PROVIDENCE – In the wake of a newly released third-party assessment of Scout Ltd.’s proposal to redevelop the historic Cranston Street Armory building in the city’s West End, the McKee administration announced Monday it is no longer considering the plan put forth by the Philadelphia-based urban development and design firm.
In 2020, Scout submitted a proposal to rehabilitate the 200,000-square-foot building for office, retail and recreational uses.
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After reviewing the report by Jones Lang Lasalle, McKee’s office said in a statement on Monday that “it became clear that the numbers for the proposal put too much risk on the state and not enough on other sources.”
Cautioning that Scout’s plan might be “overly optimistic,” the governor’s office added that the redevelopment effort “could result in even greater losses to the State and taxpayers.”
According to the 41-page report, for which JLL was paid $84,000, “The proposed deal, in its current form, is structured such that the Developer takes on very limited development risks, while being compensated more than the typical development fee for that limited risk.”
As currently constituted, the plan would not be a prudent financial move by Rhode Island, particularly in the rocky commercial real estate and financing markets, JLL said.
Questions have swirled over the fate of the armory building, with added controversy after a trip by two former state officials – David Patten, the state’s former property director, and James Thorsen, the former director of the R.I. Department of Administration – to Philadelphia resulted in accusations of unethical behavior that launched investigations by the R.I. Ethics Commission.
Further complicating the development is the fact that the armory property is jointly owned. While the state owns the building, the city of Providence owns the parking lot and adjacent park.
State officials on Monday said Scout made numerous assumptions in its initial analysis of the site and its potential, such as including a 100% occupancy rate for its commercial units, while the current vacancy rate in Providence now stands at 7.7%.
The governor’s office said the JLL report was part of its due diligence and that officials are now “looking at all options.”
JLL was skeptical of Scout’s proposed 6% developers’ fees, which would amount to $4.6 million, a higher rate than the typical fees that range from 3% to 5% of total project costs. Additional fees included in the fee structure could raise that amount to between $6.8 million and $8.3 million.
And with first-year payroll and overhead costs projected at $750,000 and escalating 3% annually, JLL said “this expense appears high for the size of the development.”
“JLL has reviewed the Developer’s list of staffing positions that will be required for operating the building and questions the number of staff and level of service required,” the according to the report.
The firm also questioned the proposed financing to be majority-funded by public dollars. In a traditional deal structure, it noted, a developer might be expected to contribute up to 40% equity.
“In Scout’s proposal, direct government funding is nearly 80%, with the State of Rhode Island contributing approximately 65% and the city [of Providence] contributing nearly 15%,” JLL wrote, adding that Scout “takes on very limited development risks,” leaving the state “to shoulder nearly all of the development, operational, and leasing risks.”
According to the report, the state would be obligated to spend $60.9 million over a 15- year period.
“Given the inflationary pressures on construction costs [i.e., labor shortage for many trades and materials shortages caused by global supply chain challenges], JLL cautions that the high development costs and high vacancy rates may continue to challenge the feasibility of the proposed office space,” the firm said in the report.
However, JLL acknowledged the armory could be a revenue generator, with potential to create more than 400 jobs during the construction phase and approximately 175 jobs after the project’s stabilization, bringing in $2.4 million annually from income taxes and indirect benefits.
But with the cost to the state approaching $61 million, “the project as currently proposed does not appear to be in the financial interest of the State taxpayers.”
On Monday, R.I. Department of Administration spokesperson Laura Hart said that Scout has been paid approximately $650,000 for its work to date and that the state is terminating the existing contract, effective Aug. 31, that paid the firm $25,000 per month.
Gov. Daniel J. McKee held a press conference Monday at the Statehouse where he told reporters the administration has already been in talks with Providence Mayor Brett P. Smiley about the possibility of transferring the property to the city.
“Where we end up, time will tell. But there is interest,” McKee said. “We are committed to finalizing discussions with the city of Providence.”
(UPDATED to reflect the report is 41 pages long and added the final two paragraphs with a quote from McKee.)
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
Another McKee mess-up. Atta boy, Dan!
Notwithstanding the State pulling the plug on Scout’s proposal, the RI Ethics Commission should take all punitive action in its power against David Patten, the State’s former property director, and James Thorsen, the former director of the R.I. Department of Administration. Patten and Thorsen have disgraced the State and the people of Rhode Island and they should pay dearly for what they have done.
Ugh! Another beautiful property that the state will let deteriorate until it has to be torn down.
Disgusting!!