When the city of Danville purchased the warehouse on Third Street at auction on Aug. 10, it outbid an industrial client from Tennessee that had hoped to expand its operations as a recycling contractor for R.R. Donnelly.
Jody Lassiter, president and CEO of the Danville-Boyle County Economic Development Partnership, said a Maryland company also was eyeing the 100,000-square-foot facility on nearly five acres for an alternative energy project that would bring in at least 100 jobs, but was not quite ready to make a play for the building.
Lassiter said city officials were aware of the outside interest in the old Boyle Industrial Storage Co. building, but decided to purchase it anyway, posting a winning bid of $1,237,550. The city will use the building as the long-sought, permanent home for the city’s Public Works Department, which had been leasing about half of the warehouse for several years.
City Manager Ron Scott confirmed the City Commission knew of both prospects but was intent on buying the property and “didn’t get into much discussion of the cost benefits of public versus private ownership of the property.”
Simply put, Scott said, the city needed the space for public works, and picking up the property was too good of a deal to pass up.
“I think it was an excellent purchase for the city,”¿he said. “A lot of times, in rent-versus-own situations, you get better outcomes if you’re the owner.”
The city was paying $45,697 a year to lease the space, an amount that was scheduled to increase to about $48,000 a year if the expired contract was renewed, Scott said. If the city is able to get favorable rates in the upcoming bond issue to pay for the purchase, debt retirement payments will be similar to what the city would have to pay to continue to lease, he said.
“We were approaching $50,000 in rent,” Scott said.
Scott did not say how much of the purchase price will be subject to the bond issue, but the full amount over 20 years at 3 percent would cost about $90,000 per year. The city does not occupy the entire building and could potentially lease a portion of it to another party.
Scott said the city has been renting the space since at least 2004, during the John Bowling administration, when a lease agreement was signed with owner Mitchell Barnes of Lexington.
The agreement with Mitchell calls for lease payments to be made to Blue Gold Enterprises at a post office box in Danville, Scott said. According to the Secretary of State’s website, Blue Gold Enterprises was formed by Mike Montgomery of Danville, who is listed as its sole officer. A sign outside the warehouse refers parties interested in purchasing or leasing space in the building directly to Montgomery, a local developer and owner of M&M Electric, a nearby business.
Montgomery’s son, Ryan Montgomery, is a city commissioner. At Monday’s meeting, when the purchase was approved, Commissioner Montgomery made no mention of the connection.
As owner of the building, the city will be able to make improvements such as upgrading heating and cooling systems, installing shelving and making other changes that will create a more viable, safer and efficient workspace for Public Works, Scott said. The city’s meter shop off of Fourth Street also will be moved to the new facility, allowing the old location to be sold, he said.
While Lassiter said he understands why the city wanted to own the building, he bemoans the fact that the property is now off the list for industrial prospects, as well as off the city and county tax rolls.
The property had unique appeal because of its large size and downtown location, Lassiter explained. It was the only property of its size in the New Market Tax Credit Area, a Census designated low- to-moderate income area bordered by Broadway on the north, Clarks Run on the south, Stanford Road on the east and Norfolk Southern Railroad tracks on the West. The area is eligible for tax credits for new businesses who locate there, which made it especially attractive to the Maryland alternative energy project and other potential private buyers, Lassiter said.
“I can’t criticize their decision,” Lassiter said, “but I think it’s fair to wonder if it’s in the long-term financial interests of the city. This million-dollar property is now off the tax rolls, and we have no other property eligible for the New Market Tax Credit.”
The principle officer of the Tennessee recycling company attended the Aug. 10 auction and placed several bids on the property but got discouraged after it became apparent that the city had its eyes on the prize, Lassiter said.
“He told me that it became so clear that the city was really going for it that he dropped out,” Lassiter said.
The city sent Realtor Nina Kirkland, whom Scott described as an “experienced bidder,” as its agent to buy the property. Kirkland owns VIP¿Realty in Danville. The auction company received a 10 percent commission, or about $120,000, on the sale. Out of that money, Kirkland was paid a 3 percent commission, or about $36,000, for her role, Scott said. The commissions were included in the $1.2 million purchase price, he said.
Scott said the city was pleased with the price it paid for the property. It had seriously considered buying the building in 2005, when it was appraised at $1.36 million, he said, and the current deal included an additional half-acre that was not included in 2005.
According to records at the courthouse, Mitchell Barnes purchased the property in 2002 from Boyle Industrial Storage Co. for $685,000. The property was formerly the home of Danville Leaf Tobacco Co., which sold it to another tobacco warehousing firm in 1977, records show.