A private developer says the city's plan to purchase the Grand Forks Herald's downtown building is based on flawed information, a claim disputed by city officials.
Mike Kuntz, co-founder of Grand Forks-based Icon Architectural Group, offered to buy the Herald building from Forum Communications Co., the newspaper's Fargo-based parent company, last summer with fellow developer Craig Tweten of Community Contractors.
Their plans were largely dependent not only on the city leasing office space from them, but on the city helping pay for a collaborative community space downstairs with UND and Grand Forks Public Library.
The city's Jobs Development Authority-which consists of City Council members and the mayor-plans to vote at 5 p.m. Monday whether to purchase the building. The JDA intended to settle the matter last Monday, but ultimately tabled the decision.
Kuntz and Tweten say they had been working with city officials on the plan up until February, when they read in a Herald article the city had made its own offer for the building.
"We worked with (City Administrator) Todd Feland for virtually the last nine to 10 months, close to a year," said Tweten. "We met, we went over costs, we went over leases, we helped them find other funds ... to help them get the cost down to the right pricing for them."
City officials say they have considered purchasing the Herald building for just as long as Kuntz and Tweten, ever since Forum Communications put the property onto the commercial market. When members of the Growth Fund Committee recommended earlier this month that the JDA buy the building for $2.75 million, the decision was made based on a financial analysis from local banker Jon Ramsey, of Assurity Finance and Development.
Earlier this year, Ramsey estimated the city would spend $1.3 million over a 10-year period by renting from Kuntz and Tweten. He also said the city would generate $2.2 million in the same amount of time by just purchasing the building for its original appraisal of $3.2 million and leasing space to other organizations.
"I think that it's actually fairly simple," said City Council member Bret Weber. "The deal did not work for Mike (Kuntz) unless we were willing to lease most of the space. The deal does not work for us to lease most of the space, so we're going to buy the building."
Weber is president of the JDA, the decision-making entity in charge of the city's Growth Fund for economic development. Because the city plans to purchase the Herald building using that fund, it needs final approval from the JDA.
Kuntz said there were several things wrong with Ramsey's analysis. For instance, he claims Ramsey wrongly assumed rent rates for current tenants like the Grand Forks Economic Region Development Corporation and Grand Forks Public Schools.
Ramsey said there was no finalized lease with Grand Forks Public Schools at that time and assumptions were justified.
Kuntz claims Ramsey also failed to include common area and general maintenance costs in the earlier analysis, when estimating how much the city would pay to own the building. According to Kuntz, this was misleading because he said Ramsey had included those costs when estimating how much the city would spend to lease the building.
According to Ramsey, all of these issues were addressed and corrected in a new analysis, which estimates the city would still generate $1.2 million from tenants over a 10-year period by owning the building, whereas the city would spend $1.46 million leasing after a decade.
Compromise or compensation
Both Kuntz and the city have proposed creating a community space of the first floor of the Herald building. Kuntz said the city's idea for that space came from his work, and if he can't own the building then at least he would like to receive compensation for his ideas.
"I'm still hoping for a compromise where I can get, at a minimum, treated fairly for all the work I've done," he said. "Legal blueprints, design and concepts, all those value added items."
"We did a lot of things to make that happen," said Tweten. "There was a lot of work done behind the lines."
Tweten added that he and Kuntz even obtained permits from the city to build a wall in the Herald building to separate Grand Forks Public Schools and Herald staff.
JDA President Weber said Kuntz's work had no impact on the city's proposal. According to Weber and Feland, the city has planned to create a community space with the library and UND ever since Forum Communications announced it was selling the property.
"We have looked at an invoice from him, we've had discussions with him," Weber said of Kuntz. "The city has its own relationship with the school district, the library and UND. We don't need anyone to talk to those entities on our behalf. At this point, we have no contracts, no agreements. We never hired Mr. Kuntz to do any work."
"From day one the city did say its intention was to buy it, to be honest," said Tweten. "Then we kept meeting with Todd (Feland), we met with the school boards, we met with UND. ... All of a sudden we read in the paper that they're buying it."
Ripple effect on downtown development
Kuntz said the city would charge its tenants much less than other commercial landlords downtown, giving the city an unfair competitive advantage against private developers.
"It's good for the Herald, frankly, but it's not necessarily good for the commercial rental environment downtown," Kuntz said.
Forum Communications has told the city it will lease space from the city for Herald staff for about $75,000 a year, at $14 per square foot. The Herald plans to stay in the building no matter who owns it.
Paul Amundson, director of real estate development for Forum Communications, did not return calls seeking comment for this report.
Kuntz also has been working on designs for an $8 million to $10 million redevelopment of St. John's Block on North Third Street, he said.
"You can come rent from us for $22 a square foot, or go rent from the city at $14 a square foot," Kuntz said. "It destroys the market."
City Administrator Feland disputed Kuntz's comments, saying the city was very studious when deciding how much to charge tenants for downtown space. He said the city considered 12 other office spaces downtown while coming up with its rates.
He also pointed out most of the building will be occupied by public entities, like the schools, UND, Grand Forks Public Library and the city.