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City board approves purchase of motel; three councilors allege overpayment

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Sleepy Inn Motel 02 (copy)

The city of Missoula purchased the Sleepy Inn Motel on West Broadway in the first half of 2020.

Three Missoula City Council members sent a letter Wednesday expressing strong opposition to a City of Missoula plan to purchase a motel on West Broadway, saying they were concerned that the city was overpaying and about meth contamination, among other things.

Then on Thursday, the Missoula Redevelopment Agency’s board of directors listened to city officials respond to most of the concerns brought up in the letter and voted unanimously to approve spending $1.1 million in Tax Increment Financing to buy the Sleepy Inn Motel for use as a "non-congregate" quarantine shelter during the COVID-19 pandemic. The city plans to use the motel to house people who need to isolate but don't have a place to do so.

Mayor John Engen and city officials pushed back on the allegations and concerns raised by the three council members, saying they had negotiated a good price for the property. City officials said they looked at real estate market comparables and talked with an appraiser in determining a fair price. But the city did not pay for the property to be appraised.

In the long run, the city intends to redevelop the site for use as low-income housing. The purchase will still have to be approved by the full council at its 7 p.m. meeting Monday, April 20.

“The criticism to date is we shouldn’t be using TIF money for this project, but this is exactly what TIF should be used for,” Engen told the MRA board. “Another criticism of TIF is it’s corporate welfare, a notion with which I do not agree, but this benefits the lowest-income members of our community and will provide long-term benefits to our low-income community.”

City council member Jesse Ramos called the whole plan "half-baked."

"We don’t have a feasibility study," he said. "We’re overpaying for it. This piggy-bank MRA fund needs to be used as a $1.1 million TIF remittance. Give it back to county schools, the fire department, give some property tax relief. We don’t need a hotel.”

Ellen Leahy, the director of the Missoula City-County Public Health Department, has said the city sorely needs a “non-congregate shelter” as a place where people can quarantine if they’re homeless or in a high-risk health group or have families they don’t want to infect. The city’s plan is to temporarily operate the 34-room motel as a non-congregate shelter, have 75% of the operations reimbursed by the Federal Emergency Management Administration, then develop affordable housing when the time is right.

On Wednesday, council members Ramos (Ward 4), John Contos (Ward 5) and Sandra Vasecka (Ward 6) penned a letter to the MRA, the mayor, the city council and the media saying they “absolutely do not support this irresponsible decision” to purchase the motel.

“We personally see this as an example of ‘never letting a good crisis going to waste’,” they wrote. “All signs point to COVID-19 hopefully ending in the next couple of months, meaning that the long-term effects and intentions of the Sleepy Inn Motel purchase are not that of COVID-19. Using this as an excuse to purchase something that would otherwise receive even more scrutiny is not acceptable…”

The three council members first alleged that they have not “yet seen any evidence of any municipality in the United States using the COVID-19 crisis to purchase a hotel/motel.”

Eran Pehan, the director of the city’s Office of Housing and Community Development, said on Thursday that King County (Seattle) in Washington state and Travis County (Austin) Texas both have either purchased or are in the process of purchasing hotels for use as quarantine shelters.

“The purchase of hotels and motels is becoming more of a tool for communities,” she said. “When King County purchased a hotel, and this tool ended up being instrumental for managing community transmission (of COVID-19) within this (homeless) population."

She said Seattle bought the 84-room motel for use as a quarantine shelter, much like Missoula plans to do.

“That early response was able to dramatically reduce community transmission amongst the homeless community,” she said. “So Missoula is in a good position.”

Ramos, Vasecka and Contos also said they’re concerned that the building might have meth contamination.

Pehan also responded to that concern.

“The reality is you’d be hard-pressed to find any motel or hotel (without some contamination),” she said. “It’s on money, it’s on the soles of shoes. It’s kind of permeated the community. It’s kind of a regular aspect of property management. But in the absence of a clandestine lab, cleanup is uncomplicated. It involves removing contaminated items like carpet, and because each unit has independent heating and cooling units, exposure in one room doesn’t expose them all.”

She said Missoula has access to federal grants that could help as well.

Ellen Buchanan, the director of the MRA, said the local health department, fire department and building inspection department officials have looked at most of the rooms and determined that they were in “better condition than we had dreamed.”

