The City of Portsmouth and Redgate/Kane Still Unable to Reach Agreement by the General Services Administration Deadline

At a Special Meeting of the City Council today at 12:00 pm in City Hall, City Attorney Susan Morrell reported that the City of Portsmouth and Redgate/Kane, also known as SoBow Square, LLC, still have not reached an agreement on a number of critical issues needed to move forward with plans to redevelop the Thomas J. McIntyre Federal Building by the March 31, 2023 extension deadline  set by the General Services Administration (GSA). The current license agreement with the GSA states that it will not grant another extension to the City to participate in the National Monument Program if an application is not submitted today.

During the three-month extension period granted by the GSA in January, the City continued its forensic examination of the construction cost estimates for the revised design of the “Community Plan.”  This included an effort to adjust the project design to both reduce costs and add net leasable space. For due diligence, the City retained a financial expert in real estate development, RKG Associates, the cost of which was shared by both parties. Their work was to review assumptions of revenue projections and anticipated costs in the developer’s draft pro forma – the documents that establish construction costs, income, revenue sharing, and contributions – from the project delivered to the City in November of 2022. The developer has participated in the review process since mid-January and has been kept informed as RKG performed its work.

The terms of the April 2022 Settlement Agreement required the City to contribute public financial support to the project. In return, the City asked for a share of the profits commensurate with its percentage of the contribution to the project. The developer has stated he will not agree to this profit-sharing model.

In addition, City Attorney Susan Morell, speaking about the Development Agreement negotiations at a Special Saturday, March 11 City Council Meeting advised that the City was seeking to restore termination rights that were in the original Development Agreement but were absent from the developer’s latest draft of the agreement. She reported that the developer had at that time refused to include that language.

The City has worked in good faith to resolve the disputed issues right up to today’s deadline. On the evening of March 30 after the close of business, a letter received from the developer’s lawyers indicated a willingness to accept the termination rights as part of the Development Agreement but failed to agree on the other major outstanding issues. At this time, the Development Agreement has not been signed by either party. The parties have yet to agree on a final pro forma for the revised Community Plan or to the profit and revenue sharing model. Execution of the Development Agreement with a final pro forma and with a ready-to-execute Ground Lease are all prerequisites to the submission of an application to the GSA.

Despite all these efforts, the City and the developer were not able to submit an application to acquire the McIntyre building under the terms of the Monuments Program today. On a call this morning at 10:00 am the GSA stated that they could not be supportive of the public benefit application as they did not see a clear path forward. The GSA advised that they will contact the City next week.

More information can be found on the McIntyre Project Page on the City’s website: https://www.cityofportsmouth.com/mcintyre-project