Denying Mercantile permit could leave city “legally vulnerable,” city attorney warns

By Martin Kidston/MISSOULA CURRENT

When the Historic Preservation Commission considers a demolition permit for the Mercantile property in downtown Missoula, its final decision must be based on something more than emotion, city officials said this week.

Anything less could result in a lawsuit.

Members of the City Council, Development Services and the City Attorney's Office are reviewing the procedural steps that must guide the consideration of a controversial demolition permit submitted by HomeBase.

The firm is working to purchase the Mercantile property from Octagon Partners Capital Management. It has submitted a complete demolition permit for the vacant building and is looking to construct a $30 million branded hotel on the site.

The Historic Preservation Commission has 90 days to approve the demolition permit, approve it with conditions or deny it. It will hold a public hearing in April.

“The (commission's) decision must be supported by written findings and written conclusions,” City Attorney Jim Nugent said. “There's a lot of potential legal arguments that could evolve if there's a denial.”

City code states that a developer is entitled to a public hearing “by a fair and unbiased decision-making body.” Whether the Historic Preservation Commission has maintained an unbiased stance has already come into question.

On Wednesday, one member of the commission identified himself in comments made to the City Council as both a member of the preservation commission and a “citizen advocate,” one who has vocally opposed redevelopment of the Mercantile property.

“I'm one of your historic preservation commission members, but more importantly, I think, I'm a citizen advocate,” said Solomon Martin. “The city of Missoula is being presented with a false dichotomy when it comes to the Mercantile – that we need to demolish and replace it with a bland corporate hotel or it will continue to sit empty and decay.”

If the Historic Preservation Commission were to deny HomeBase it's permit, Nugent said, the decision could be appealed to the City Council by “any taxpayer.”

However, he cautioned, the city would expose itself legally if it also denied the permit. City code clearly authorizes the project proposed by HomeBase, he said.

“The proposed use (hotel) is specifically authorized by City Council zoning ordinance,” said Nugent. “Generally, it's not appropriate for the City Council... to attempt to intervene and say a private property owner doesn't get to implement a land use authorized by that particular zoning classification.”

A denial by the City Council would likely lead to a lawsuit, Nugent said. Members of HomeBase were present at the discussion – including one of the firm's lawyers – so Nugent declined to elaborate.

“If you don't allow someone to proceed with a land use that you've specifically authorized in that particular zoning classification, what are going to be the grounds for that if you attempt to deny?” Nugent said. “You'd almost certainly go to court.”

Members of the City Council also asked for clarification on the “good faith” clause that must partially guide the Historic Preservation Commission's decision on approving or denying the permit. Under city statute, an applicant must show that it made a good-faith effort to sell the property.

Mike Haynes, director of development services, said the existing city ordinance doesn't define good faith in any detail. He said staff has been working with the city attorney to review the ordinance's current language.

“We have to go by the plain meaning of the language in the ordinance and the ordinance is not very specific,” said Haynes. “We know (Octagon) has owned the building since 2011 and has been actively marketing it for the last five years or so. It seems clear they've made a good-faith effort to find a buyer over that period of time.”

Haynes said the review process must also consider reasonable economic use of the property.

“We're certainly going to look at the economic feasibility with information both provided by HomeBase and what other information we can glean,” he said. “There's certainly been other folks who have taken a look at this building and determined, for whatever reason, that they were not interested in preserving the building.”

Haynes also spoke to SGRE's attempt to purchase the building in October 2014. The firm spent 150 days performing due diligence before it backed out of its contract with Octagon. While it submitted a second contract, it was denied by the seller.

Some critics – including Martin – have suggest that Octagon failed to meet the “good faith” clause because “SGRE wasn't permitted to buy the building.” Haynes disputed that and said his office was looking for additional factual information.

“My understanding is that (SGRE) was not in a position to acquire the building,” said Haynes. “They were asking (Octagon) to take on the risk. They weren't putting down money to buy a building. They were relying on some other agreement where (Octagon) would only be paid back in the event there was a successful product.”