The Lynn City Council is preparing to use eminent domain — defined in the Massachusetts Constitution as the taking, with reasonable compensation, of private property for public purposes — to take city ownership of commercial buildings located at 2 State St. and 37 Friend St.
Councilors voted in January to authorize the city to exercise its bonding authority to buy the buildings and sent letters in February notifying the property owners of the city’s intent.
Below is a letter written by Lynn State Street 2 LLC Manager Peter E. Cook and sent to all 11 councilors opposing the 2 State St. proposed taking.
I am writing to you today regarding the status of 2 State St., Lynn (the former Century Bank branch building), and the City Council’s upcoming vote to take this property through eminent domain.
By introduction, I lead an investor group that has been under contract to purchase this building since Dec. 30, 2021, with a projected closing date of June 30, 2022.
In a budget meeting on Jan. 25, 2022, following a presentation by Lynn Chief Financial Officer Michael Bertino, the City Council ultimately authorized a contemplated $1.5 million bond offering to fund the upcoming taking (the “bond presentation”).
In the question-and-answer period prior to the vote, Councilor-at-Large Brian LaPierre asked, “Would we be in competition with other buyers?” to which Mr. Bertino answered, “No, this would be what I would call a ‘friendly taking.’ It’s a property for sale. It would be a friendly taking, so to speak.”
Not only was this statement inaccurate, there are several other facts about this property of which the members of the City Council should be aware as you consider the decision to take this property.
While we are aware that eminent domain is within Lynn’s rights, we want to present our perspective and share some facts about this property in an effort to urge you to conclude that this taking is not in the best interest of the city:
The property has been under purchase and sale (P&S) since Dec. 30, 2021. We have had this property under P&S with Eastern Bank since Dec. 30, 2021 for $2.65 million with a closing date of June 30, 2022.
It is frustrating that the status of the property as “under agreement” could have been easily verified with the listing agent before the bond presentation. Instead, the property was misrepresented as “for sale” and a “friendly taking,” not in competition with other buyers in the bond presentation, which led to the vote cast that set this taking into motion.
We have a plan for the building and we are well underway with due diligence. PNC Bank has been under letter of intent since Dec. 8, 2021 to lease the space, and this lease has been negotiated and signing is imminent.
This is a new location for PNC and they are excited to come to Lynn. Both prospective landlord and tenant have spent thousands of dollars in due diligence thus far, including legal, title, environmental, architecture and engineering.
PNC has been on a fast track and is drawing up plans for internal and external improvements, and has a first draft nearly complete for their branch and office layout.
Don’t believe that the $1.5 million “appraisal” referenced in the bond presentation will hold up.
As mentioned above, we are under agreement for $2.65 million and this value was driven by a competitive bidding situation where another prospective purchaser was pursuing the property back in December.
Once complete and leased to PNC, the building is anticipated to be valued in the $4 million to $6 million range. Clearly, the best use for a small retail building purpose-built as a bank branch with a drive-through is to continue as a bank branch. This is a valuable and key retail location in your city, and to remove this building from the tax rolls when you are aware of the plans in store would be a mistake.
In light of this valuation evidence, it may prove risky to assume that a $1.5 million taking amount will be unchallenged in court.
The building is substantially smaller than what the tax card indicates. As part of our due diligence, we had the building measured by an architect (we have attached their measurements).
The tax card indicates 15,220 gross building square feet. Our architect measured the building at 9,186 square feet. Almost half of the space in the building — 4,412 square feet — makes up the second (top) floor, which is by far the largest floor because it cantilevers out over the drive-through lanes.
This is occupied by the nonprofit Children’s Law Center through 2029, with an extension term through 2034, which we intend to honor and maintain in the building. That leaves 4,774 square feet total on the first floor and in the windowless basement available for Lynn to potentially occupy.
Furthermore, this building has two stairwells and an elevator lobby despite its small footprint, so the usable area of these two floors for occupancy would be only 4,480 square feet (see plan).
We would urge anyone voting on this taking to consider touring the building so that you understand what Lynn would — or would not — ultimately be gaining, particularly if the $1.5 million valuation is contested and the city ends up paying more in a future settlement.
The economics from the city’s perspective are not convincing. In the bond presentation, Mr. Bertino said: “This is something that will not only pay for itself with the rental income that it currently brings in, but it also pays for itself with the savings in rental income that we’re going to save.”
Children’s Law Center, the tenant, pays approximately $80,000 annually in rent (just over $18 per square foot), which is a below-market gross rent that includes their share of property expenses.
The building is currently assessed at $1,741,600 which, at the current $23.70 tax rate, pays Lynn approximately $41,000 annually in taxes — so the net gain (rent income gained minus the loss of property tax revenue) from the rent is about $39,000.
However, assuming that we potentially double the value of the building, Lynn could pick up an additional $41,000 in taxes, so $82,000 of tax income foregone under a taking would offset the $80,000 of rents coming in if the city owned the property. While it’s true that there would be a savings in rent for the city (for 4,774 square feet of rentable space), the city would also be responsible for the property expenses and maintenance for this entire building.
In light of this information, how much this building would ultimately “pay for itself” is at best uncertain.
The city’s plans for this property are unclear. In the bond presentation, Mr. Bertino’s explanation for the reason for the taking was:
“It’s a downtown location. As soon as we own the building, we can finalize different plans that we have to occupy that but, again, we have gone out three times over the last two years looking for space, and this is space that just happened to be put up for sale and we are going to try to exercise our right to acquire that property.”
While Mr. Bertino indicates a need for space, one could reasonably question if this building is the right solution, given that it is planned and constructed as a free-standing bank branch with a retail focus and, correspondingly, a relatively small amount of usable space available split between two floors.
We understand that it is ultimately within the city’s rights to take personal property. However, we would hope that this power should be wielded cautiously, in circumstances where there is no other option, and with a clear and defined benefit to the community.
This taking, which does not appear to be an emergency for the city and has little gain in terms of usable space, is far offset by the benefit of the prospect to bring a new, community-minded business into Lynn, and the opportunity to restore a building to its highest and best use as a bank branch in a key retail center of the city.
It would potentially forego more than $80,000 in annual property tax revenue. Finally, given that this $1.5 million taking would nullify a preexisting, valid $2.65 million market sale well underway, it is hard to argue that this taking is in fact, “friendly,” or that this appraised valuation is reasonable and defendable.
Please consider these arguments that we have presented and we urge you to vote against this taking.
We and PNC believe that our deal represents an exciting opportunity for Lynn for many reasons and we would welcome the opportunity to meet or discuss this further.
Peter E. Cook is the manager of Lynn State Street 2 LLC.
