Cocalico region officials reject bid

By on June 25, 2014

It’s never going to be a win-win situation, but the officials whose municipalities co-own the huge warehouse and the 20.5-acre site it sits on at 1975 N. Reading Road in Denver decided not to snap up the sole bid for the building that would have them losing more than half of their initial investment.

Leaders of four municipalities meet to discuss the fate of the warehouse and 20.5-acre property at 1975 N. Reading Road that they jointly own and would like to sell.

Leaders of four municipalities meet to discuss the fate of the warehouse and 20.5-acre property at 1975 N. Reading Road that they jointly own and would like to sell.

At a meeting Tuesday evening in the East Cocalico Township Building, the hosts as well as representatives of West Cocalico Township and Denver and Adamstown boroughs spent more than 90 minutes debating the pros and cons of the $1.7 million offer for the property, the only submission in a formal sealed bid process.

The bid by DenTech Inc of Brownstown was less than half of the $3.74 million purchase price back in 2006. It is also almost a million dollars shy of the $2.49 million appraisal of the building by High Associates Ltd. in January. The land and the 45,000-square-foot building on it was purchased eight years ago at the height of the real estate market with the intent of making it a regional community center.

DenTech is a mechanical contracting firm specializing in industrial air filtration systems and planned to relocate its manufacturing to the North Reading Road site. It serves customers in nine states.

“We held out and we held out,” recalled Jacque Smith, chair of the West Cocalico supervisors, regarding the 2006 decision to buy the building. “I’ll remember for as long as I live a local business leader saying to me: ‘It’s a win-win situation.’”

“Where is he now, where are all those folks who though it was such a good idea?”

Many of his peers from the other three municipalities shared the sentiment, but what several did not initially share was the viewpoint of the West Cocalico supervisors. In essence, Smith and Supervisor James J. Stoner argued the bid was too low, should not be accepted in haste, and that the municipalities, which have budgeted for the building maintenance through the end of the year, should re-evaluate their options.

East Cocalico Supervisor Chair Douglas B. Mackley agreed the bid was low and expressed his surprise that others did not bid although interest seemed to be strong from five or six parties that toured the property in May.

As it stands, Mackley’s municipality has the most to lose. East Cocalico owns 46 percent of the building, West Cocalico 32 percent, Denver 16 percent, and Adamstown 6 percent.

Mark Hiester, East Cocalico Township manager, said there is about $200,000 in a reserve fund for building maintenance but those funds will not grow. Annual mortgage payment and maintenance amount to about $250,000. The building has been vacant since Perdue left in the early spring. Monthly income from the property is about $875 gleaned from truck parking, farming and a billboard. Annual taxes amount to $45,000.

The municipalities have little principal in the building. The outstanding mortgage is $3.04 million of the original $3.74 million purchase price.

That minimal gain is more than offset by a real estate market that still remains on the rebound following the 2008 recession and by the deteriorating 30-plus year old warehouse.

Officials noted that the roof needs repairs, there is significant water damage and mold growth, carpeting and floor coverings need to be replaced along with other major issues.

Some argued toward getting estimates to make the needed improvements, some suggested gutting the building to a shell, but all expressed concerns about further investment with uncertain possibilities of a return on those investments.

Blake S. Daub, president of the Denver borough council, suggested that a task force or committee be formed to explore costs of improvements. He also cautioned the other officials not to be so hasty in pooh-poohing the $1.7 million bid.

One of the submitters of that bid, Steve Rapp from DenTech, asked to make a comment. He explained to the officials that High Associates’ $2.49 million appraisal may have been based on a too-high rental cost per square foot of $7.50. He noted that the going price for warehouse rentals in the area averages $3.50. With that in mind – and with other costly improvements needed – Rapp said he and his partner Marty Berndt believed their bid of $1.7 million was fair. Rapp noted that a new roof alone may cost $430,000.

Rapp’s references appeared to sway several officials toward the DenTech bid. Randy Good, president of Adamstown borough council was one of them.

“If we put money into it, there’s no guarantee it will be what the next guy wants,” he said.

He expressed another worry.

“The Fed is starting to talk about increasing interest rates and that they will be higher by the end of next year. That would also be working against us.”

West Cocalico’s Stoner, while acknowledging Rapp’s points, continued to argue against accepting the bid.

“On the business side, to only have one bid and give it away would be a crime in my book,” he said.

In the end, the officials of Denver, Adamstown, and West Cocalico voted to reject the DenTech bid and form a committee tasked to gather estimates for building remediation, engage a commercial real estate agent, and market the property outside the state.

Under the terms of the bid process, East Cocalico supervisors must act on the bid at their July 2 meeting. It appeared their consensus will mirror Tuesday night’s votes.

The managers of the municipalities as well as elected officials and members of the public are expected to serve on the committee. Cindy Schweitzer of Adamstown borough council and Noelle Fortna of Adamstown borough council both pushed for the committee to move forward and commit itself to the task assigned it.

“We know that $1.7 million is way too low,” said Schweitzer. “By not accepting it, we as a group need to move forward to minimize our continuing expenses and conserve our taxpayers’ resources.”

Rapp left the meeting just before it adjourned, shaking his head.

“Our bid still stands,” he said. “We’ll see what develops on the second (July 2).”

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