PROVIDENCE – Mayor Brett P. Smiley is looking to purchase a downtown building from former Mayor Joseph R. Paolino Jr..
Smiley’s office has confirmed it offered $18.5 million to purchase the building located at 444 Westminster St., which houses 10 city departments.
City tax assessor records value the property at $7 million. But Paolino, who owns the property through his corporation, 444 Westminster Partners LLC, and is managing partner for Paolino Properties LP, said appraisals he had done place the building’s value at $22.9 million.
Smiley spokesperson Michaela Antunes said the appraisal places the building’s value at $22.4 million.
The appraisal, Paolino said, was done after Smiley’s office approached him about purchasing the building around eight to 10 months ago.
“When you do an appraisal, you do it on not only the value of the building, you do it on the income that the building is receiving,” Paolino said, adding he has a $10 million mortgage on the building. “Why would a bank give me a $10 million mortgage if they think the building is worth $7 million?”
Antunes said the “primary driver” of the building’s $22.4 million appraisal is the city’s lease and tax exemption. Because the property is occupied by city personnel, the city does not collect taxes on it.
The city expects to save $7.6 million by purchasing the property, Antunes said. The city leases the property for $1.4 million a year, with automatic rent increases each year. Also, the city pays about $250,000 every year in management, maintenance and utility costs.
The transaction would be financed with a proposed $25 million bond issuance through the Providence Public Building Authority. The City Council’s Finance Committee is scheduled to vote on a resolution on the proposed borrowing on Tuesday at 5:30 p.m.
Antunes said a resolution on the proposed funding needs to be approved by the City Council as a whole, followed by a board vote from the Providence Public Buildings Authority.
By using bond proceeds, Antunes said the city can “stabilize costs, avoid future rent escalations and secure ownership” of a building the city plans to use for many years.
Sen. Samuel Bell, D-Providence, said he was not concerned about the idea of the city buying the building, but he raised red flags about the deal’s financing.
Usually, funding for capital purchase should go through a bond process in which residents can vote on issuance, Bell said. But bonds issued by the Providence Public Building Authority don’t require voter approval.
Also, Bell was concerned about the phrase “other capital projects” included in the proposed resolution authorizing the bond funding.
“I do not believe the people of Providence would ever approve a blank check for the mayor to have a slush fund when we have to go into debt to pay for it,” Bell said. "Avoiding voter approval on that is wrong, and creating a slush fund is wrong, too.”
Antunes said that financing with bond proceeds avoids “large upfront costs,” which makes it more affordable for taxpayers by spreading payments over many years. The $25 million request includes: $18.5 million to purchase 444 Westminster St.; $2.75 million for closing and borrowing costs, as well as a result fund for improvements on the building; and $3.75 million to purchase the WaterFire Arts Center, located at 475 Valley St.
While Bell was relieved to learn there is a specific plan for the bond funds, he said he would like the resolution to be revised to reflect those plans.
“It’s not real until it’s in writing,” Bell said.
Bell also said the discrepancy between the city tax assessor’s estimated value of the property and the appraisal that Paolino had done reveals a larger issue of the city under-assessing commercial real estate properties. This means commercial real estate property owners have been able to pay less in taxes. Also, when property taxes on office space are low, it makes it cheaper for owners to keep those properties vacant, which can limit the number of jobs based in the city, he said.
“This is terrible public policy,” Bell said.
Paolino noted that he would be financially better off if the building wasn’t sold because he’s expected to get $4.5 million less than what it's worth.
Paolino said he was willing to sell the building for a lower price because there’s a chance the city could take it by eminent domain. Also, he said he could get the $4.5 million difference between the appraised value and purchase price considered as a donation to the city.
“If they buy it, fine. If they don't buy it, [it] is fine. It's a decision that's up to them,” Paolino said. “They have a lease and they can just pay me the rent.”
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
