If the Southgate Rehabilitation project was such a good idea, why is no one buying?

September 19 – The Chambersburg Borough Council has held executive sessions to hear more about the Southgate redevelopment project recently. 

As a recap, in February 2022, the Chambersburg Borough Council voted to purchase the Southgate Shopping Center with $4 million in American Rescue Plan Act funds to redevelop the property. The goal was to divide the property and resell it to private developers. 

Since then, Keystone Health has purchased the old Gold’s Gym property, but not much else has been happening. 

Pat Ryan of NewsTalk 103.7FM reminded, “We told you about this. How did we get here? We told you about this and here we are with more money you’re going to be paying for in Chambersburg.”

At last night’s Chambersburg Borough Council meeting, Borough Manager Jeffrey Stonehill said, “I’ve had a lot of excellent meetings with potential developers, but the number one comment that we got was that there’s a lot of infrastructure work that needs to be done in the neighborhood. The interested developers wanted the borough and CAMA (Chambersburg Area Municipal Authority) to move forward on the infrastructure work first before they would put in proposals to do the private development.”

Ryan said, “So you guys have to pay for the infrastructure work before anybody may quite possibly buy this?”

Allen Coffman, borough council president, said, “In my mind, somebody who’s in a commercial business right now, this would be the worst time you could plan to put a building up. The money to do that, yes, will come from the borough, but the idea is that whoever buys the property will pay for that infrastructure improvement.”

Michele Jansen of NewsTalk 103.7FM noted, “We had these discussions, all this horrible underground sewer issues. They could have used that COVID money to actually do these infrastructure problems that they knew existed underneath this property. All this pie in the sky, oh, the developers are going to buy it and they’re going to pay for all that fixing of the infrastructure. Well, the developers are saying no. No, I’m not going to pay for that. So now the borough is facing what? They have to do all this infrastructure work before any private developers are going to buy more of this lemon they took a hold of?” 

Attorney Clint Barkdoll said, “I’m really afraid this is turning into a bigger boondoggle than we predicted it was. Remember, this property was a white elephant for years. The developer couldn’t sell it. It has never ceased to amaze me how the borough government came in on their white horse and bailed out this developer to the tune of millions of dollars that he was able to unload this property. No one else wanted it. Now here we are.”

The infrastructure problems in the property were known before the purchase occurred. 

Barkdoll continued, “Now, as Alan is pointing out, prospective developers are saying, we don’t want to come in, unless this infrastructure is already improved. So if the borough is now saddled with that responsibility, stormwater improvements can be really, really expensive, in addition to whatever other infrastructure needs to be done there. We are in a very challenging environment right now for any kind of commercial development. Look at all the malls around the country and commercial establishments that are closing every day. Let’s say the borough invests X million into this property, well, they’re going to have to somehow recoup that in the form of the sale price or lease rates, which might be a further deterrence for developers. Going back to when this happened last year, I think all of us agreed that the municipal government just should not be involved in the real estate development business. I think now we’re seeing why that is. Remember, too, when this was happening, people who I would have immense trust in with their expertise, as I recall, people like Mike Ross, some other real estate experts, they were even expressing some hesitation about the viability of this transaction and here we are, it seems like it’s all coming to fruition.”

Jansen added, “I’m reading our old stories on this. Jeffrey Stonehill, I remember asking this question, revealed that the Borough Council was asked if any opportunity costs, risk versus benefit analysis should have been added to the due diligence period, but the council had refused such analysis. So they had that 90 days that they could have gotten out of that for tens of thousands of loss, but that’s way less than this. They didn’t do that risk benefit analysis. They didn’t know enough about this. You had people going into this who just didn’t understand what they were obligating. They say oh, we’re going to get grants to do this. Well, who do you think that grant money comes from? That’s still all the taxpayer money that could have been better used, other than now cleaning up your mess and patching over and getting this stuff done. So shame on them for the waste of taxpayer money, which I personally feel is huge.” 

Ryan said, “Is prevailing wage going to take over on top of that? You’re never going to see a profit on this.”

Barkdoll pointed out, “If there’s any federal money tied to this, yes, prevailing wage could be an issue and we’ve not even touched on the carrying cost of this. Remember, each month that the borough is having to own and manage this, there’s all kinds of collateral costs associated with that. So the longer this goes on, those are ongoing fixed costs that the borough is absorbing as well.”

Jansen said, “We were told, oh, we have developers already interested. Oh, don’t worry. You don’t know what you don’t know that’s going to take care of this. It’ll be maybe a year before we can offload this. No. It’s not.” 

Ryan sighed, “Man, oh man.”