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Questions remain as city sorts through Armory Square project

The future of Armory Square is uncertain as the city and developer are still trying to work out a purchase agreement to meet a deadline at the end of 2018 to receive $2.5 million in grant funds allocated in 2014 by the state legislature. (Kevin Cederstrom/Enterprise)

Armory Square is quiet these days as the principal parties involved in the project work to close the deal for transfer of ownership while skepticism grows whether the city will purchase the facility.

Hanging in the balance is a $2.5 million grant from the state to be allocated once the city purchases the Armory and settles on a lease agreement with the Park Rapids Community Development Corporation (PRCDC) to operate the facility.

The main parties — Alan Zemek and Armory Square Management Corporation, City of Park Rapids and the (PRCDC) — still need to execute purchase and lease agreements, which then must be approved by the state before the grant funds are allocated.

In 2014, the state legislature allocated $2.5 million in grant funds for the Armory restoration project. Three years later, the facility is renovated and has hosted numerous events as remodeling and building upgrades continue but the deal isn't yet complete.

The city earlier this year agreed to take ownership of the historic armory under the condition the PRCDC run the facility which set up as an arts and events center with office and meeting space, dependant on the city and developer coming to terms on a purchase agreement.

The city and PRCDC will have to work out a lease agreement, which would then have to be approved by the state Office of Management and Budget (MMB) before the $2.5 million in grant funds is allocated. Once the deal is approved the city stands to receive the state grant to purchase Armory Square from Zemek and his development group.

Mike Monsrud, chairman of the PRCDC, said the group is still very much in support of the project but, at this point, it's up to the city as the buyer and Zemek as the seller to come to terms on a purchase agreement. Once that is done the PRCDC will lease the facility from the city.

"Our operations budget is being reworked to reflect improvements to the building which increases our opportunity to better serve our community as an arts and events center," Monsrud said. "The operation budget takes into account future pledges and a line of credit to get the Armory up and running. Our operations budget also projects revenue from art events, Northern Light Opera Company plays and events, other local events, weddings, book shows, art education etc."

In June, Monsrud presented a letter on behalf of the PRCDC to the EDA which stated, in part, "To reaffirm our commitment to the Armory Square project and our lease agreement to operate it as a regional arts and event center. The PRCDC Board looks forward to working with the City of Park Rapids EDA to make the Armory Square an asset for the entire region that will build our economy and enhance our reputation as a quality community in which to live, work and visit."

Armory Square has three loans through the the Park Rapids Economic Development Authority (EDA) Revolving Loan Fund totaling $400,000 for the renovation project. The loans are $150,000 in December 2011; $100,000 in December 2012; and $150,000 in April 2015. All three loans are interest-only payments to be made quarterly at 1 percent interest, according to City Treasurer Angela Brumbaugh.

The loans are all set up to be reimbursed in full if the project goes through and the $2.5 million grant from the state would pay off this debt.

Liz Connor, Capital Budget Coordinator of the MMB, said the city would need to have an executed grant agreement in place through the Department of Employment and Economic Development (DEED) by Dec. 31, 2018 in order for the grant funds to be considered obligated. A representative of DEED said that office is unable at this time to provide specific information concerning the Armory Square grant to the public until a grant agreement has been fully executed.

Zemek says he and the development corporation can't proceed until the city proceeds.

It appears the project is stalled as attorneys representing the city and the developer work out the details as to what work still needs to be done on the building and terms of a purchase agreement.

Since 2015, the city has expended over $70,000 in legal fees and $10,000 for the appraisal. PRCDC has reimbursed the city $20,000 leaving an outstanding amount of $60,500.

"The city council are being prudent, cautious, and diligent, as you would expect them to be as good public stewards, but we have vetted every issue and concern that has been raised along the way and provided the most rock-solid plan possible," Zemek said.

Zemek said it is his understanding the PRCDC is preparing a new plan with less ambitious goals for the EDA to consider for approval.

What needs to be done at this point?

The most essential piece of the puzzle that is missing is the grant contract between the city and the state. The grant was appropriated in May of 2014, and according to Zemek, it was reasonably expected that as work on the facility continued, the city would also be working to secure the grant appropriation.

"From my point of view, we are waiting on the city and PRCDC to catch up with where we are in with the project and the process," Zemek explained. "Our contribution to the project is done and the renovations within the scope of work of the grant appropriation have been completed, with the exception of an upgrade to the HVAC system in the auditorium space to boost the capacity of the system to provide more fresh-air ventilation and additional heating and cooling capacity for the final occupancy load of the event space."

Zemek says they will complete this equipment installation once the city has completed the grant contract with the state and the funds to complete the transaction are secured and the city has decided to proceed.

There are also some specific and technical issues to resolve with the purchase agreement. According to Zemek these include the following:

• Location of easements for ingress & egress through public spaces

• Vertical Transportation (type and location of elevators in the building)

• Additional HVAC for fresh air ventilation

• Redrafting some language in the purchase agreement for clarity.

Up until last year the Armory has been operating on a temporary occupancy permit. Additional work is needed with the the heating/cooling and air exchange system for the building and a permit is dependant on the facility's occupancy.

Zemek said as he understands it at this point, he believes these are solvable problems.

"It would be a real tragedy to let this opportunity slip away," he said.

The city had earlier this year approved an initial purchase agreement with the developer if certain building criteria were met. The PRCDC's responsibility in carrying out a lease agreement with the city is to show a workable and sustainable financial plan, or pro forma, for operation. Once that is established it must be submitted to the state Office of Management and Budget for approval.

According to City Administrator John McKinney, there were certain assumptions in the original financial plan that are no longer feasible and the purchase agreement must be revised and agreed on by all parties before being submitted to the state.

McKinney said the city has requested a meeting with the PRCDC where they can sit around a table to discuss how to make this a sustainable operation. It's at this meeting where McKinney states they will look at what are the problems and what are the solutions. McKinney said they are waiting for the updated PRCDC report on feasibility and business plan. If that looks good then the city can proceed with a revised lease agreement, and ultimately a purchase agreement with the developer.

The original plan was for Zemek to keep Armory Square operational through the process and the PRCDC to take over managing scheduled events. The initial PRCDC pro forma was based on events taking place this winter but Zemek decided not to book any more events at this time until a lease agreement between the city and PRCDC is done. The last event at Armory Square was Northern Light Opera's performances of the musical "South Pacific" the first weekend of August.

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