Maine news, sports, weather from Portland Press Herald / Maine Sunday Telegram, Portland, Maine

Project may need new lease on life CONTINUED FROM THE FRONT PAGE

MATT WICKENHEISER

— By

click image to enlarge

Photo by John Ewing/Staff Photographer.. Thursday, November 13, 2008....Press conference explaining the City of Portland's cancellation of the Maine State Pier development project. Kevin Mahaney, of the Olympia Companies, addresses media representatives along with Portland City Councilor Cheryl Leeman about ending his companies Maine State Pier Rehabilitation Project.

click image to enlarge

Select images available for purchase in the
Maine Today Photo Store

Staff Writer

The city of Portland plans to sue the state of Maine to resolve the question of who owns the submerged land under the Maine State Pier, after a $100 million deal to redevelop the waterfront property collapsed because of the ongoing dispute.

And the decision on how to proceed with developing the pier -- now that an agreement with The Olympia Cos. has fallen apart -- will be made after a new City Council is sworn in Dec. 1, city officials said Thursday.

The council is scheduled to vote Monday on a recommendation to terminate negotiations with Olympia. The city and developer said the deal fell apart because ownership of the underwater land remains in dispute.

''At the end of the day, it was this one issue we couldn't get by,'' City Councilor Cheryl Leeman, a member of the negotiating committee dealing with Olympia, said at a City Hall news conference.

City Attorney Gary Wood said Portland plans to file a lawsuit against the state by January to settle the property claim. It might take a year to 18 months to get a decision, he said.

Olympia President Kevin Mahaney said his firm didn't want to spend what would likely amount to several million dollars on the project while the title remained in question.

''It's a question of risk for us,'' Mahaney said. ''Our legal team has advised us we have significant risk going forward with this project.''

The issue came to a head as the city attempted to work with the state to secure clear title to the submerged land. An Oct. 14 letter from Maine Attorney General Steven Rowe indicated that his office had reviewed the facts surrounding the property and didn't believe the city had clear ownership.

A spokesman for the office declined to comment Thursday on the city's stated plans to sue.

The state would give only a 30-year lease for the underwater property, but Olympia contended that such a short time frame would make it challenging to secure financing for the project. The developer had sought a 75-year lease from the city to give it sufficient time to recover its costs and earn a return on its investment.

But Mahaney said Thursday that the breakdown, which prompted a City Council subcommittee to vote unanimously Wednesday night to scuttle the deal, has ''nothing to do with financing.''

James Broder, an attorney hired by the city for the negotiations, said the submerged-land issue was part of talks with Olympia as early as January. The city got a title insurance commitment, with a national firm agreeing that if Olympia closed on a loan, it would have a $40 million indemnity policy if the state were to successfully claim the land.

As negotiations proceeded, that assurance wasn't enough for Olympia, Broder said.

According to Leeman, the city has spent roughly $100,000 on negotiation legal fees and other expenses related to the project. Mahaney said Olympia has invested more than $1 million to date.

Leeman noted that the work done to date has produced a fully developed master agreement and performance specifications that can be used going forward.

''The city is very, very well-armed to do whatever it chooses to do,'' Broder said. ''Whoever the next entity to come forward is, we're going to be able to hand them a set of documents and say, 'Can you do it or not?' ''

The new City Council will have several options, Leeman said, as the title issue is resolved. It can put the whole project back out to bid; it can give the project to Ocean Properties, which lost the bid to Olympia in 2007; it can sign the master development agreement with Olympia, with no work to be done until the title is resolved; or it could do nothing.

''It's still a project that's going to move forward, we're just uncertain as to how it's going to move forward,'' Leeman said.

Ocean Properties is still interested in the project, said developer Robert Baldacci, the brother of Gov. John Baldacci.

''It's up to the city at this point,'' said Baldacci, who is no longer employed by Ocean Properties but has them as a client, working on projects in Maine on the company's behalf.

Baldacci is also part of an investment group that has signed a purchase agreement to buy Blethen Maine Newspapers, whose holdings include the Portland Press Herald/Maine Sunday Telegram.

Baldacci said Ocean Properties made clear during the bidding process that the submerged land dispute wasn't an issue for them.

''From Day One, both developers were well aware of the submerged-land lease restrictions. We said Day One that's a non-issue for us,'' he said. ''We recognize the limitations, but the fact is there are over 2,000 submerged-land leases up and down the Maine coast that are in effect, with hundreds and hundreds of millions of dollars of investment in facilities from Bath Iron Works to oil storage tanks in South Portland to Ocean Properties' Harborside Hotel and Marina in Bar Harbor.''

Baldacci also said financing is not an issue for Ocean Properties.

''We told the city that Ocean Properties is prepared to move forward with this project with the law as it stands; we're not looking for any change whatsoever,'' he said.

Last year, the nine-member City Council was deadlocked 4-4 for months as they tried to pick a developer. Councilor Jim Cohen had recused himself because his law firm had done work for Olympia.

The November 2007 election changed the makeup of the council, and Olympia won the right to deal with the city on a 5-3 vote.

But the council makeup has changed again. Four councilors who voted for Olympia remain -- Leeman, John Anton, Kevin Donoghue and David Marshall. Three who voted for Ocean Properties remain -- Dan Skolnik, Jill Duson and Nicholas Mavodones Jr.

Mayor Ed Suslovic and Cohen will no longer be on the council as of Dec. 1. Dory Waxman, who worked as a community organizer for Ocean Properties on the pier project, defeated Suslovic on Nov. 4. John Coyne replaces Cohen, who did not run for re-election.

Coyne said in an interview before the election that he preferred the Ocean Properties proposal, and that if negotiations with Olympia failed, his priority would be to go back and pick the developer that could finance building at the site the fastest.

Skolnik said Thursday that he wants to see something happen quickly -- either a fast request for proposals or the project going to Ocean Properties, with some changes in requirements for financing and design.

''We have to get started, we have to get people to work down there,'' he said. ''It's an economic engine for the entire state -- we need to see shovels in the ground this spring.''

Skolnik said he doesn't think the disputed title to submerged lands is the real problem. He believes Olympia couldn't secure financing.

Mahaney said it's ''irresponsible'' for Skolnik to question Olympia's financial position. Olympia recently completed a hotel in Mystic, Conn., started building one in Nashua, N.H., and just committed to building one in Hanover, N.H. -- proof that the company can secure financing, Mahaney said.

''Good projects get financed,'' he said.

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:

mwickenheiser@pressherald.com