Officials in Montco invest $25M, get back just $800K

After years of haggling to try to cut their losses on a failed redevelopment project, Montgomery County and Norristown officials believe they have extracted the best deal they can out of the bankrupt developer.

They lent the project more than $25 million.

They'll get back $800,000.

It's a far cry from the optimism and fanfare of 2007, when developer Charles Gallub proposed a movie studio and shopping center to revive Logan Square and spark new investment in the long-struggling municipality.

The settlement will barely cover a year's worth of interest on the county's debt for the project, but county Finance Director Uri Z. Monson said he was confident "we've done everything we can do to get as much back as we could."

"Unfortunately, the personal guarantee [of Gallub] turned out not to be worth much," Monson said.

Officials said the deal should be completed next week at a bankruptcy hearing in New Jersey. Half the settlement will come from Gallub, and half will come from his girlfriend to settle a separate allegation that Gallub transferred their $1 million Lower Merion home into her name to hide the asset from creditors, Monson said.

Gallub and his attorney did not return requests for comment this week.

The project began unraveling in 2009, after the state cut a movie tax credit and Gallub's prospective studio backed out. He retooled the proposal into an office and retail park.

Local officials, seeking to avoid another fallow corner in the county seat, began investing in the project - a $2 million renaissance loan, a $6.2 million bond issue, HUD loans of $10 million from the county and $5 million from the municipality, a $1.4 million infrastructure loan, and more, according to bankruptcy filings. The state also contributed a $7 million RACP grant.

By 2012, the project was half-finished, and Gallub said he was not bringing in enough rent to cover the project's debts. A new county administration declined to contribute more funds, and in 2013, Gallub's largest investor foreclosed on the project and bought the 24.5-acre property at sheriff's auction for $8,000.

Shortly after the county sued, Gallub filed for bankruptcy.

Deputy Solicitor Josh Stein said the $800,000 settlement, of which Norristown will get one-third, represents "about a 40 to 50 percent increase on the dollar more than the other creditors are receiving."

County spokesman Frank Custer said the lawsuit was the county's last attempt to recoup some of its money.

"We think any action taken after this would just add to legal cost without any return," he said Thursday.

The county began paying interest on the bond issue in 2013. That bill is expected to balloon to include principal beginning in 2018 and cost the county $9.8 million by 2030, Monson said.

HUD agreed to forgive about $914,000 of the county's loan, but the remaining $9.1 million - and Norristown's $5 million - will be deducted from grants that could have been used on other redevelopment projects over the next 20 years.

While it hasn't turned into the glittering showpiece many in Norristown hoped for, the corner known as Logan Square or Norristown Centre does bring in some tax revenue, with a Dunkin' Donuts, a Rite Aid, a thrift store, and a janitorial services company that employed about 450 people as of last summer.

The property's current owner could not be reached for comment Wednesday, but according to the Norristown Times Herald has sought zoning variances to add a gas station and other uses on the vacant portions of the property.

Source: Philly.com