announce it during the opening of the Square on October 14.

Here are links to the Disposition and Development Agreement and the Contract of Sale for your review. 

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Per the Disposition and Development Agreement, the City wishes to purchase the property and: 

develop it into an event venue and restaurant/catering facility.

The intention is to supplement and complement the event/meeting space at the Plaza Theater with additional meeting space and commercial kitchen. The preliminary design showed connections between the two facilities to share resources. Also, a second story will be added to the current building for additional event space which overlooks the Square.

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Let’s go through the development agreement and sales contract in detail, and I’ll layout my thoughts. 

First, the purchase price, and it’s a big one —  $1.95 million dollars. That’s right—nearly two million dollars. This equates to $141.62 per square foot. This does not include the costs to completely renovate the facility inside and out to make it usable. This is an outrageous sum to pay for this property in my opinion.

Compared to other properties in Downtown, this is much higher than what the DCAD appraisal values show. (Given that DCAD may not be the most useful for actual market value, it at least provides a starting point for analysis.) Intrinsic Smokehouse & Brewery (509 State Street), the future Fortunate Son restaurant (500 Main Street), and Infinity Arcade (532 Main Street) all have square footage values per DCAD at under $100/sf. 

I also looked at several other properties in downtowns from various cities around Texas (Granbury, Grapevine and Waco) using their local appraisal district values as a comparison. I chose these cities specifically because they have had significant redevelopment of their downtown areas. Also, the selected properties are similar to the proposed final use of 519 State Street.

(Comparison of current appraisal district values for various downtown venues. Note the higher values per square foot for the fully developed properties.)

Side note — I highly recommend The Palladium in Waco. It is where my wife Katie and I celebrated our wedding reception in 2011.

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The $1.95 million purchase price does not take into account the need for any potential environmental remediation for asbestos which may have been installed during the 1952 renovation. Per the contract, the Buyer (City of Garland) has thirty days to:

to conduct engineering, market and economic feasibility studies of the Property, and/or a physical inspection of the Property, including studies or inspections to determine the existence of any environmental hazards or conditions

However, per the contract, the seller has the right to refuse any invasive environmental studies, commonly referred to as a Phase II. The relevant contract language: 

In particular, Buyer shall not perform any invasive or destructive testing of the Property (including, without limitation, any soil sampling, excavation, or other physical testing), or what is commonly known as a Phase II environmental inspection, without the prior written consent of Seller, which consent may be withheld in Seller’s sole and absolute discretion.  

While we can assume that asbestos is present, this clause can strictly prevent the City from discovering for certain its presence or any other negative aspects which could potentially lower the sales price.

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There are some other peculiar aspects of this contract I want to highlight. I direct you to Clauses 2.2 and 2.3:

2.2 Seller's Design Participation: Seller shall have one (1) representative selected by Seller to serve as a member of the City’s design team and may make recommendations in keeping with the overall concept that has been presented to the City Staff and City Council.  Seller may have direct communication with Architect, at the Architect’s convenience, to suggest solutions to problems or creative ideas.  The City shall consider Seller’s recommendations and endeavor to incorporate Seller’s recommendations to the extent that the City’s design team determines that the recommendation will enhance the appearance, appeal, or usability of the Facility or favorably impact construction costs, operating revenues and expenditures and overall maintenance costs.

2.3 Construction Meetings: Once construction of the Facility commences, Seller shall receive timely notice of, and be entitled to participate in, regular owner, architect, contractor (OAC) construction meetings between City and the City's general contractor. During these meetings, Seller may present comments and ideas regarding the construction process. Seller shall also be entitled to attend and participate in nonscheduled ad hoc meetings between the architect, contractor, and the City. However, although Seller shall not be excluded from such ad hoc and impromptu meetings, the City is not obligated to provide Seller notice of the meetings. City shall consider Seller's suggestions and shall endeavor to incorporate any construction ideas that align with the City's overall concept of the Facility, as determined solely by the City, and which do not add additional construction costs to the project.

This means the Seller can be involved with the design process, attend meetings, and offer any suggestions he may have to the architect during the entire design period. In other words, a non-design professional can be a thorn in the side of the design team and owner (City) during the entire design process. As a design professional myself, this would be a nightmare for me to have a third party involved constantly spouting their ideas. Have you seen any other situations where a seller can have a say in the development of the property past the closing date?

Next, Clause 4.2:

4.2     Seller shall continue to be entitled to any benefits, including but not limited to tickets to city sponsored events and parking, that are generally made available to all other tenants and property owners on the downtown square.

What benefits are granted to all other tenants and property owners of the Downtown Square? To my knowledge, there are none.

Here’s an odd one, Clause 4.3:

4.3     Seller shall be entitled to use the designated individual rooms or conference rooms within the Facility for $1.00 per day, twice per calendar month, during regular business hours, subject to availability, and in coordination with City staff.

This means the City must allow the Seller to use the facility for two days out of each month for just $1.00. Also, the Seller is a corporation. Corporations, unlike natural persons, do not have a natural end of life. This means that if the Corporation continues pass the property transition, that entity may have access to the site in perpetuity. 

Finally, Clause 4.4:

Seller shall be entitled to participate in name selection for the Facility pursuant to existing City policy.  However, parties acknowledge and agree that City Council shall have the sole discretion to make the final determination as to the name of the Facility. 

