Legal tangle hinders power station redevelopment

WHAT’S THE PLAN? Commonwealth Ventures LLC and Brown University are planning to turn the South Street Power Station into an academic and nursing-school complex. But hurdles remain, including liens on the property and $26 million in historic tax credits controlled by current owners. / PBN FILE PHOTO/NATALJA KENT
WHAT’S THE PLAN? Commonwealth Ventures LLC and Brown University are planning to turn the South Street Power Station into an academic and nursing-school complex. But hurdles remain, including liens on the property and $26 million in historic tax credits controlled by current owners. / PBN FILE PHOTO/NATALJA KENT

To build a long-sought academic and nursing-school complex in Providence’s would-be Knowledge District, project leaders will have to untangle the painful legacy of the failed Dynamo House project that came before it.
That’s the message in the Providence Redevelopment Agency’s Davol Square Redevelopment Plan, the city’s roadmap for making the South Street Power Station property usable again.
Ownership of the vacant power plant is hampered by multiple stakeholders, mortgages, deed restrictions and up to 20 mechanics liens tied to one of the most ambitious and ill-fated public-private partnerships in the state’s history.
And then there are the $26 million in state historic tax credits attached to Dynamo House that the partnership between Commonwealth Ventures LLC and Brown University intend to use to help finance construction. The current owners of the power station control the tax credits.
With this tangled legal web in mind, the city’s Davol Square Plan lays out a strong case for seizing the power station using the city’s powers of eminent domain if clearing the title through negotiation fails.
“These title and mortgage issues create a diversity of ownership, which, unless corrected, make any development on this property infeasible,” the Davol Square Plan says. “It may be necessary for the PRA to acquire certain interests in real property in order to effectuate the redevelopment of the Power Station in accordance with this plan. The preferred method of acquisition is through consensual negotiated purchase, but the PRA is authorized to secure this interest through eminent domain.”
The Davol Square Redevelopment Plan is the first public sign of forward progress in the project to rehabilitate the former power station since Brown and Commonwealth unveiled it in June.
The $206 million project would renovate the hulking 1912 building into 120,000 square feet of administrative offices for Brown and 120,000 square feet for an advanced nursing education center to be leased by the University of Rhode Island and Rhode Island College. On the site of what is now a parking lot owned by Commonwealth next door, a 150,000-square-foot student apartment building would be erected with stores and incubator office space for local startups. Through the 30 pages of the Davol Square Redevelopment Plan, it is unclear whether the city is playing an active role in negotiating with the former Dynamo House interests to avoid eminent domain, or leaving it to Commonwealth.
The plan states the “PRA intends to explore whether a relinquishment of the power-station restrictions by the grantor may be feasible.” But Dante Bellini, a spokesman for the PRA, would not say whether the agency is negotiating with anyone on the project.
“The PRA is not the entity that is redeveloping Davol Square,” Bellini, a partner at RDW Group, said in an email. “It is, simply, helping to guide the development process.”
Commonwealth President Richard Galvin in a phone interview declined to discuss negotiations over restrictions on the power station.
The legal authority for a government to seize private property for public benefit, eminent domain requires City Council approval and for the owners of a property taken to receive fair market value.
Bellini said there are “15 to 25 entities that have various liens and/or restrictions on the property.”
The deeded owner of the building remains Dynamo House LLC, the entity controlled by principals of now defunct Dynamo developer Struever Bros. Eccles & Rouse.
Struever launched Dynamo House in 2007 on the heels of several other historic-renovation projects in Rhode Island and Maryland, in concert with the Heritage Harbor Corp., a nonprofit dedicated to creating a Rhode Island history museum. After the power station was decommissioned, National Grid predecessor Narragansett Electric donated it to Heritage Harbor in 1999 under the condition it be used as a museum, but Rhode Island voters rejected a bond referendum that included $25 million to rehabilitate the structure.
So Heritage Harbor turned to Struever, which agreed to renovate the power station and put the museum on the ground floor in exchange for condominiums and a hotel in the upper levels. National Grid agreed to lift its deed restriction in the deal, which saw Struever buy the property in exchange for a new deed restriction requiring 55,000 square feet of museum to be completed before any further development could take place. Heritage Harbor also received a junior mortgage on the Dynamo House.
The senior mortgage was held by Citicorp, which sold it to a Baltimore hotel company that had invested $5 million in Dynamo House and wanted to protect its interest.
When the Brown plan was announced last summer, Galvin identified the owner of the Struever assets as an affiliate of Beatty Development Group LLC.
When it became clear that Struever had gone belly up in 2010, Heritage Harbor leaders gave up hope of creating the museum, which Rhode Island voters had approved borrowing $5 million for.
Instead, they intend to sell the assets they have in the property to create an endowment that would fund research and scholarship of Rhode Island history, fulfilling the museum’s mission without a brick-and-mortar presence.
Heritage Harbor Executive Director Ken Orenstein said Heritage Harbor spent about $750,000 of the state bond, and returned the rest. It also spent a $1 million federal grant and $5 million of privately raised cash on the Dynamo House museum project.
Chief among its remaining property rights in the power station are the deed restriction barring any development without a 55,000-square-foot museum, which needs to be eliminated for any Brown-URI-RIC project to go forward, and a share of the $35 million in state historic tax credits reserved for Dynamo House. Orenstein would not say how much of the total reserved tax credits are controlled by Heritage and how much by Struever’s successors.
He also said Heritage Harbor had not yet been contacted by the PRA and does not know how an eminent domain taking would impact the tax credits.
One of the reasons Dynamo House LLC has remained owner of the power station after Struever Bros.’ collapse was to protect the tax credits.
The next step in the PRA’s process is for the redevelopment plan to be vetted by city councilors beginning this month.
In addition to all the legal issues, another major challenge to redeveloping the power station is the presence of a National Grid electrical substation next door, which Brown has said needs to be moved for its project to work.
The substation serves downtown Providence and National Grid spokesman David Graves said the utility is going to finish a study of the neighborhood’s future power needs before it will commit to moving it, even to the other corner of its large property abutting the old power station.
“We are working on an extensive analysis of energy needs in that area to see what resources we need to commit for long-range electric reliability in that part of downtown Providence,” Graves said.
Graves said the study has been going on “for several months,” but couldn’t give an estimate of when it would be complete.
Still, Galvin said the power-station project remains on track to meet the initial timeline of breaking ground this year for occupancy in 2016.
“We have been making progress on several fronts, working out the design and programming issues,” Galvin said. “I think 2014 is realistic. That is our goal.” •

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