Oregon: City to purchase former Kmart property

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Issuing bonds for the purchase of a 12.4-acre parcel on Navarre Avenue where a Kmart store was located is the best path for Oregon to follow if it is to attract development to the site, the city administration informed council members during a meeting of council’s finance committee.
The committee met before council’s regular meeting Monday where council voted to approve an ordinance authorizing the issuance of bonds for up to $4.5 million to purchase of the property.
Joel Mazur, city administrator, and mayor Mike Seferian told council that by taking ownership of the site the city would be signaling it is serious about seeing it developed.
The city has been leasing the former Kmart property from AMJB, LLC. The 10-year lease is in its sixth year and includes an option to purchase.
Nick Roman, finance director, said the city is currently paying $23,505 per month on the lease. That will increase to $25,641 per month in March 2025 if the city doesn’t exercise the early purchase option. The city is also paying property taxes on the parcel of about $50,000 annually.
“We will no longer be paying the property taxes once we transfer the property to the developer per our development agreement,” Roman said.
The purchase option at the end of the lease is $3.75 million.
To pay off the 30-year bonds, the city will establish what is called a Tax Increment Financing district; a public financing method employed by local governments to fund infrastructure and other improvements that, in turn, benefit development. The goal is to recoup interest and other costs through an increase in property tax revenue resulting from a completed development project.
In April, the city opted to terminate a contract with a company for developing the former Kmart property - which city officials have called Town Center – and enter into an agreement with another developer, River Rock Property Group, a Toledo-based firm.
Council last week voted 6-0 in favor of the bond issuance, with councilman Terry Reeves not present on an excused absence.
However, one member of council, Beth Ackerman, voiced concerns about the city taking on so much debt, asking if council should consider purchasing the property outright.
“I was wondering if that was something council might consider. I don’t like debt as a farmer,” she said, “Or is that a direction none of you want to take?”
Ackerman referred to the legal fees, interest costs, and other related expenses “if we go the bond route.”
Council president Steve Hornyak said the TIF is being put in place to help pay for the cost of financing.
“So, in essence, we’ve kind of hedged against the interest expense over time, utilizing the bond and having the TIF come in to offset the debt service over the payment,” he said.
He said the city will have the option to make the bonds callable and restructure the arrangement at five-year intervals, giving the city the opportunity to negotiate for better interest rates.
Hornyak said he doubted if the city’s finances could withstand such a large expenditure as purchasing the property outright and alluded to a recent council meeting in which members agreed to proceed with hiring three additional firefighters – and fretted over the effect on the operating budget.
“My thought would be, if we were nervous about a couple of hundred thousand dollars for a few firemen, we would be pretty scared about $5 million cash out the door,” he said.
Bill Bostleman and Mike Denman, principals of River Rock Property Group, have attended recent meetings of council and expressed support for the city to purchase the property.