Failed deals suggest adaptive reuse of Mercantile not financially viable
By Martin Kidston/MISSOULA CURRENT
The owners of the Mercantile property in downtown Missoula said Wednesday that an offer made by a team of Nevada-based developers last year was “neither reasonable nor viable,” and was declined as a result.
Addressing the City Council’s Land Use and Planning Committee on Wednesday, a spokesman for Octagon Partners Capital Management detailed the firm’s efforts to sell the property over a number of years.
HomeBase, a development firm based in Bozeman, has emerged as the latest potential buyer and is currently seeking a permit to build a $30 million custom hotel on the downtown property.
Jed Dennison, a Missoula-based broker representing the property, said Octagon purchased the vacant Mercantile building in January 2011 and spent nearly two years working to rehabilitate the structure for eventual reoccupation.
“Our development plan was to rehabilitate the property into first-floor retail and second-floor office,” Dennison said, speaking on behalf of Octagon. “We also evaluated the building for residential use, but the building’s dimensions and existing penetrations precluded efficient use of the second floor as retail.”
Dennison said Octagon spent three years working to secure retail and commercial tenants on its own. While the firm found interest among some retailers, he said, it found limited interested in use of the second floor. Potential office tenants also passed on the building, he said.
Setting a $4.5 million price tag, Octagon listed the property for sale in October 2013 and found a potential buyer in SGRE Acquisitions from Nevada. The buyer and seller entered into a contract in late 2014.
SGRE had proposed to repurpose the Mercantile and was granted 150 days to perform due diligence. But SGRE terminated the contract after 150 days, citing unforeseen costs and the need for additional asbestos abatement.
“There’s hundreds of thousands of dollars of abatement that has to be done before anyone who’s going to do any true rehab work can start,” Stephen Glenn of SGRE said last April. “The building really needs to be resurveyed from the ground up by an impartial surveyor.”
SGRE, which placed restoration costs at roughly $10 million, made a second offer which Octagon declined. The amount of that offer was never disclosed, though Octagon called it unreasonable.
“Subsequent to termination, SGRE submitted a second contract that requested significant owner concessions which were neither reasonable nor viable,” Dennison said. “The offer was refused and the property was again offered for sale on March 15, 2015.”
Octagon offered the timeline Wednesday to counter the outcry among some community members who claim the firm has not made a sincere effort to sell the building to a buyer willing to invest in restoration.
“The city of Missoula is being presented with a false dichotomy when it comes to the Mercantile – that we need to demolish and replace it with a bland corporate hotel or it will continue to sit empty and decay,” said Solomon Martin, a member of the Historic Preservation Commission. “The prime location and the value of the property virtually guarantee that it will be redeveloped sooner than later.”
Octagon disagrees, saying more than 20 potential buyers have looked at the property over the past three years alone, the latest being CRSA out of Chicago. The retail developer placed the property under contract in April 2015 and was given 180 days to perform due diligence.
Like those before it, CRSA terminated the contract in September.
“CRSA determined that the redevelopment costs exceeded their initial estimate and the property could not be redeveloped,” Dennison said.
HomeBase founder Andy Holloran said his firm remains interested in the property. It is proposing to deconstruct the Mercantile and reuse certain historic elements in a modern five-story, custom-built Residence Inn by Marriott hotel.
However, the permit to proceed has not been issued. The Historic Preservation Commission will consider the permit next month.
“HomeBase has invested significant expense in evaluating the property for renovation, ultimately reaching the conclusion reached by others – that adaptive reuse of the building is not economically viable,” Dennison said. “Therefore, HomeBase has presented a plan of redevelopment that requires the demolition of the existing structure in order to create a project which will restore vitality to this important corner.”