The Boondoggle

The county finds itself on the losing end of the deal even though it had been warned. A March 18, 2009, memo from John F. Nugent, the executive director of the Montgomery County Redevelopment Authority, questioned why the county was committing so much money toward the project and why it would enter into an arrangement in which the county would be subordinate to the primary lender. Regardless, the commissioners signed off on the agreement.

 

“We were told by our experts allowing the first lender to have a higher priority than the county was needed to have the deal happen,” said Joe Hoeffel, who was serving as a county commissioner at the time and fully supported Studio Centre. Hoeffel contends that in spite of the county being on the hook, the money helped keep USM Services and its jobs in Norristown.

 

“There are 400 jobs and a Class A office building and a parking garage,” Hoeffel said. “That’s why I call the project a successful job creator for Norristown.”

 

Bruce L. Castor Jr., who was a commissioner then and currently holds the same post, also backed the project.

 

“I liked that the tax credit would bring glitz and glamour to the northern end of Norristown,” Castor said. “That was a Rendell thing and I thought it was a good idea.”

 

However, Castor said he didn’t know he was signing off on a deal that put the county funds in such jeopardy. He blames Hoeffel, a political nemesis, for the situation.

 

Josh Shapiro, a current county commissioner, said attempts were made to renegotiate the county’s secondary position after the fact, but that was rejected by the lender.

Bleak Future

 

Montgomery County District Attorney Risa Vetri Ferman is also looking into the matter. This is based upon recent public disclosures about decisions and actions undertaken by the past commissioners related to the Logan Square project, she said in an email. It is also prompted by a December 2011 report issued by a Montgomery County Investigating Grand Jury that addressed the conduct of some county government officials and employees and allegations of political corruption.

 

In the meantime, the foreclosure process is expected to take six to nine months and has left the county reeling. It recently put forth a bond issue and its exposure on the Logan Square debacle was listed as a liability.

 

Also of concern is how the situation will affect the amount the county and Norristown receive from the U.S. Department of Housing and Urban Development and its Community Development Block Grants funds. Since HUD loans were part of the funds given to Studio Centre and the project is unable to generate enough money to make payments on the loan, the payments will come from future CDBG money earmarked for the county and Norristown.
Translation: This one deal could haunt Montgomery County over the long term. The county is also dealing with the reality that it may not realize any return from the money it gave the developer for Studio Centre and even recoup any of the $24.5 million.
 

Adding insult to injury is the fact that the County had to pay $528,000 in annual interest payments alone on the Logan Square loans that foreclosed in May 2013.  The county-guaranteed loan for Logan Square – (better known as the former Sears/Ports of the World shopping complex at Markley Street and Johnson Highway in Norristown) would cost the county $9.4 million through 2030.

Another failed investment in Norristown, this one in a sewer project, would cost the county $110,000 in 2014, according to Monson.

 

Those two projects, approved under the previous administration, also cut into the 2013 budget. The county recently made an $8,883 payment for the sewer project, and the county Redevelopment Authority made a $363,362 payment for Logan Square.

 

Moody's downgraded Montgomery County's bond rating in August. Another downgrade would raise the interest rate. It was not only in the County's fiscal best interests to plug this budget hole as quickly as possible, but it would be best for all parties involved in the original transaction to make this project disappear down the memory hole as quickly as possible.

Well, rest assured that the deal won’t be haunting Montgomery County, because "Whatever options and legal remedies" clearly included the sale of Parkhouse.  With its $39 million price tag, that sale neatly filled the hole created by Studio Centre with enough left over to pay down the existing $8 million in debt on Parkhouse and the $6.23 million on outstanding contracts.

 

But let’s go back to Logan Square for now.

Because, where did that $59 million go?

Other than the renovated Sears building and the parking garage, it's difficult to see where, in fact, that money went. 

On October 31, 2013, the Logan Square property was sold to the developer for $8,000 dollars.

Logan Lender, a Wayne firm, bought the two parcels for a total of about $8,000 after filing a foreclosure suit in Montgomery County Court in May against Johnson & Markley Redevelopment, a New Jersey firm led by developer Charles Gallub.

 

On February 17, 2014, in the midst of the Parkhouse controversy, Carolyn Davis' piece about the failed Logan Square Movie Studio project appeared in the Philadelphia Inquirer.  This piece is also worth reading in full and quoting at length.  Of particular interest are the comments of Joe Hoeffel, Jim Matthews and Bruce Castor, the former Montgomery County Commissioners who approved the project:

The forlorn shopping center, Logan Square, sits half-empty, its fate likely to be announced in the coming weeks. The county is grappling with how to recoup the $25 million it sank into the project - including $10 million in federal funds it must repay - and its lawyers are preparing a lawsuit against the developer.

 

And prosecutors are scrutinizing the deal to see if more than bad luck and poor judgment were to blame. Interviews with former and current county officials, along with county and state records, provide a clearer glimpse of the project's rise and fall.

 

The pinch on taxpayers is already being felt. Some interest payments were made last year, and this year's county budget includes a $510,000 payment on a $6.2 million debt - with similar sums due every year until 2030.The $24.5 million in grants, loans, and loan guarantees the county invested was projected to kick-start the economy and create jobs. That money was supposed to bring, if not a tour de force, at least a happy ending.

 

"We got caught up in the possibilities," James R. Matthews, former chairman of the county commissioners, said last month. "Possibilities don't come to Norristown every day."

(...)

In January 2008, developer Charles Gallub created a corporation called Johnson & Markley Redevelopment, named after the two streets where the shopping center stands, and bought the property for about $18 million, according to county records.

