Alaska Politics Blog : Sullivan: 'It's going to be kind of close'

Sullivan: 'It's going to be kind of close'

Posted by Alaska_Politics

Anchorage Daily News

Posted: January 17, 2007 - 11:25 am

If the mayor’s proposed 4th Avenue Theater deal heads back before the Assembly Tuesday, how would the Assembly vote?

“It’s going to be kind of close,” said Chairman Dan Sullivan, who plans to vote against it.

“I think it may have the votes to pass, but I think if more information comes out over the next week, maybe some people will give it a second thought,” he said.

In a phone interview today, Mayor Mark Begich said that if the deal failed at the Assembly, he would still pursue some kind of historical easement for the theater -- meaning it couldn't be torn down.

Meantime, Assemblyman Chris Birch asked the city for more details on the deal in an e-mail exchange with Chief Fiscal Officer Jeff Sinz.

Here are the questions Birch asked (he said they came from a constituent), followed by Sinz responses.

The questions are in italics, and the e-mails are dated Dec. 23.

1. Is it true that the current owner has been two years behind in taxes but the city has taken no action toward having the property foreclosed on? If so, why not? Is this owner being treated with extraordinary lenience?

The property is about 1 1/2 years delinquent on its property taxes. The MOA is pursuing all legally available means of collecting the delinquent taxes including statutory foreclosure for delinquent taxes. The owner is being treated exactly like all other owners with 2005 delinquent taxes. More specifically:

Property taxes for the 4th Avenue Theater are delinquent for 2005 and 2006. They became delinquent on June 15 and August 15, 2005 when the first and second half property taxes were due. The MOA is actively pursuing the tax foreclosure process as specified by State Law (Title 29) and the MOA Code. This includes the 4th Avenue Theater and all other properties with 2005 delinquent taxes. The MOA recorded liens on all properties with delinquent 2005 taxes in February 2006. All such properties were then listed in a publication appearing in the Alaska Journal of Commerce in late February 2006. Before taking further action, the MOA must wait for completion of a one-year redemption period as required by State Law. The redemption period will end in February 2007. The MOA will take deed on all properties still having delinquent 2005 taxes, in April of 2007. Each and every step in this almost two-year long tax foreclosure process is specified and required by State Law. Again, the 4th Avenue Theater has been included in every step and its owner treated like every other with delinquent 2005 property taxes.

2. Why shouldn't the city, as a good steward of public funds, file a tax lien, have the property foreclosed on, and then arrange a deal to buy the property at foreclosure instead of at a price that appears to be much higher then actual market value? What future potential liabilities will the city (ie, taxpayer) be stuck with? Code upgrades? Possible asbestos issues?

As stated above, the MOA did record a tax lien on the 4th Avenue Theater in February 2006. The MOA was planning to take deed to the property through a tax foreclosure if the delinquent taxes remain unpaid as of April 2007. However, from a practical perspective the MOA will never be in a position to complete a tax foreclosure on the 4th Avenue Theater.

The Theater has recently (within the last month) been valued by an independent fee appraiser at $3.7 million. Northrim Bank holds a deed of trust on the property as security for loans to the property owner (Gottstein) of approximately $4 million. As necessary, the bank will pay the tax related delinquency, totaling less than 2% of the property’s value, in order to protect its security interest in the Theater.

In fact, negotiations for the purchase of the 4th Avenue Theater took place with Northrim Bank, not Robert Gottstein, because of its interest in the outcome and its own pending foreclosure action. If necessary, the Bank intended to pay the tax related delinquency and foreclose on its deed of trust. However, the bank preferred not to take title to the property through foreclosure. It preferred to instead broker a deal between the buyer and Robert Gottstein because of tax benefits to the Bank associated with this approach.

We believe that the price negotiated with Northrim Bank and approved by Mr. Gottstein, is substantially below the market value. Because Mr. Gottstein is required to contribute $600,000 back to the project, the $3.4 million purchase price can actually be thought of a costing the project no more than $2.8 million. This figure compares very favorably with the $3.7 million appraised value. The higher purchase price combined with the flow of Mr. Gottstein’s $600,000 contribution through the Anchorage Community Development Authority are expected to increase the value of the income tax credits increasing the funding available for necessary renovations of the Theater.

Finally, both the lender (Northrim) and owner (Gottstein) were motivated to get a deal done and we have no reason to believe that a better deal could have been negotiated with Northrim as the post foreclosure owner of the property.

3. Is it true that the municipal assessment, which is supposed to be a fairly accurate estimate of actual value, is about 1.7 million, but the property is proposed to be sold for about 2.9 million? If so, why is it being sold for so much? If 2.9 million is a real market value, why has it been so grossly under assessed which has resulted in saving substantial taxes for the owner?

Yes that is generally true. According to the Municipal Assessor, the MOA assessment was heavily impacted by use of the "income approach" of valuation which used actual income statements provided by the owner/operator. They indicated that the facility was loosing money. This approach and situation had a negative impact of the Municipal Assessment, but arguably appropriately reflected the experience of the private owner/operator. The income approach is one of several methods used by the Assessor to determine the full and true value for taxation purposes. Others assessment methods are "cost" and "replacement value." When information is available, the Assessor will consider all three methods to determine a property's full and true value.

It should also be pointed out that one operator’s experience does not necessarily reflect the market potential of a commercial property, but can appropriately be used to establish the assessed value for taxation purposes for a particular commercial owner/operator.

It is now expected that the property can and will be operated profitably when managed and operated by different entity with the ability to benefit from a lower debt load, increased revenue generation capability and lower operating costs due to economies of scale and synergies with other similar facilities. This situation was not reflected in the Assessor's earlier valuation. Had the private operator been able to operate at a profit, the Assessor's value would have been adjusted upward.

4. The owner, as I understand it, is donating $600,000 for the deal. Sounds good, but if he's got $600,000, why hasn't he paid his taxes? Or is the $600K only becoming available from the sale of the property?

We believe that the owner is paying the $600,000 out of proceeds available at close. As stated earlier, this particular flow of funds is preferable because it is expected to help maximize the value of the tax credits generated and therefore increase the funding available for needed facility renovations.

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