Property sale process draws criticism: Investor negotiates with health clinic over lease of Lynn building

By David Liscio -- The Daily Item
Thursday, October 23, 2003

David Shum bid $450,000 this week for a city-owned Union Street commercial building, seemingly good news as Lynn wrestles with a budget deficit, but it remains unclear whether the sale will be finalized. At issue is a dental clinic run by the Lynn Community Health Center, which rents a third of the building for $1 a month and holds a lease that expires in 2006, with an option to renew until 2011. According to real estate agent Chris Bibby, who represented Shum before Tuesday's meeting of the City Council's Public Property Committee, the stipulation that the buyer must recognize the dental clinic's long-term lease with the city was not part of the legal advertisement announcing the property sale. Rather, that information was disclosed after the committee unsealed 11 bids for the 6,900-square-foot storefront structure at 232-256 Union St. But Lori Berry, the health center's executive director, said she provided each bidder with a letter describing the lease arrangements and the inherent responsibilities for would-be buyers. "My letter was distributed before the bids were unsealed, so there should have been no surprises. They all knew about the lease," she said Wednesday.

With the bids unsealed, Public Property Committee member Timothy Phelan asked each of the bidders if they would be willing to purchase the building with the agreement that the clinic would stay and continue to pay a nominal rent. The question put pressure on the bidders to reassess their business plans on the spot. It also drew criticism from investors, civic leaders and others who contend the property-sale process of soliciting proposals is flawed and should be replaced by an open auction. The committee previously announced that all public properties on its list would be sold to the highest bidder, with the exception of abutters. Phelan said the dental clinic is an exception because the city needs the service, as evidenced by a recent survey among Lynn residents.

Potential investor Peter McMahon was not convinced. Although he was unsuccessful in his attempt to bid $282,000 for the Union Street property, he nonetheless was incensed Wednesday by the committee's introduction of the dental clinic requirement after the envelopes were opened. "It's ridiculous. If they advertise the sale to the high bidder, then that's who should get it. Unless, of course, an abutter wants the same property, which is something we all agreed to before spending a lot of time and money preparing our proposals. Nobody told us we'd be forced to accept a tenant that doesn't pay rent," said McMahon, who owns other commercial property in Lynn. Public Property Committee Chairman Richard Colucci, Phelan and member William Trahant Jr. voted to allow Shum 30 days to reach an agreement with the dental clinic. Committee member Charles O'Brien cast the dissenting vote because the stipulation was made after the bids were unsealed. "There shouldn't be any negotiating after the property has been advertised and people have bid on it," O'Brien said. Negotiations are now under way between Shum and the health center executives. Shum is not allowed to reduce his initial bid, according to Assistant City Solicitor George Markopoulos. The next nearest bid is $91,000 less. The committee did not reject the other bids for the property, and those investors who chose not to withdraw could still be in the running if Shum fails to reach an accord with the clinic.

The City Council 3 years ago agreed to rent the publicly owned building to the dental clinic, and in return, the health center invested $232,000 in state-funded property improvements. Councilor-at-large Deborah Smith Walsh said the city should abide by its agreement, which included a 5-year lease at $1 a month with an option to renew for another 5 years. According to Bibby, that's a lot to ask of any investor. The "economic yield" of a rent capped at $12 annually wouldn't be adequate to float a $450,000 investment. The real estate agent noted that the clinic occupies 2,300 square-feet, or a third of the entire property.

Lynn Chamber of Commerce Executive Director Kevin Donahue said an auctioneer should handle subsequent public property sales, adding that the City Council is currently advertising to fill the temporary position. Donahue said the city could have brought in twice or three times the revenue through an auction instead of the sealed bids. The entire City Council must vote on all recommendations from the Public Property Committee before the sales can be completed. Although no monies have been collected, the committee Tuesday recommended the following sales: 50 High St., for $171,770 to Jonathan Bedard; 49 Vine St., for $133,700 to Devon Simpson; and 18 Elmore St., for $80,000 to David Potter. The sale of several smaller parcels was also recommended, indicating the city can expect to reap about $400,000 plus whatever price the Union Street building fetches, presuming it is sold."We'll try to work something out with the high bidder," Berry said Wednesday. "At the time we opened the clinic, it was in everybody's self-interest to have a tenant in that building. It was a mess. "Berry said the state funds invested in the dilapidated building should be viewed as rent paid in advance for the term of the lease."Now the market rate has changed. It's up to $8 to $14 a square-foot, but under these circumstances, it's not reasonable to expect us to pay that amount," she said. "As far as we're concerned, this is breaking faith with the clinic."

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