Downtown Scranton Building Sold For Taxes
A Florida real estate investment company took control Tuesday of a Scranton office building that civic leaders once touted as a potential magnet for future downtown corporate headquarters and development.
SDO Fund II D32 LLC picked up the five-story, former Southern Union Co. building at a sheriff’s sale for about $172,000 in overdue Lackawanna County property taxes and legal costs. SDO Fund II D32 LLC is an affiliate of Secured Debt Investments, a commercial real estate investment, management and lending company based in Coral Gables, southwest of downtown Miami.
The building at 417 Lackawanna Ave., which comes with 75 parking spaces, remains for sale at an online asking price of $4.5 million. Its real estate agent said he’s unsure if the price will drop. The tenants will stay and some are negotiating lease extensions, said Jeff Algatt, senior vice president for Colliers International.
The tenants include offices of U.S. Sen. Bob Casey, the state attorney general, the state Public School Employees’ Retirement System and Merrill Lynch, Algatt said.
“It’s a terrific building,” he said. “Southern Union really spared no expense in building it.”
SDO Fund II already foreclosed last year on the building’s huge mortgage, whose balance stood at more than $5.3 million because of overdue interest as of Tuesday. The foreclosure forced the sheriff’s sale. Tuesday marked exactly a year since the company that owned the building, 417 Lackawanna Avenue LLC, filed for federal bankruptcy protection from creditors.
The president and managing owner of 417 Lackawanna Avenue LLC, is Gerard T. Donahue, a former city councilman and congressional candidate. Efforts to reach him were unsuccessful.
Donahue’s company bought the building for $5.5 million on July 1, 2008, more than two years after Southern Union Co., a natural gas utility, withdrew from the city. The company funded the sale mainly with a $5.4 million mortgage from PNC Bank.
Despite stable government-related leases, the company struggled to keep up with mortgage payments since at least late 2013, though PNC extended payment deadlines. Donahue’s company was considered in default as of March 31, 2014, according to SDO’s foreclosure filing.
That was even after 417 Lackawanna successfully appealed for a reduction in the building’s assessed value used to calculate property taxes. The value dropped from $1,575,000 to $1,237,650, county assessor John Foley said. That was a 21 percent decrease for 2014, though the building was tax-free for 10 years through 2013 because it sat in a state-approved tax-free zone.
PNC sold the mortgage to SDO for an undisclosed amount on March 16, 2016, according to the foreclosure. Donahue sought more time to get paid up. Two months later, in May, Donahue and SDO signed an agreement forcing him to put the property up for sale and giving 417 Lackwanna until the end of 2016 to pay off the mortgage for $5 million, about $74,000 less than owed at the time.
Donahue failed to make the payment on time.
On New Years’ Eve 2016, SDO gave Donahue three more months to pay off the mortgage.
He failed again.
SDO foreclosed in April 2017, and 417 Lackawanna filed for bankruptcy protection Nov. 13, 2017.
As part of the May 2016 mortgage payment extension, Donahue had to keep working on reducing the building’s assessed value.
He did. After an October 2016 hearing, a county assessment appeals board dropped the assessment to $800,000, Foley said. That’s another 35.4 percent reduction.
At present rates, the new owners will pay $365,169 a year in county, city and school district property taxes.
With Scranton native Thomas Karam as its president and chief operating officer, Southern Union announced in August 2003 plans to move its Wilkes-Barre offices to a new building proposed for what used to be 411-417 and 419-421 Lackawanna Ave.
“We’re going to see a multiplicity of headquarters in downtown,” U.S. Rep. Paul Kanjorski predicted.
The company spent $16 million building its new headquarters and became part of the debate during the tumultuous 2005 mayoral election. Construction trades unions praised Doherty for attracting downtown development while the mayor engaged in a sometimes vicious public battle with city police and firefighter unions and their supporters. The public safety unions backed Doherty’s opponent, City Councilman Gary DiBileo, now the county controller.
Doherty won re-election, but Karam resigned as Southern Union’s president on Election Day, an ominous sign. In January 2006, Southern Union announced it would pull out of Scranton and consolidate headquarters in Houston. Donahue, a Republican and neighbor of Casey’s, led Republican efforts to re-elect Doherty, a Democrat, in 2009 after acquiring the building.
In 2014, two other corporate offices, VaxServe and EDM, left downtown, whose revival continued because of other developments and a surge in downtown living.
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