Certainly the Seller will want the facility named after his family — the Jones Family. Given how difficult the family has been during the negotiations, their continued lack of willingness to work with the city throughout the process, and the exorbitant sales price they wish to receive, I am not inclined to name the facility after them.

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The recitals at the top of the Development Agreement state: 

A. WHEREAS, City desires to further the public interest and welfare and to induce the investment of private resources in productive business enterprises located in certain areas of the City that will increase tax revenue and promote or develop new business enterprises;

B. WHEREAS, City is authorized by Article III, Section 52-a of the Texas Constitution and Chapter 380 of the Texas Local Government Code to provide an economic development program, which may include certain grants of public funds, to stimulate business and commercial activity in the City;

I believe this purchase will not further the goals of either of those clauses. How can the public purchase of a private property, and thereby removing it from the property tax rolls, “increase the investment of private resources in productive business enterprises…that will increase tax revenue?”

Also, we have already invested more than $20 million dollars into the Downtown district. City staff estimates that it will take an investment of approximately $9 million more for design and construction costs to turn it into the desired goal of “an event venue and restaurant/catering facility.” Will nearly $11 million total investment in a single City-owned property “stimulate business and commercial activity in the City?”

Furthermore, the anticipated debt service on the almost $11 million project cost will be $787,000 annually over 20 years. With rising interest rates, this is a high annual burden to place on future city budgets.

The $11 million to purchase and renovate the building does not take into account the continued annual operating costs such a facility would require. City staff estimates the facility will have ongoing annual expenditures of $175,000 (2 Event Coordinators - $120,000, Custodial Services - $35,000, Maintenance/Marketing - $20,000). The new facility is expected to create revenue of $200,000 annually. With the $25,000 expected in profits annually, the payback period for this project is 438 years, give or take a generation.

The downtown venues we operate currently (Plaza Theater, Granville Arts Center, The Atrium) currently operate at or near a loss. I am not of the opinion that these facilities must generate a profit for the City as they are provided by the City as public amenities. This is similar to public parks and recreation centers where they are provided to the public at no or low direct cost. My question is if this project is worth competing with the private sector in this area.

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Notwithstanding the issues I have with this contract (all of the above clauses were required to even get the Jones to this point in the negotiations), the biggest issue I have is that the voters of Garland have not authorized the money to be spent on this project.

The 2019 Bond Program provided $39 million in economic development dollars to strategically purchase properties for redevelopment. (An additional $7 million went directly for neighborhood vitality projects for $46 million in total.) Already, purchases have been made to assemble property in South Garland, the Forest/Walnut area for the Medical District, and various other locations in and near Downtown. Four years into the program, $37.15 million of those voter-approved funds have been spent or allocated leaving not enough funding to complete this deal using bond funds.

Within the past several months, the City has recently called for a new Bond Study Committee to be focused specifically on economic development projects. If the Council believes it can do economic development projects without voter authority, why have a Bond Study Committee focused on economic development at all? This project seems like a prime candidate to be the first one for consideration in the new Bond Study Committee's charge.

I say wait on this project and let the Bond Study Committee decide whether to include this project in a new bond issuance. Then send it to the voters in May 2024 and let them decide whether or not to authorize the funds. The Joneses have indicated throughout the process their unwillingness to negotiate with anyone outside of the City. Given this, I don’t believe there is any risk of the City “losing” the project due to the Joneses selling it to someone else.

However, even if the Joneses did sell it to a private developer, I would be for that as well because it means we have sparked a thriving open market for Downtown properties as a result of the millions of dollars the City has already invested into Downtown and the surrounding blocks. Furthermore, it would mean that public investment may no longer be required to drive investment in this area and those dollars could be invested in many of the other redevelopment focus areas we have around the city such as the Forest/Walnut-Medical District area, the I-30 Corridor, or the Lake Ray Hubbard Waterfront. 

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Please don’t get me wrong. I am all for the success of the Square and the surrounding businesses. I voted enthusiastically on the 2019 Bond Study Committee for the dollars spent to redevelop the Square and the surrounding area. The question now is when do we stop spending and see what we have bought?

In addition to the $25 million allocated for the Square and surrounding streets redevelopment, the Council recently approved the construction of the parking lot at Seventh Street and State Street for $218,000, and tonight we considered the installation of bike lockers for $25,000 in the City Hall Parking Garage — two additional projects which I was not in favor of. We have not yet even had the much anticipated grand opening of the Square, and now we are being asked to spend millions of dollars more.

I am for providing economic incentives such as the those given to Fortunate Son and other locations around downtown that will contribute to bring new dining and entertainment venues to our city. Those investments are money well spent because will eventually pay off in additional sales tax and property tax revenue to the city. This project in the near term will be designed, owned and operated by the city in direct competition to private businesses with a very minimal return on investment.

Unfortunately, there is not an incentive to be fiscally conservative on Council. There are no consequences to saying yes to a bad deal — especially one that after years of negotiations resulting in a ridiculous, lopsided contract — is rushed from Executive Session to a vote for approval in less than 24 hours.

I am not for paying a king’s ransom for a single property on the Square just because of its location. If the Joneses choose to not develop the property and let it sit vacant, it is their lost opportunity cost. We should not be forced into a bad deal because of it.

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Just like George Constanza, all of this talk has made me want to forget all my worries and forget all my cares and go…

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