City Processes—Transparent? Open? Reasonable? You Decide.
by Laura Goodman, International Police Advisor at Education for Critical Thinking
On June 5, 2018, John Mannillo, commercial real estate developer and chair of Saint Paul STRONG, received an Early Notification System (ENS)[i] email from the City notifying recipients of a proposed real estate sale by the Housing and Redevelopment Authority (HRA) to Madison Equities, Inc. The parcel of real estate being sold was 375 North Robert Street (APPENDIX A) in downtown Saint Paul. The sale included over 6000 sq. ft. of paved plaza space with a fountain. At the time of this proposed sale, Ramsey County Property Tax Records valued the land at $326,400. Madison Equities was offering $2,500.
As a commercial real estate broker and developer, Mannillo was aware that this proposal was vastly underpriced. Based on his knowledge, he advised some members of the City Council (via email) that downtown land prices were selling for around $50 per ft. and that smaller parcels tended to increase in value per ft. In this email, Mannillo strongly disagreed with the city appraiser’s perspective that “this is an unbuildable parcel”. Mannillo went on to state,
If the land were valued at $50 per ft., it would be worth $300,000. An enclosure could be built and occupied. It could also be used for parking, which is conservatively valued at $15,000 per space.
Upon Mannillo’s challenge to the City about why the City owned parcel of land was being sold for hundreds of thousands of dollars under market rate, he received a response that because of the location and current building restrictions, there was only one possible buyer. The City noted that that buyer, Madison Equities, Inc., owned the rest of the block including the US Bank Property and the old Buttery Restaurant and intended to use the new parcel to expand the Buttery space to include patio dining—though it first had to find a restaurateur to lease the property.
Mannillo later discovered that prior to the proposed sale, the City had solicited an appraisal for the property. Despite that appraisal valuing the property at $30,000, the City still proceeded with Madison Equities, Inc.’s proposal of $2,500, which would essentially be a $27,500 subsidy and would not even cover closing costs to the City. This subsidy was acknowledged in an email to city council member Rebecca Noecker (June 8, 2018) from Andy Hestness. (APPENDIX B)
THOUGHTS TO CONSIDER (POSSIBLE QUESTIONS)
· Does this make sense to you, Saint Paul taxpayers?
· Why would the city sell public land for under the current market value?
· Why would the city accept a proposal that was well under its own appraised value of $30,000, which would require the city granting a $27,500 subsidy?
· What is the ENS system, how do residents know about it, and why would a proposed sale of City property only be sent through a system that nearly no one knows about?
· Why assume there is only one possible buyer, without evidence to the contrary, or doing some research?
· Are you, Saint Paul taxpayers, OK with the City knowingly selling public property for $27,500 less than its own appraised value?
· Why do you think the city would do this?
· What benefit did the city, or its taxpayers, glean from subsidizing this parcel by at least $27,500?
The Counter Offer
Equipped with the knowledge that the property was worth well more than the $2,500 dollars offered by Madison Equities, Inc. and believing that the City would practice due care and diligence when selling the taxpayers’ resources, Mannillo made an offer for the full appraised value of $30,000. After all, how could the City settle for less than its own appraised value of the property? Here is what happened next.
Also, prior to the sale, Mannillo and attorney Jack Hoeschler met with Andrew Hestness, the principal project manager at Planning and Economic Development (PED). Mannillo outlined his plan to purchase the property at 375 North Robert Street in downtown Saint Paul. Mannillo’s plan included a right of first refusal to lease the property to Madison Equities, Inc. Mannillo also identified alternative ideas on how the parcel of land could be used, including adding food trucks with additional seating, adding new paving and lighting. The food trucks would be anchored by an ice cream vendor.
Following Mannillo’s proposal, he met on site with City staff to clarify how his plan could successfully be executed without disturbing the bus stop. Mannillo also offered to move the bus stop onto the parcel if the Metro Transit Commission (MTC) was interested. Then what happened?
Mannillo never heard again from the City until March of 2019, when he received an email advising him that his plan was not feasible. John responded that he was surprised, because his proposal was so flexible, he had demonstrated that he was willing to work with the City, and he would allow Madison Equities to control the property through a long-term lease.
THOUGHTS TO CONSIDER (POSSIBLE QUESTIONS)
· Why was Mannillo’s proposal not feasible?
· Why didn’t the city communicate with Mannillo to discuss the feasibility?
The Grift
To understand the City’s rejection more clearly, Mannillo filed data practices request on March 8, 2019, requesting all communications related to the sale of this parcel. On June 14th, over three months after the original request, Mannillo received partial data from his request. The data received did not include some communications that Mannillo already had in his possession or some documents that were referred to in those communications. Mannillo’s own proposal was not even included in the data. Mannillo did receive a staff report that did not accurately reflect his offer. Even more surprising, the data included a proposal to finance Madison Equities, Inc. up to $30,000, the exact amount Mannillo had offered in cash!
