City May Buy Building to Get Chamber Out of Debt

In an effort to help the debt-strapped Chamber of Commerce, the City Council on Tuesday will consider buying the organization’s office building and leasing it back to the group.

Under a plan recommended by city Finance Director Bob Biery, the city would pay off the $500,000 mortgage for the chamber’s building at Hillcrest and Lynn roads. The chamber would then be able to rent the building from the city or arrange a lease-to-own deal for less than its current mortgage payment.

City Council members greeted the idea Friday with healthy skepticism, saying they would need to know more financial details before agreeing to the deal. Details of any rental agreement would be hammered out later, said Interim City Manager MaryJane V. Lazz.

Councilwoman Linda Parks suggested that the city’s interests would best be served by paying off the mortgage and hawking the building to the highest bidder. The city should be saving up, given the possibility of high legal fees and fines from two probes into a massive sewer spill, she said.

“It looks like we’d be taking over another property the city doesn’t need for city business,” Parks said.

“If this were an organization that helped with the function of government--such as one that provides affordable housing or helping the needy--that would be one thing,” she added. “But this is an organization that is an entity of the private sector. . . . Taking on an unneeded building isn’t fiscally prudent.”

The deal may be better than it appears, said City Councilwoman Judy Lazar. But she said she would reserve judgment until she gets more details.

“I think the city would get its money back, because a portion of the mortgage is already paid and the value of the building is greater than the mortgage amount,” she said. “I don’t think we’re losing any money here.”

Stung by the recession and declining membership, the chamber has fallen about $100,000 into debt in recent years.

This month, a chamber member offered the organization a low-interest loan to pay off $80,000 to about 50 creditors, one of which forgave a $19,000 debt against the business group. But it is still about $25,000 behind on mortgage payments for its building.

The city is already financially obligated for the building through a 1989 agreement. The city sold the vacant property to the chamber for $92,000 and then guaranteed the loan for construction of the building, which was occupied in 1990. As guarantor, the city would be obligated to repay the loan if the chamber fell more than 120 days behind.

To Councilwoman Elois Zeanah, the proposal to buy the building equals “a bailout.”

“The city absolutely should not bail out the chamber,” she said. “They represent maybe 3% of the population, but probably account for 35% to 45% of the wealth. If there is support for the chamber, they should get their support from their wealthy members.”

The current proposal for the city to buy the chamber building “does not constitute a bailout,” countered chamber board member Gary Wartik.

“A lease-purchase is not a bailout because the term bailout, by definition, means that someone is buying out the position of another or donating a sum of money to assume the obligation of another,” he said. “In this case, the city is already the guarantor of the loan.”

The city has other options, including doing nothing or providing collateral for the chamber to refinance its mortgage. But Biery and Lazz recommend that buying out the mortgage makes the most sense. That way, the building could be rented back at market rate, perhaps $40,000 a year, Lazz said.

Wartik said the city would not incur any debt through a lease-purchase deal because the chamber has found another, unnamed tenant to share rent and space.

“This is the best option for the city and the chamber,” he said. “From the perspective of the city . . . the rent payments would fully service any loan the city would be required to make. From our perspective, while the payments would be market-rate, they would be less than what we’re currently paying on our mortgage.”

“My understanding is that the chamber is interested, when it’s back on solid footing, in really owning the building,” Lazz said. “In a lease-purchase agreement, they would recapture the investment they’ve already made in addition to paying off the mortgage and any interest. Meanwhile, the city would receive rent revenue.”

Whatever decision is reached Tuesday has to make financial sense for the city, stressed Councilman Andy Fox. He said he looks forward to hearing from residents and chamber members.

“Certainly the business community is very important and adds to our sales tax base significantly,” he said. “But an organization like the Chamber of Commerce is going to have to stand on their own two feet. They cannot rely on government subsidies to exist.”