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Silver Spring – Behind The Scenes

SILVER SPRING (CelebrityAccess MediaWire) — So what's really going on in Silver Spring? After the new County Executive Isiah Leggett took office last year and the long-negotiated Birchmere deal fell through, county officials seemed to waste no time in announcing a new deal with promoter Live Nation in a matter of weeks. The timing of events surrounding this announced deal has led to some interesting speculation about what may be going on behind the scenes.

The main point of contention is the property, located in downtown Silver Spring, in what has in recent years, become a prime location. The land, which has been owned by real estate developer Lee Development Group, since the early 1920s was formerly the home to a J.C. Penney but has sat vacant in recent years. Contingent upon the agreement, Lee Development has agreed to cede the land for the project to Montgomery County.

So who is the Lee Development Group? As the company's website says, The Lee Development Group is a family business – the Silver Spring-based firm draws its name from the Lee Family, whose influence in the American political landscape predates the founding of the nation and numbers among its august ranks confederate General Robert E. Lee. More recently, Blair Lee III served in the Maryland State Senate, as the first Lt. Governor of Maryland from 1970 and eventually acting governor when Gov. Marvin Mandel resigned in the face of federal corruption charges and health complications relating to a stroke. The Lee family is still widely-regarded to be highly influential in state politics.

In return for this $3.5 million contribution, as reported in the Washington Business Journal, the LDG is expecting favorable consideration on a zoning variance for a property immediately behind the location of the proposed venue. The property is currently zoned for office space but LDG is hoping to develop a mixed residential and retail space or possibly a hotel.

Typically, a variance like this requires the developer to contribute something to the public commons, such as a green space like a small park – the current deal however is somewhat unusual in that the proposed accession to the public commons would be a commercial space given to a private enterprise, in this case Live Nation.

Furthermore, Lee will also be retained to refurb the former department store into the new theatre for Live Nation, and thus eligible for what will likely be a generous portion of the $8 million in county and state money being apportioned for the development. This apparent conflict of interests has received little attention in press coverage of the controversy.

This windfall for the Lees may be somewhat surprising when one looks at the financial realities underlying the deal. An analysis of the proposed Live Nation lease conducted by a transactional attorney and a municipal economic analyst on behalf of IMP and obtained by CelebrityAccess contends that:

1. The property is being leased at "a fraction of the actual retail fair market rents in downtown Silver Spring." The rent is sufficiently low at $90,000 per annum that it would appear to not cover half of the annual interest of $355,000 on the bond issuance.

2. The county would be liable for any cost overruns in the project which has grown considerably in scope since the initial proposal for the Birchmere venue, plans that have not been revised in several years. According to the study, a cost overrun of $2 million dollars would result in the county not receiving any fixed rent for the property for 20 years.

3. The county would be substantially liable as a landlord and retain significant exposure in the event of a catastrophe such as a fire or other hazard occurring at the venue.

The study also concluded that the economic analysis presented by the county does not account for all of the $8 million (at the minimum) in principal costs for the building, that most projected tax revenues would go to the state rather than the county and that county would lose, at a conservative estimate, more than 20 million in fair market rent from the facility over the course of the 30 year lease, and this in a county that is currently facing a budget shortfall of $401 million for the fiscal year that starts in July.

The county has a different point of view. While the county didn't provide CelebrityAccess with their own economic analysis, spokesman Patrick Lacefield, told CelebrityAccess that he believed that the deal was a good one for the county.

"Unlike most private partnership that the county enters into, live nation pays the utilities, maintenance and structural facility upkeep as well as replacing systems, so if the air conditioning goes, they need to pay for the replacement cost of that unit in a county building." Lacefield said. This statement would seem to fly in the face of the definition of a triple net lease which stipulates that the lessee pays rent to the lessor, as well as all taxes, insurance, and maintenance expenses that arise from the use of the property.

Lacefield further stated that by the county's estimate, the Live Nation club will generate $11.6 million a year in profit for the county. He also noted that unlike the deal with proposed the Birchmere which would have ceded the Birch the option to buy the property outright after 16 years. He countered that the county's own economic analysis arrived at conclusions which were at odds with the study commissioned by IMP but the county did not supply that analysis to CelebrityAccess.

Another point of criticism was the apparently opaque fashion in which the county conducted negotiations with Live Nation. The county contends that Live Nation's position as the largest promoter in the world made them a natural choice for the county, however one Source close to the negotiations have suggested to CelebrityAccess that it may have been the Lee Development Group who made the initial overture to Live Nation rather than the county.

For their part, Live Nation has endeavored to keep their distance from the dispute between IMP and the County.

"Live Nation is dedicated to increasing the opportunities for fans to see live music in the Washington DC market. To that end, we've worked hard with Montgomery County officials to create a mutually beneficial deal that will bring the iconic Fillmore brand to Silver Spring. We believe this new Fillmore will fill an important void for area music fans." Live Nation's John Vlautin told CelebrityAccess.

The issue may ultimately prove to be moot as the Montgomery County Council has voted to recommend funding for the deal, putting final approval for the proposed Fillmore in the hands of the Maryland General Assembly who will need to approve the remainder of the funding. – CelebrityAccess Staff Writers