City Walk, Home of Palm Coast Government, in Foreclosure
FlaglerLive | May 4, 2010
On Nov. 18, 2008, Palm Coast hurriedly moved its city government offices to City Walk, the struggling, four-building, 167,000 square-foot commercial development on Cypress Point parkway, to accommodate Palm Coast Data, which took over the city’s old home. Palm Coast’s government leased 12 percent of City Walk storefront space, instantly making the city the biggest–and one of the few–tenants in the development, which could barely fill a few of its properties since finishing construction in 2008. The city moved its offices to City Walk in Part to boost the development’s viability.
Seven weeks after the city’s move, City Walk’s landlord defaulted on a $9.4 million loan. In March last year, Colonial Bank, which owned the note, began foreclosure proceedings against Winter Park developer Bhagwan Asnani and the company registered in his name, Asnaco LLC.
At no point in the past 12 months, not even when city council members examined their latest alternatives for a new city hall, did either City Manager Jim Landon nor council members mention publicly what they knew and were discussing privately–that their current home was in foreclosure.
Landon on Tuesday said repeated questions about the foreclosure’s effects on the city were “inappropriate.”
“That is a private matter between the bank and the owner. I don’t understand the connection,” Landon said. “If there is a new property owner, or the existing property owner starts talking about us having to be gone, then we’d have to obviously look at our other alternatives, but we’re doing that already.” Meanwhile, Landon said, “it’s not a matter that affects the city in any way.”
The city and taxpayers may be (or have already been) affected on at least four counts.
First, Palm Coast was named as a defendant in the foreclosure suit and expended city legal resources to get out of the suit through a July 2009 motion, when the city asserted that it had itself a considerable lien on City Walk. Palm Coast is again named in a related foreclosure suit filed against Asnaco and Asnani on March 19 by an investor group claiming Asnani defaulted on $1.8 million. Tenants on foreclosed properties are routinely named as part of such suits, though they don’t routinely take legal action to extricate themselves from the suits, as Palm Coast did.
Second, banks that foreclose on properties routinely throw out tenants, residential or commercial, as thousands of renters in Palm Coast have discovered since the collapse of the real estate bubble began in 2007. Landon says the city has “no reason to believe we’re going to be thrown out. Representatives from the bank that’s been dealing with people — the word I’ve gotten, I haven’t talked to them directly — is, they want to keep their tenants.”
But the city isn’t paying the bank. It’s still paying Asnani. And the bank itself has been a variable: the original bank that issued the loan to City Walk’s developer was shut down last August by the Federal Deposit Insurance Corporation (FDIC) and its assets turned over to Branch Banking & Trust Co, which continues the case against City Walk. (BB&T owns and is attempting to sell three properties in Palm Coast, including a $1.15 million, 5,000-square-foot home in Hammock Dunes.)
Third, the city is still paying the landlord $20,000 a month in rent, “inclusive of maintenance and taxes,” according to the resolution the council approved at a special meeting in late 2008. The landlord hasn’t paid his 2009 taxes–a $125,188 bill, $25,518 of which (or more than one month’s rent) is owed Palm Coast. For now, in other words, Palm Coast, which is facing a difficult budget year, is in the odd position of neither taking in the taxes it is owed by its own landlord nor having the taxes it is paying go to the school board or the county commission treasuries and other local government funds.
Fourth, foreclosure may be playing into the city’s re-examination of building a new city hall far more than city officials are letting on.
At a staff presentation on city hall’s future options, the current option of a lease was portrayed more negatively than other options. The presentation noted that following market lease rates, the city faces a “4-5% annual increase” in rent. Yet the city is in the second-year of a three-year, fixed rental rate. It can negotiate its next lease at City Walk or elsewhere on its own terms if it so chose. The presentation also noted, in red letters, that relocation and renovation costs are high–$237,000 for the relocation to City Walk. (In November 2008, when the city made its move, the council vote ratifying the deal approved $100,000 in relocation costs, not $237,000.)
The 30-year cost of leasing a property was put at $13.5 million, as opposed to building a $10 million building on land the city already owns, or $12 million on land it would have to acquire, a largely speculative disparity that doesn’t include the maintenance costs of a building owned and operated by the city (current rents include maintenance costs).