There is still a cloud of uncertainty obscuring the future of the historic Missoula Mercantile building, but one thing is becoming crystal clear: The fate of the downtown icon will almost certainly be decided not by the Historic Preservation Commission, but by the 12 members of the Missoula City Council this summer.
The HPC meets Thursday night to consider for the final time a demolition permit application submitted by a Bozeman developer, HomeBase Montana, which wants to deconstruct the Merc and replace it with a $30-million, five-story custom Marriott hotel. The HPC can either vote to deny the permit, approve it, approve it with conditions or not vote on the application.
If commission members approve or deny the permit, either decision is nearly guaranteed to be appealed to the City Council. The developer is certain to appeal a denial, and any taxpayer in Missoula County who feels “aggrieved” can appeal an approval. If the HPC doesn’t vote on the permit or field a full quorum of six members at the Thursday meeting, the permit is automatically approved on June 7.
Leslie Schwab, the city’s historic preservation officer, said the developer is sure to act quickly if the permit is denied.
“It’ll be appealed immediately,” she said. “They want to get going on construction so they probably already have an appeal written up.”
Schwab said she also expects that a vote to approve the permit would get appealed just as quickly, given the fact that there is a vocal “Save the Merc” group in town working to stop the demolition.
However, that’s where the clarity ends. There is no specified language in the city’s historic preservation ordinance that specifies how much time the City Council has to make a decision, or even the process by which the council has to take public input.
“The ordinance doesn’t establish or specify a procedure,” explained city attorney Jim Nugent. “It has to be a public process and a public hearing. It remains to be seen. When the council adopted that ordinance in 2010 they never went and identified what the process for the City Council would be.”
The council does have the authority to establish its own procedure, but Nugent said the council isn't bound by the same 90-day deadline that the HPC had.
“They would be prudent to try to have a similar deadline but they’re going to have to decide that,” Nugent said. “If the applicant thinks they are taking too long, they could always consider going to court as an option. I haven’t spoken to the City Council about this so I’m not sure what they’re thinking. All of us will sit there with bated breath to see what they do.”
There are 11 members of the HPC. That means that at Thursday night’s meeting, at least six members have to show to form a quorum to make it a legal meeting. However, a majority of those voting carries the motion. So if at least six members show up and all but one member abstains from voting, that one person’s vote would decide the fate of the permit application. If, for example, two people vote yes and one person votes no, the permit would be approved. If there is a tie, the members have to keep re-voting until there is a majority. Abstentions don’t count as “no” votes.
The Missoula Mercantile was built in stages starting in 1877 and was the commercial heart and soul of Missoula for the better part of 150 years. It was most recently occupied by Macy’s, but that company moved out in 2010 and the building has sat vacant since. It lacks updated plumbing, electrical, mechanical and HVAC systems. It is listed on the National Register of Historic Places, and is owned by Octagon Partners of Virginia. The developers at HomeBase won’t actually close on the property until a demolition permit is approved.
The developers first presented their proposal to the HPC in early March and asked the commission to vote on the permit in April and May, but the commission has delayed its vote until now, saying its members need time to review information. In April, Nugent informed four members of the commission that they could be opening the city up to a lawsuit because they had shown bias by, among other things, “liking” the “Save the Merc” Facebook page.
In an April 6 staff report submitted to the HPC, the city’s Development Services staff recommended that the HPC approve the permit because they found that the developer’s application meets all of the required criteria stipulated in the ordinance.
Among the review criteria is a stipulation that “the applicant has consulted with the HPC and the state Historic Preservation Office, and made a good faith effort to find an alternative that would result in the preservation, renovation, or reuse of the historic resource.”
Mike Haynes, the city’s Development Services director, said that his staff’s conclusion is that HomeBase’s application met that criteria. They cited the fact that HomeBase originally began a process in 2015 to find design solutions that restored the building’s exterior while adapting it to a new use as a hotel with retail spaces. However, by December of last year HomeBase had decided that the adaptive reuse option was not economically feasible.
Another major criteria in the ordinance is that “all good faith efforts to find a purchaser interested in acquiring and preserving, renovating or reusing the historic resource have failed.”
Haynes and his staff noted that the Merc’s broker, Jed Dennison of ZillaState Real Estate, has said 20 potential buyers have looked at the property, spending a combined $1 million in due diligence, and they all backed out. One developer, Clark Street Real Estate, was planning on converting it into a grocery store with underground parking, but the cost of rehabilitating the building was too prohibitive. Clark Street found that the cost of the project would be between $15 million and $16 million, “far more than could be supported by retail lease rates from a 30,000- to 35,000-square foot single tenant space in the Missoula market or most markets, for that matter” as Haynes put it.
Another developer, SGRE Acquisitions, intended to reuse the building as a boutique hotel, a rooftop ice skating rink and first-floor retail, but found it was not economically feasible.
HomeBase determined that if it reused the building and converted it into a hotel with retail space, it would incur a net loss of $6 million. That’s according to Andy Holloran of HomeBase in a letter to Schwab on March 30.
Haynes and his staff also found that denial of the application would prevent all reasonable economic use of the property.
According to the Octagon Partners, each of the prospective groups came to the same conclusion with regard to renovating the existing structure: “The cost to renovate the Mercantile is too high to support market based rents,” Octagon wrote in its application for a demolition permit. “The basic functionality of the building is too difficult to manage given the depth of the building, the lack of accessible ingress and egress, and the need to start fresh with even the very basic systems such as mechanical, electrical, plumbing, fire suppression and structural. While some environmental abatement has been completed, significant asbestos remains in the building, primarily in the roof – which would need to be removed.”
Haynes wrote that during the past six years, no reasonable economic use has been found that would retain the historic structure and provide economic return on investment.
“Denying the permit would appear to prevent all reasonable economic use of the property,” he wrote.
The Missoula Independent newspaper recently subpoenaed the emails between city staff and HomeBase, and they showed that Development Services anticipated even before the HPC was presented with the proposal that the HPC would approve the permit by April. They seem to demonstrate that Development Services greatly miscalculated the expected reaction of the HPC members to the proposal.
City Council President Marilyn Marler said she will soon be talking with the city clerk to get public hearings on the Merc issue set up as quickly as possible.