 

Most of the money Gallub used to buy it came from a private investor, Logan Lender L.P.Even before the purchase, Gallub had pitched the project - Studio Centre - to the county, figuring the plan could benefit from tax credits then-Gov. Ed Rendell backed to promote moviemaking.

 

The plan and the tax credits were attractive enough to encourage Raleigh Studios in California and some homegrown filmmakers to partner with Gallub: "The vision is to . . . create one of the best film studios on the East Coast of the United States," the developer said in 2007.

 

"There was a great amount of enthusiasm," Nugent said. "Studio people would fly in from California and spout their excitement."

 

But in March 2009, he and several colleagues urged county leaders to be fiscally cautious.In a memo, they questioned the plan's "financial feasibility" and whether the county and town should back the project without a financial guarantee from Gallub if it fell apart.

 

County Commissioner Bruce L. Castor Jr. said he was not given the memo. In recent interviews, Castor also said, as did Matthews, that they were unaware the county had agreed to let the private investor, Logan Lender, get repaid first if the plan fell apart.

 

That practice, known as subordination, isn't an uncommon tool in public redevelopment financing. But, experts say, it must be done after scrutinizing a project's feasibility and financial safeguards. The same year, lawmakers shrank the tax-credit program, and Raleigh Studios backed out of the deal.

 

The studio plan collapsed.

So two lawyers and a mortgage broker did not understand the ramifications of placing the County in a second collateral position behind the developer.   Further Bruce Castor "didn't get the memo."  All of these blatant business mis-steps go  a long way towards explaining why at least Bruce Castor would have a vested interest in spinning the Parkhouse sale into something other than a sale of open space to a developer to fill a budget hole he voted to create.  

 

But it doesn't explain the motivation for the political cover Josh Shapiro and Leslie Richards have provided by repeating this spin over and over.  For that, we must dig a little deeper and look at the connections:

At the same time he was getting county support, Gallub was a generous political contributor to county officials.

 

At the same time he was getting county support, Gallub was a generous political contributor to county officials.

 

Through one partnership, he gave $15,000 to the Friends of Joe Hoeffel committee in 2009 - one of the biggest contributions in Hoeffel's bid for governor. The same year, he gave Matthews $4,500; the Friends of Bruce Castor got $1,250 from him in 2010 and 2011.

 

All three said those contributions did not influence their decision-making.There was one more political connection: Gallub's attorney on the project was Marcel Groen, longtime chairman of the Montgomery County Democratic Party, who often represents developers on high-profile real estate deals in the region.

 

Marcel Groen became head of the State Democratic Party in 2015, just in time for Josh Shapiro to run for Pennsylvania Attorney General. The Democrat State Committee met in 2016 to endorse when a candidate a bitter fight ensued over Groen’s call for an open primary versus former party boss, Jim Burn’s insistence on an endorsement vote for the seat. Burn questioned Groen’s motivation for the open primary, and a vote was ultimately held, with Burn’s preferred candidate, Stephen Zappala earning 63% of the votes, falling just shy of the 67% of the vote needed for the endorsement. An open primary was held between Zappala, Shapiro and John Morganelli, with Shapiro ultimately stepping another rung up the political ladder to AG. 

In 2017 and 2018, Groen came under fire for his alleged failure to respond to calls to address what female party leaders and local activists have characterized as a culture of sexual predation within the party. Critics cite Groen's silence on sexual misconduct allegations against prominent state politicians, his failure to fulfill a commitment to create a party sexual misconduct policy after the alleged sexual assault of a state party delegate at the 2016 DNC, and his anger over calls to dismiss a close aide's controversial statements about the #MeToo movement as evidence of Groen's unwillingness to address sexual misconduct within the party. In February 2018, Groen resigned as head of the democratic party at the request of Governor Tom Wolf.

Gallub also was given a seat on the Montgomery County Strategic Economic Development Policy Task Force, a group charged with drafting a plan for the county's economic transformation.

 

Among other things, the group recommended boosting the same funding sources the county later tapped for Gallub's project.

Through one partnership, he gave $15,000 to the Friends of Joe Hoeffel committee in 2009 - one of the biggest contributions in Hoeffel's bid for governor. The same year, he gave Matthews $4,500; the Friends of Bruce Castor got $1,250 from him in 2010 and 2011.

 

All three said those contributions did not influence their decision-making.There was one more political connection: Gallub's attorney on the project was Marcel Groen, longtime chairman of the Montgomery County Democratic Party, who often represents developers on high-profile real estate deals in the region.

 

Gallub also was given a seat on the Montgomery County Strategic Economic Development Policy Task Force, a group charged with drafting a plan for the county's economic transformation.

 

Among other things, the group recommended boosting the same funding sources the county later tapped for Gallub's project.

Shapiro and Richards could have easily laid the fault of this failed project at the feet of the prior administration.  It's not as if that board wasn’t extremely comfortable with that, as all three of them could barely sit in front of a microphone for five straight minutes without whining about the messes they’d inherited from the previous administration.  

The fact remains that all three Commissioners went to great lengths to portray the Parkhouse sale as something other than the sale of open space to fill the $24.5 million budget hole that was, until March 6, 2014, the only lingering legacy of the embarrassing Logan Square Studio Center debacle.

 

So the question as to where $59 million dollars, some $24.5 of which belonged to the taxpayers of Montgomery County, remains unanswered.  Perhaps forever, now that the budget hole has been filled and the uncomfortable questions have been avoided.  But there is no doubt: that money was spent.  Was all $59 million spent on the refurbishment of an existing building and a parking garage?  I sincerely doubt it, but without an accounting or an investigation, the taxpayers of Montgomery County may never know.

They will, however, know how the proceeds from the sale of 220 acres of open space was spent.