Online bidding starts at $5 million, but GSA seeks full market value

The General Services Administration will start taking bids June 20 on its sale of the Thomas J. McIntyre Federal Building in downtown Portsmouth, pictured here in an aerial image posted on the online auction website. (GSA photo)

The federal government is scheduled to start taking bids Tuesday, June 20, on its sale of the Thomas J. McIntyre Federal Building in downtown Portsmouth.

Those interested in bidding are required to register in advance for the General Services Administration online auction and submit a $1 million registration deposit, according to Paul Hughes, the GSA’s New England region public affairs officer.

He said the starting bid is $5 million. Bid increments will be $50,000.

Developer Michael Kane of The Kane Company in Portsmouth was asked if he intended to submit a bid but answered, “No comment.”

Kane, with partner Redgate of Boston and in conjunction with the city of Portsmouth, tried to purchase the property for $1 and develop it as a public-private partnership. But that plan ultimately fizzled, and lawsuits were filed by Redgate/Kane and the city, each accusing the other of acting and negotiating in bad faith.

“I’ve got litigation going on. I can’t comment on anything that’s going on with that property,” said Kane.

The GSA manages federal property and provides contracting options for government agencies. Among its responsibilities is unloading surplus properties.

The particulars of the McIntyre Building online auction can be found here.

“Once the auction closes, and a winning bidder is determined, the property will go through the normal real estate closing process. Once that is completed, the name of the winning bidder will be disclosed,” said Hughes.

According to the GSA’s description of the property, “80 Daniel Street is an approximately 2.1-acre parcel improved with a four-story steel-frame masonry office building of approximately 107,000 square feet of gross building area with 44 indoor parking spaces and a two-tier outdoor parking lot with 91 spaces along with eight loading bay doors.

Located in the heart of historic downtown Portsmouth, the property was used by the United States as a federal office building and post office, formerly known as the Thomas J. McIntyre Federal Building. The property is listed on the National Register of Historic Places as a contributing building to the Downtown Portsmouth Historic District.

“80 Daniel Street is within a short walking distance to the commercial and retail center known as Market Square located at the intersection of Market and Daniel Street and the historic harbor and waterfront commercial areas with proximity to Interstate 95 and Kittery, Maine.”

The auction site will list bid amounts as they come in, but the identity of the bidders will remain anonymous to public viewers. The $1 million deposit is fully refundable to those who are not the high bidder and becomes earnest money toward the purchase if they are.

The city’s assessed value of the property is $12,082,700. The GSA has indicated it won’t accept anything less than fair market value for the property, and retains the right to “reject any or all bids for any reason.”

Hughes said a closing date for the auction has not been determined. Once GSA does select a closing date, it will be posted on the auction website with advance notice.

‘High level of interest’

The parcel lies within the Downtown Portsmouth Historic District, which means any proposed project has an additional layer of review by the city’s Historic District Commission (HDC) on top of any planning board or zoning board of appeals approvals it might require.

Veteran commercial real estate broker David Choate has spoken to some potential developers who are interested in making bids, tapping his knowledge of the zoning and political landscape. He’s curious to watch the process to see just how many bids there might be.

“I’m sure there’s a high level of interest because it’s downtown Portsmouth,” said Choate, a principal at Colliers International in Portsmouth. On the other hand, he wonders if the pending Redgate/Kane lawsuit might give some bidders pause. “Are people going to bid on a building when there’s an active lawsuit? If Kane wins the lawsuit, what happens?” he asked.

The Redgate/Kane process was highly fractionalized at times. What’s to say that won’t happen again, Choate wonders.

“We’ve seen the different factions of what they want of the site. It has to go through the HDC process, so that’s going to be people re-establishing those desires again,” said Choate.

Then there’s the challenge of the site itself, according to Choate: Can the existing building be torn down and replaced?

Does it have to stay? If it stays, what will be the cost of renovation and remediation?

“It’s full of asbestos, so that’s one of the issues that people are going to have to deal with. You have to clean it up. That’s going to be I don’t know how many millions of dollars — several million probably,” said Choate.

One big issue going forward is what the city will allow versus what the developer needs to make the venture worth their investment. Hotel? Restaurants? Upscale townhouse condominiums? Workforce housing? Retail stores? Offices?

It can be tricky, according to Choate, especially with today’s shifting economic conditions. He cites offices as an example. “I think the challenges are to find users that would support it economically,” said Choate. “It will be a challenge to do a lot of office, because the office market is so soft right now. What kind of rents do you have to get given your pre-development costs?” The parcel is in a Charter District 5 (CD5) zone, which, according to the city, is meant “to promote the development of walkable, mixed-used, human-scaled places by providing standards for building form and placement and related elements of development.”

The zoning allows certain uses. Other uses require a special exemption, while still others are prohibited.

Here’s a sampling:

• Three to four dwelling units require special exemption, as do five to eight dwelling units, while more than eight dwelling units are prohibited. Townhouses are allowed, as are single-family and two-family homes, and an assisted living facility.

• Professional offices, financial institutions and retail are allowed; a call center is prohibited.

• A performance facility for up to 500 people requires a special exemption. A performance facility for more than 500 people is prohibited.

• Restaurants are allowed, as are hotels.

A bar/nightclub for up to 250 people is allowed. A bar/nightclub for up to 500 people requires special exemption. A bar/nightclub for more than 500 people is prohibited.

Over the three or so years that the deal was on the table, Redgate/Kane and the city — with its many citizen stakeholders — just couldn’t come to terms on design elements and just what the project should feature: commercial space, open space, residential, affordable housing, high-end townhouses, open-air market, retail, parking, etc.

A proposed design called the Community Plan included a Market Hall center supported by two new buildings, along with 44 high-end apartments and a public viewing deck.

The developer questioned the design of the Community Plan and its economic feasibility, believing it would cost $120 million and seeking an $80 million city contribution.

Ultimately, the city found its end of the deal as being potentially too costly.

The city and Redgate/Kane failed to meet the GSA’s March 31 deadline to submit a formal application to the National Park Services to redevelop the property.