When Scott Congel took on Irondequoit’s Medley Centre, he
seemed like the perfect candidate to make something happen on the site.
The Congel family business, Pyramid Companies, has built and
operated malls across the Northeast, including the thriving Walden Galleria in
suburban Buffalo. Officials thought that the Congel name and connections would
translate into tenants for Medley and access to financing.
But the property sits idle with no tenants and as far as
anyone can tell, no heat, electricity, or security, either. Grass grows through
cracks in the pothole-riddled parking lot. A water pipe burst inside the mall
earlier this year, which eventually resulted in the town charging Congel’s
company, Bersin Properties, with code violations.
The future of Medley Centre has never been as uncertain as it
is right now. And the physical decay is just a symptom of much deeper problems.
(Attempts to reach Scott Congel for this story were unsuccessful.)
Bersin Properties has an agreement with the Town of
Irondequoit, East Irondequoit School District, and Monroe County Industrial
Development Agency which allows it to make annual payments far below what it’d
ordinarily pay in property taxes. But as part of the agreement, the developer
committed to certain investment targets and penalties for missing them.
Since the developer didn’t meet either last year’s investment
target or this year’s payment, it owes approximately $3.8 million to the local
governments, which have given Bersin Properties until May 1 to pay up. If the
company doesn’t make good, COMIDA will terminate the tax agreement on May 2, an
action requested by County Executive Maggie Brooks.
Brooks has also said that if Bersin Properties fails to pay
that the county, COMIDA, the town, and the school district will sue to recover
the outstanding costs.
If Bersin loses the agreement, its tax bills will spike. But
even if the company does come through with the payment and retains its
incentive agreement, it’ll still have to dig itself out of a serious financial
hole.
Congel seems to recognize that reality.
In correspondence with Irondequoit officials, Congel has said
that his company is prepared to advance a $1 billion hotel, residential,
retail, and entertainment project on the Medley site; his original proposal in
2009 was for a $250 million project. But to make that happen, Congel said, the
company needs to renegotiate some terms of the tax agreement.
Congel
bought Medley Centre in 2007. It would turn out to be atrocious
timing.
That same year marked the start of a global financial crisis
and recession; banks halted investments in all manner of commercial property
development. Bersin Properties had secured a $135 million loan for the Medley
project from Nomura, an international bank based in Japan. But when the market
collapsed, Nomura pulled the financing.
Late last week, Bersin Properties filed a lawsuit against
Nomura. The suit alleges that Nomura improperly cut off Bersin’s financing and
that the bank prematurely called in the
$44 million it had advanced to Bersin.
As a result, the Medley Centre project ground to a halt, say
lawsuit papers. The company wasn’t able to pay contractors, the filings say,
and it lost prospective tenants, including some that had already agreed to
lease space in the redeveloped mall. Bersin Properties is seeking a minimum of
$100 million in damages from Nomura.
Congel has struggled to secure new financing, though he
recently indicated he has a new lender lined up. But to finalize that deal, he
says he needs the tax agreement amended to extend investment benchmarks.
Irondequoit officials say they’re reluctant to negotiate new
terms when the developer hasn’t lived up to the previous agreement.
But the current standoff may have been preventable. Congel
first approached Irondequoit officials about renegotiating the agreement two
years ago, before he’d missed any milestones and before he was on the hook for
a few million dollars in penalties. Officials offered him an option: provide
some compensation and they’d renegotiate. But Congel passed.
“Our feeling was that our community needs to be compensated,
that we needed to get something out of further consideration to him, because
the community was giving him a generous tax break and we’re not required to do
that,” says John Abbott, deputy superintendent for the East Irondequoit
schools.
Even
if Congel’s company manages to make the May 1 payment deadline,
the investment requirements would still pose a problem.
Local officials pushed to include the milestones in Congel’s
tax agreement in order to encourage investment without penalizing the developer
for adding value to the property. But the milestones are also meant to discourage
inaction, so the penalties for missing them escalate quickly.
The three local governments do not agree on whether Bersin
Properties met the first $90 million investment requirement. But they are all
certain he missed last year’s $165 million investment deadline. The $3.5
million penalty was determined by a formula in the tax agreement.
The company needs to prove that it has invested a total of
$260 million into the mall by April 30. Since it’s unlikely that the company
will meet that benchmark, Bersin could be on the hook for another large penalty
payment.
And if the company blows the May 1 deadline, it’ll have to
pay full taxes on the mall. Under the tax agreement, Bersin is supposed to pay
the local governments $392,381 this year. Irondequoit Supervisor Adam Bello
says that with the mall’s current $40 million assessed value, full taxes on the
property would be $1.7 million. The figure includes town, county, and school
taxes.
At best, the spike in tax liability will leave Bersin
Properties with less money to put into the mall. And any investment that
increases the property’s value would also increase its taxes.
If Bersin Properties doesn’t pay those property taxes — and
right now this is a hypothetical scenario — the county could foreclose on the
property. The developer could also try to sell the mall at any point.
And even if Congel does manage to move the project forward,
it’s hard to see a future for the soured Congel-Irondequoit relationship.
State Assembly member Joe Morelle says the best option at
this point would be for a new developer to step in. He says he doesn’t have a
particular developer in mind and has not talked to anybody directly.
This article appears in Apr 23-29, 2014.
