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City eyes action on properties

Acting on longstanding, deep concerns about health and safety problems, the city of Rochester plans to take court action no later than next week to cure deficiencies at properties controlled by Webster real estate investor Jason Palmer, city Corporation Counsel Thomas Richards said this week. 

Palmer, meanwhile, said that a $135 million deal he is negotiating would soon resolve the city’s concerns and legal actions related to his local properties, including the 237-apartment East Avenue Commons complex.

As previously reported by the Rochester Business Journal, several Palmer-related real estate properties in Monroe County face two independently filed foreclosure actions. Properties targeted in the actions include: 

Commercial and apartment buildings owned by Encore Property Management of Western New York LLC, which secure a roughly $50 million Wells Fargo Bank N.A. mortgage. The properties include the Blossom Business Center, a number of other commercial buildings and multi-tenant residential properties in the Park Avenue area.

East Avenue Commons, the former Rochester Community Savings Bank headquarters on Franklin Street, a multi-tenant office building at 15 Prince St. that houses several non-profits, and other properties that are not part of the Wells Fargo action. The second foreclosure was filed by Cicero Commons Partners LLC, a downstate investor group that put liens on the Rochester properties in a bid to collect $4.35 million related to an Onondaga County property. 

City fire and code-enforcement officials have been working with the receiver in the Wells Fargo action, Timothy Foster of Riedman Development Corp., and are well satisfied that despite an apparent lack of cooperation from Palmer, Foster is starting to turn those properties around, Richards said. 

The city has deeper and more immediate concerns about the state of properties targeted by the Cicero Commons action, which remain under Palmer’s management and continue to fall further into disrepair, he said. 

"These are some important properties," Richards said. "I’m not saying that (Palmer) has not done some things (to cure deficiencies). He has done some things, but we’ve worked with him for a long time and he just does not seem to have the financial wherewithal to properly maintain them.

"If it was just a case of a few units, that would be one thing, but with East Avenue Commons, you’re talking about 237 units," he added. "You can’t just shut it down and move all those people out."

Richards said the city is planning court action but declined to say what specific steps it might take. City lawyers might intervene in the Cicero Commons case as an interested party or file a new court action to put East Avenue Commons and other Palmer-controlled properties into receivership. 

"We’d like to see some resolution to this, some sign that (Palmer’s) properties are going to be taken care of, both for the city’s benefit and for the benefit of tenants," Richards said.

Tenants at some Palmer-controlled properties have long aired complaints but seen little relief, he said. 

Pathstone Corp., a non-profit formerly known as Rural Opportunities Inc., and several other non-profits rent office space at 15 Prince St. Pathstone’s office-which houses a team that provides weatherization services for low-income property owners-has suffered from a serious roof leak for months, CEO Stuart Mitchell said.

Frustrated by a lack of response from Encore Properties, Pathstone has been putting its rent into an escrow account for some months but still has not heard from the property owner. The last contact marked in Pathstone’s records between Pathstone and Encore was in 2007, Mitchell said. 

Asked to comment on the city’s concerns, Palmer responded that many of the deficiencies predate his control of the properties.

Richards acknowledged the point, conceding that Palmer’s properties might have had code violations and maintenance issues when he bought them. Still, Richards said, the city’s concerns mounted after the properties fell under Palmer’s stewardship.

In the Wells Fargo foreclosure action, Palmer on Aug. 14 was served with a show cause order calling on him to either start cooperating in a turnover of records to the receiver or face a contempt of court charge.

Encore Property Management lawyer Robert Gitlin has filed papers seeking to withdraw from the case, court records show. His pullout would stay the foreclosure for 30 days, starting from the time Gitlin serves Palmer with notice of his withdrawal. No service was recorded as of Aug. 26. Gitlin could not be reached for comment by press time.

Cicero Commons Partners attorney Richard Sarajian of Montaldo, Condon & Frank P.C. in New City previously acknowledged to the Rochester Business Journal that Cicero Commons Partners is not in a position to take over Palmer’s Rochester-area properties. The group filed the foreclosure action to pressure Palmer to pay the $4.35 million note, he said.

Palmer said this week that the foreclosure actions and the city’s concerns would shortly become moot. He said he is finalizing a $135 million deal slated to close in stages over the next three weeks.

That deal would provide cash sufficient to pay off the delinquent Wells Fargo mortgage and the Cicero Commons note with plenty left over to completely renovate his ailing Rochester properties, Palmer insisted.

He described the transaction as a three-part, $135 million deal with an unnamed group or company. A party that Palmer described at different times as a lender and a buyer would acquire a 50 percent interest in a number of properties, including those covered by the Wells Fargo mortgage and others, he said.

