When Scott Congel took on Irondequoit's Medley Centre, he seemed like the perfect candidate to make something happen on the site.
The Congel family business, Pyramid Companies, has built and operated malls across the Northeast, including the thriving Walden Galleria in suburban Buffalo. Officials thought that the Congel name and connections would translate into tenants for Medley and access to financing.
But the property sits idle with no tenants and as far as anyone can tell, no heat, electricity, or security, either. Grass grows through cracks in the pothole-riddled parking lot. A water pipe burst inside the mall earlier this year, which eventually resulted in the town charging Congel's company, Bersin Properties, with code violations.
The future of Medley Centre has never been as uncertain as it is right now. And the physical decay is just a symptom of much deeper problems. (Attempts to reach Scott Congel for this story were unsuccessful.)
Bersin Properties has an agreement with the Town of Irondequoit, East Irondequoit School District, and Monroe County Industrial Development Agency which allows it to make annual payments far below what it'd ordinarily pay in property taxes. But as part of the agreement, the developer committed to certain investment targets and penalties for missing them.
Since the developer didn't meet either last year's investment target or this year's payment, it owes approximately $3.8 million to the local governments, which have given Bersin Properties until May 1 to pay up. If the company doesn't make good, COMIDA will terminate the tax agreement on May 2, an action requested by County Executive Maggie Brooks.
Brooks has also said that if Bersin Properties fails to pay that the county, COMIDA, the town, and the school district will sue to recover the outstanding costs.
If Bersin loses the agreement, its tax bills will spike. But even if the company does come through with the payment and retains its incentive agreement, it'll still have to dig itself out of a serious financial hole.
Congel seems to recognize that reality.
In correspondence with Irondequoit officials, Congel has said that his company is prepared to advance a $1 billion hotel, residential, retail, and entertainment project on the Medley site; his original proposal in 2009 was for a $250 million project. But to make that happen, Congel said, the company needs to renegotiate some terms of the tax agreement.
Congel bought Medley Centre in 2007. It would turn out to be atrocious timing.
That same year marked the start of a global financial crisis and recession; banks halted investments in all manner of commercial property development. Bersin Properties had secured a $135 million loan for the Medley project from Nomura, an international bank based in Japan. But when the market collapsed, Nomura pulled the financing.
Late last week, Bersin Properties filed a lawsuit against Nomura. The suit alleges that Nomura improperly cut off Bersin's financing and that the bank prematurely called in the
$44 million it had advanced to Bersin.
As a result, the Medley Centre project ground to a halt, say lawsuit papers. The company wasn't able to pay contractors, the filings say, and it lost prospective tenants, including some that had already agreed to lease space in the redeveloped mall. Bersin Properties is seeking a minimum of $100 million in damages from Nomura.
Congel has struggled to secure new financing, though he recently indicated he has a new lender lined up. But to finalize that deal, he says he needs the tax agreement amended to extend investment benchmarks.
Irondequoit officials say they're reluctant to negotiate new terms when the developer hasn't lived up to the previous agreement.
But the current standoff may have been preventable. Congel first approached Irondequoit officials about renegotiating the agreement two years ago, before he'd missed any milestones and before he was on the hook for a few million dollars in penalties. Officials offered him an option: provide some compensation and they'd renegotiate. But Congel passed.
"Our feeling was that our community needs to be compensated, that we needed to get something out of further consideration to him, because the community was giving him a generous tax break and we're not required to do that," says John Abbott, deputy superintendent for the East Irondequoit schools.
Even if Congel's company manages to make the May 1 payment deadline, the investment requirements would still pose a problem.
Local officials pushed to include the milestones in Congel's tax agreement in order to encourage investment without penalizing the developer for adding value to the property. But the milestones are also meant to discourage inaction, so the penalties for missing them escalate quickly.
The three local governments do not agree on whether Bersin Properties met the first $90 million investment requirement. But they are all certain he missed last year's $165 million investment deadline. The $3.5 million penalty was determined by a formula in the tax agreement.
The company needs to prove that it has invested a total of $260 million into the mall by April 30. Since it's unlikely that the company will meet that benchmark, Bersin could be on the hook for another large penalty payment.
And if the company blows the May 1 deadline, it'll have to pay full taxes on the mall. Under the tax agreement, Bersin is supposed to pay the local governments $392,381 this year. Irondequoit Supervisor Adam Bello says that with the mall's current $40 million assessed value, full taxes on the property would be $1.7 million. The figure includes town, county, and school taxes.
At best, the spike in tax liability will leave Bersin Properties with less money to put into the mall. And any investment that increases the property's value would also increase its taxes.
If Bersin Properties doesn't pay those property taxes -- and right now this is a hypothetical scenario -- the county could foreclose on the property. The developer could also try to sell the mall at any point.
And even if Congel does manage to move the project forward, it's hard to see a future for the soured Congel-Irondequoit relationship.
State Assembly member Joe Morelle says the best option at this point would be for a new developer to step in. He says he doesn't have a particular developer in mind and has not talked to anybody directly.