Additionally, the documents showed that the city had been communicating to Madison Inc. and allowed Madison, Inc. to increase its offer to $32,500, just $2,500 over the amount of Mannillo’s bid. The City did not offer Mannillo this same allowance.
On June 26, 2019, the City scheduled a public hearing where the proposal from city staff for the sale of the property was to be approved. Mannillo was not notified of this hearing. Later, while doing an internet search, Mannillo discovered that the property at 375 Robert Street was going to be sold to Madison Equities for $32,500 cash. At the time of the hearing, it had been a year since Mannillo’s offer. Madison Equities, Inc. had not found a new restaurateur for the old Buttery Restaurant, which stands vacant to this day. Unlike Mannillo’s proposal to improve the site, Madison Equities, Inc. gave no such guarantees. While the City was considering this sale, publicly available records provided information that Madison Equities, Inc. was being investigated for abuse of St. Paul’s Earned Sick and Safe Law and wage theft and interference by the State’s Attorney General’s Office and had complaints filed against it with the Human Rights Department. In fact, Madison Equity, Inc. has a history in St. Paul of taking away the work of low-income union workers who he replaces with non-union contract workers ultimately damaging the economy of the poor[ii]. The owner of Madison Equity, Inc., Jim Crockarell, has been described by other local real estate developers as the Donald Trump of St. Paul in that he is a part of the problem. Crockarell has been accused of cutting building costs by firing union cleaners, yet failing to adjust tenants’ leases in kind, allowing him to pocket millions. The Port Authority described him as …more the traditional developer, focused on projects that make sense to him rather than the city at large…and wished that he would… be more involved like some of the other St. Paul landlords and participate in city initiatives and participate more in… the culture of the city.” [iii]
Part of the City’s evaluation criteria when considering the sale of City property is…
Experience and qualifications of the developer, including the developer's demonstrated ability to meet equal opportunity/affirmative action employment and contracting goals established by the City of Saint Paul: willingness to provide equal opportunity to minority/women-owned and small businesses; demonstrated history of providing contracting and employment opportunities for qualified minority and women individuals and minority/owned and small businesses.
Despite all of this, the city voted to proceed with the sale to Madison Equities, Inc. So, what’s the problem?
Those who were present or who listened to the hearing on June 26th, 2019, witnessed some of the issues with the City’s process. Despite our City Council members’ assurance that the process was transparent, there appeared to be little transparency. Had Mannillo not stumbled upon the information embedded in an email (of which many of us are inundated and neglect to read in full & most are not included or even know about this listserv), the City would have sold the City’s property for less money than it would take to close the deal! If Mannillo had not made his market rate offer, City taxpayers would have lost $30,000—plus closing costs.
THOUGHTS TO CONSIDER (POSSIBLE QUESTIONS)
· Is this OK with you?
· Was this deal financially sound?
· Did it reflect the due care and diligence of good governance that we expect from our elected officials?
· When the City cancels community events like fireworks, how can it afford to sell City property for $30,000 under its value?
· Why weren’t other offers solicited and encouraged or an auction held to garner higher offers?
· Why wasn’t the property ever listed publicly for sale inviting people who we might not even know may have been interested and had other big ideas for the space?
· Is there some relationship between the City and Madison Equities, Inc. of which we are unaware and uninformed?
· Should the City reconsider its decision and place this property (and future City or HRA owned properties) on the open market for sale, not in a back-room deal?
Many people still believe this property at 375 North Robert Street can yield a higher sale price than $32,500. Do Saint Paul taxpayers deserve better than this?
The Solution
The city has policies and procedures for the disposition of City owned property. It is called Policy and Procedure for Disposition of HRA Owned Real Estate. Had the City followed its own policy and objective to “provide a uniform and consistent approach for the sale, lease or other disposition of real estate now owned or hereafter acquired by the HRA”[iv], the results would have been more transparent and fiscally responsible to the residents of St. Paul.
Update June 2022
Madison Equities, Inc. has not found a restauranter to re-open the former Buttery restaurant. Nothing has been done to the property at 375 Robert Street that enhances its appearance or use to the public.
[i] Early Notification System Bulletins. City agencies and meeting bodies use the Early Notification System to inform neighborhood organizations and concerned citizens of all considered, and proposed, planned, or implemented developments, legislative and policy changes, and enforcement actions that may potentially impact the neighborhood and/or area residents.
[ii] http://www.citypages.com/news/st-pauls-promise-the-mean-task-of-bringing-business-to-the-capital-city/512801561 This link is no longer available. Articles are archived at the Minnesota Historical Museum or Hennepin County Library.
[iii] Id
[iv] Policy and Procedures for Disposition of HRA Owned Real Estate, Procedures, B. Other Proposals