Initial documents sealing the deal, he continued, had been signed last week and other formalities had yet to be attended to, but bank transfers would be forthcoming soon. The first round of payments would come within a week and total $14.5 million; a later round due in two weeks would total $80 million, while a final round would bring the cash total to $135 million, Palmer said. 

In addition to a stake in various properties, the lender/investor would take over Palmer’s 30 percent interest in a biomedical company, which Palmer described as "a minor part of the deal; really the properties are the main thing." 

The first round of cash would go toward paying off the $4.35 million Onondaga County note; the second would pay off the delinquent Wells Fargo mortgage, Palmer said. With those debts settled, enough cash would be left to completely renovate his Rochester-area properties and to finance projects to aid small-business development in the Rochester area.

In addition to fully paying off the Wells Fargo loan, Palmer added, he would take an 18-month note to pay the bank an additional $10 million early-payment penalty. 

"I want to pay everything that’s owed," he said.

On having that transaction described to him, Richards said: "I’m not familiar with that one, but we’ve had a number of deals described to us by Palmer in the past. None of them has come through."

As proof of the deal’s validity, Palmer attorney Michael Rose of Rose & Reh LLC in Victor supplied an Aug. 19 letter that Rose had written, outlining parts of the transaction to Wells Fargo’s local counsel, John McAndrew of Woods Oviatt Gilman LLP. Palmer agreed to let Rose supply the document on the condition that parts of the letter be redacted to hide sections that might identify the opposite party.

Rose states in the letter that he does not represent Palmer in the Wells Fargo foreclosure, identifying as his client "Six Star Properties of Rochester LLC, a group of which Palmer is the managing member."

"A closing is anticipated shortly on two properties not included in the Wells Fargo foreclosure," the letter states. "In addition to this additional transaction, a commitment has been signed for an additional $80 million mortgage covering properties subject to the Wells Fargo mortgage and other properties. From these proceeds, we will pay off Wells Fargo."

McAndrew declined to comment. 

Until last autumn, Richards said, Palmer had told city officials that Kenneth Ray would supply funds to cure deficiencies of his Rochester real estate holdings. Ray was an Oneida County lawyer and partner in some of Palmer’s Rochester-area properties who died last October. Since then, Palmer has pleaded to city officials that Ray’s death complicated his affairs and helped put him in a financial bind, Richards said.

The extent and exact nature of Ray’s and Palmer’s dealings is far from clear. A partner of Palmer’s in several ventures, Ray also opposed Palmer in a legal action on at least one occasion. In 2004, Ray filed papers in state court here, notifying Palmer that Ray intended to name him as a defendant in a foreclosure action.

The action’s purpose would be "the collection of monies and to impress a trust upon real property situated in the town of Webster," the notice states. Acting as his own attorney and identifying himself as managing member of Blue Tree of Oneida LLC, Ray filed the notice of pendency against Palmer in January 2004 and withdrew it a few weeks later, records filed with the Monroe County Clerk’s Office show.

The $4.35 million Cicero Commons Partners note is related to a hockey rink that Ray owned in Cicero in which Palmer may or may not have been a partner. The rink is part of Cicero Commons, a municipally backed economic development scheme gone awry.

In 1999, the town of Cicero donated a 100-acre tract to a town-created quasi-public agency, Cicero Local Development Corp. CLDC was supposed to build a community center, recreational facilities, municipal buildings and commercial and residential areas. The agency, which this year pleaded guilty to federal criminal misconduct charges, failed to float a bond issue and was forced to give up the partially developed project in a foreclosure sale.

Cicero Commons Partners paid $2 million for the property in 2005 and sold it to New Dimensions Properties LLC in 2006 for $4.35 million.

Sarajian, Cicero Commons Partners’ attorney, and Syracuse news reports identify Palmer as an owner of the Cicero Commons rink. But Ray was the sole partner of New Dimensions, while Palmer only co-signed a note for the loan, said Jay Williams of Felt Evans LLP, an Oneida County attorney handling Ray’s estate.

It is far from clear that Ray’s estate has any obligation to pay the $4.35 million note, Williams said. And, the attorney added, the Ray estate has "no obligation I am aware of" to Rochester-area real estate ventures in which Ray and Palmer were partnered. The city, meanwhile, is nearly out of patience, Richards said.

"If (the $135 million deal) happens, OK," he said. "But we’re not going to wait any longer. We’re going to step in, and we’re going to do it by next week." 

rbj@rbj.net / 585-546-8303

08/28/09 (C) Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303. 

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