HERNDON ART CENTER – Examination Of The (Costly) Purchase Of The Property For It
February 10, 2014 § 1 Comment
Director, Classical Ballet Theater
complete report The Art Center
PREMIUM PRICE FOR THE PROPERTY
By the end of 2001, the Town’s Cultural Arts Advisory Committee had decided that the Art Center would be located at 750 Center Street even though a print shop was still operating at this location. By fixing the location, the Advisory Committee had inevitably weakened the Town’s power to negotiate a lower price. The owner of the property would reject whatever offer was put on the table, take unreasonable positions, use any technique possible to force the other side to increase its offer. The Town’s negotiating stance would be further compromised if it could not walk away from the purchase. The following sections show that this is exactly what happened. The Town purchased the chosen site for more than $1.5 million when it had been assessed for less than $500,000 by Fairfax County and the Town-hired appraiser had initially appraised it for $850,000.
Upon receiving the Town’s unsolicited bid, the sellers attorney took the Town’s appraisal apart, faulted its methodology, rejected the appraiser’s choice of comparables, suggested that the highest and best use had not been determined and that the effect of PD-MU zoning had not been considered. He suggested that the property should have a value of $1.8 million to $2.5 million. When the Town’s appraiser did not materially change his appraisal, the seller’s attorney hired his own appraiser; however, before doing so, he induced the Town to agree to continue to negotiate and to not use any material produced in the negotiation in any future litigation.
The seller’s appraiser, using an inapplicable (and invalid) appraisal methodology, came up with a minimum value of $1.8 million and a maximum value of $2.5 million. The seller and his attorney had dug their heels in. After so called tough negotiations, the Town agreed to terms that provided the following benefits to the seller:
1. Purchase Price = $ 1,500,000
2. Seller uses the premises for 2 yrs @ $1/yr = $ 175,000
3. Potential Tax Benefit of the Takings = $ 180,000
Seller’s Total Benefit = $ 1,855,000
Thus, the Town purchased the property for almost twice as much as the value determined by its own appraiser and three times as much as the value stated in Fairfax County records.
Connie Hutchinson was the lone dissenter. She stated that she supports the cultural arts center project, but that the inflated price “…will stifle any future development of other undeveloped parcels in the downtown, because it will raise the asking price for other properties to unrealistic levels…” (Emphasis Added) That is exactly what seems to have happened. It is well known that at least two proposals for development were derailed in part as a result of what many consider unreasonable demands. In the last 12 years, very little new development has taken place in the downtown.
This purchase had set the price floor. Only four months later, the Town purchased another lot across the street (for its Shared Parking program) for $25 per sq ft, that is, for $5 per sq ft more than it paid for the subject property. The $100,000 extra payment for an empty lot just cannot be explained. It is sure to have set the downtown property owners’ sights even higher and contributed to the stalemate in development.
The then Mayor Rick Thoesen, felt that the Town had paid a high price and he expressed his feelings by saying, “…he wishes he could have brought the community a lower price.” No other councilmembers expressed any reservations about the high price. In fact they all supported the purchase. They were not in any mood to ask critical questions. Councilmember O’Reilly perhaps expressed the common sentiment by stating, “I believe the cultural arts center will benefit the downtown, and will come to fruition soon…” (Emphasis Added) Developers often assert that economic benefits of art centers are at best dubious. Therefore, while the Town still has time, the claim of the economic benefits should be critically examined.
PUTTING THE CART BEFORE THE HORSE
The record shows that the Town bought the property first and then set out to bring art to Herndon. The Foundation for the Cultural Arts (Foundation) was formed in 2003 to promote arts, and develop an Art Center. With little or no experience in (1) developing Art Centers, (2) promoting arts, raising capital, or hiring qualified staff, it was sure to have a rough start. In 2004, it formed a partnership with the Town to raise funds for completing of the construction of a “shell arts center” by 2006 to 2008, and finishing it out during and after 2008 to 2010. The intent of the partnership was for the Town to provide the required capital, if the funds could be appropriated. The Foundation, by itself, was in no position to raise much capital. It had no product to market, nor any artists under its wings. Elden Street Players and Town Square Singers were small independent entities that could not have possibly paid for a $8 million center contemplated by the 2003 study.
Notwithstanding the shortcomings, the subject property, now called Art Spaces, opened for exhibitions in 2008. Since then, its small, but largely unpaid staff has been experimenting with a variety of arts, artists, exhibits and performances to determine what might work. The skeleton staff must be lauded for its effort over the last six or seven years. It had nothing to work with, no renowned artists, no products, no strategic plan, no established clientele and no money. It was at best, an overwhelming task to find outside artists, schedule them to perform at Art Spaces, and entice the public from surrounding areas to attend the performances. Recent management changes bode well, but the Foundation is still far away from defining a sustainable business. It is obvious that, back in 2002, the TC had “put the cart before the horse” by buying a property without knowing when and how it might be used.
PAST AND FUTURE COSTS
The Town has paid a high price for its decision in 2002. As shown in Table 1, the Town has directly or indirectly spent $5 million so far on its experiment to bring arts to the Town. No one has any idea how much more it is on the hook to spend, because that depends on whatever the next step is and when it is taken.
If the operations continue at the same location the town will continue to incur direct and indirect costs of about $140,000 every year. On the other hand, if an Art Center, as conceived in 2003, is planned and constructed the losses would be much larger. Based on the 2003 study, it would take approximately $17 million (2014 dollars) in capital costs to achieve this objective. Once it is constructed, the Town would probably have to bear the cost of an annual operating deficit (excluding the $1.4 million in debt service) of about $400,000. It is not clear that the Town, County, the Federal Government or any nonprofit organization is prepared to spend this much money.
The third choice is to sell the property to a developer and ask him to build an “arts facility” in exchange for the land. Based on a cursory analysis, a builder might be interested in building a 5,000 or 6,000 square foot structure within its development. Such a facility would not be any bigger than what is there today. It is expected that the builder would price the land at no more than $1.2 million.
In conclusion, after spending about $5 million over the last 12 years, it is not clear where the Art Center is headed. It would be prudent for the community to make a critical assessment of a “strategic plan” that contains a description of potential products that have been or can be developed, discusses how common citizens can benefit from an Art Center, and describes the tasks, budgets and milestones that should be accomplished. The citizens of Herndon, not the politicians or a select few, should decide how much money they want to spend and what the Art Center should look like.
( click on table to see enlarged view )
The Complete Report The Art Center