She said they haven’t inspected rooms that are still occupied by long-term tenants.

Buchanan and the mayor defended their decision not to have the property appraised, saying it would have pushed the closing out a “month and a half under the best of circumstances.”

The city hopes to close the deal on April 27 or sooner and get to work sanitizing the rooms.

Ramos, Contos and Vasecka also said they enlisted the help of two “real estate professionals” whom they didn’t name. They said the professionals determined that because a nearby property sold last year for $65 per square foot, the Sleepy Inn would be worth about $650,000 at that price. The city council members also noted that the Sleepy Inn was offered for sale six years ago for $675,000. Ramos said he found that the price was still being offered three years ago, and he believes the city had "more than enough time" for an appraisal.

“At the time the owner was so desperate to get rid of it they were willing to offer owner financing on it,” the council members wrote. “This price is close to half of what the city is now paying for it after six years of wear and tear in the middle of an economic recession. It is also worth noting that the taxable value of the hotel is roughly $400,000 less than the value the MRA plans to spend. It is our strong recommendation that the City gets at least two commercial appraisals.”

Mayor John Engen was curt when asked about that concern on Thursday.

“My response to that is it was six years ago, much has changed,” he said. "We’ve got a credible appraiser who gave it his best shot and credible real estate agent market comps. We're perfectly comfortable with the price.”

The Sleepy Inn is located right next to the Russell Street Bridge area, which is in the final phases of a $29 million upgrade.

“We’ve arrived at a price we think is equitable for that property,” Buchanan said.

She said a conversation with a commercial real estate appraiser showed that the price the city is paying is comparable to what other small motels are selling for.

But Ramos wasn't buying the city's arguments. "Name one other business value that has doubled in six years," he said.

He also talked with the appraiser the MRA called and believes the city is overstating how long an appraisal would take. Ramos also took issue with the fact that the city's conversation with that appraiser was never specific to the Sleepy Inn property. The Missoulian also spoke with the appraiser, who noted that in theory, a commercial appraisal of a motel could be completed in "two weeks to a month."

One concerned citizen, Jon Beal, commented to oppose the plan. He expressed concern that a property in a prime location that is currently paying $13,000 in annual property taxes will be taken off the tax rolls. He believed that money will have to be made up by other business owners.

Ramos on Thursday sent Buchanan and the media an email saying she misrepresented the extent of her conversation with the appraiser.

Buchanan responded by saying she did not misrepresent anything and will address the issue at Monday night's city council meeting.

Ramos said he thinks the city should just rent the motel.

“We need to have a business plan,” he said. “Nobody would do this deal. Nobody at all. It’s other people’s money (the city) is using. It doesn’t come out of the sky. It comes out of people’s pockets.”

In Urban Renewal Districts in Missoula, the property taxes from new development are diverted away from the city’s general fund and instead used by the MRA Board for projects inside those districts. The Sleepy Inn is located within Urban Renewal District II. The Tax Increment Financing dollars have been used for everything from sidewalks to affordable housing in the past, and have also been remitted back to the city’s general fund during budget crunch years.

Leahy said that the Health Department has rented motel/hotel rooms in Missoula over the past month, trying to isolate about 30 individuals who were awaiting COVID-19 test results, and had “mixed results.”

She said a few people left their rooms and one person invited people into the room. Another person was not allowed in the hotel due to past behavior. She said the department is looking at ways to fund a security guard to make sure things like that don’t happen. The City and the County are still hammering out an agreement on how to pay for the other 25% of the costs associated with running the non-congregate shelter.

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"We are concerned people may be avoiding seeing medical providers for other physical and mental health conditions due to COVID-19,” explained Megan Condra, director of marketing and community relations at Community Medical Center.

On a 9-3 vote, the Missoula City Council approved the use of $1.1 million in Tax Increment Financing to purchase the Sleepy Inn Motel for temporary use as a COVID-19 shelter and eventually affordable housing.

"The need for additional housing, particularly housing that people in lower income brackets (and) the average citizen can afford, is painfully obvious,” said MRA director Ellen Buchanan.

The Missoula City-County Health Department has shut down two bars temporarily for not enforcing safety precautions to slow the spread of COVID-19.

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