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Cinema deal first of its kind for Keizer

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Of the Keizertimes

Sometime in the next 13 months, Keizer is getting a new stream of revenue for its general fund.

Last week, the Keizer City Council signed a ground lease with a cinema developer for property Keizer owns on the west side of Keizer Station. Construction is expected to begin in March for a nine-screen theater across from the transit center on Keizer Station Boulevard. For Keizer City Manager Chris Eppley, the lease brought to fruition an idea he’d championed for most of his 18 years at city hall.

When the cinema owner wanted to purchase the property, Eppley presented an alternative in the ground lease.

“You can do three things with property: sit on it for a future sale, sell it or lease it. The advantage and disadvantage of selling are that you get a big pot of money all at once, and city councils tend to spend big pots of money the city gets all at once,” said Eppley.

Case in point: the property next to the cinema site on the corner of McLeod Lane Northeast and Lockhaven Drive Northeast. The city sold that parcel of land to Salem Radiology in 2011 for $1.4 million, then spent it acquiring property for the land that became Keizer Rapids Park.

Keizer purchased the Keizer Station land more than a dozen years ago in an effort to acquire the rights-of-way and bundle the property that became Keizer Station for sale to developers. In the intervening years, much of it has been sold to developers, but the city has retained ownership of the cinema site, a piece of land across the street, west of the Keizer Transit Center, and a third site on the triangle-shaped land bordered by Chemawa Road Northeast, Lockhaven and McLeod.

“The (Salem Radiology) sale was time sensitive,” Eppley said. “Buying the property for Keizer Rapids was kind of a once-in-a-lifetime opportunity. I was opposed to it at the time, but it’s been a great park,” said Eppley. “The council saw an opportunity to bring in a big pot of money and something to do with it.”

Past city councils have opposed leasing property in favor of selling it for reasons connected to other priorities, like Keizer Rapids Park, and some that are more philosophical.

“The primary question has been whether the city should be in the business of entrepreneurship? That’s a good question, I said ‘yes,’ but other councils have said, ‘no,’” Eppley said.

The current city council was the first to offer its approval, which means the city expects to collect about $12,000 a month in rent for the foreseeable future with a 2 percent increase every year. The current lease contract is for 50 years with options to extend it up to 99 years.

Keizer will owe a broker 20 percent of the rent for the first 20 years, but it still amounts to nearly $120,000 annually. It’s not a huge sum, but it will take the sting out of the money the city is asked to pay into the Public Employees Retirement System (PERS), which comes out of the general fund. The only streams of revenue for the general fund are property taxes, franchise fees and monies the city receives from the state.

“It insulates us from negative impacts a little bit. When PERS comes up with a 22 percent increase, we have no way to absorb it right now,” Eppley said. “It alleviates the strain on a part of the budget that is typically inflexible.”

The crunch the city feels at such times doesn’t typically mean layoffs, but it might mean positions go unfilled for a lengthy period of time before new hires are brought it. That exact scenario was one of the culprits that left Keizer Police Department understaffed for the past several years.

“This helps us insulate us from swings in other places. I am going to try to perpetuate this with other property the city owns,” Eppley said.

He said the parcel across the street from the cinema could easily accommodate a 10,000-square-foot retail space.

While the steady revenue stream is a boon for the city, it is not without some risk. If the cinema owner defaults on the lease agreement before the building is fully constructed, he must return the property to its natural state. A default after construction is complete means Keizer would own the theater.

No one foresees a problem in meeting the obligations of the lease, but Keizer also has had issues in the past. When developer Chuck Sides defaulted on a $26 million in city-backed bonds in 2011, Keizer had to extend its Urban Renewal District to settle the debt, a situation that meant pleading with affected taxing agencies for approval. While the debt was settled more quickly than expected, the fiasco effectively killed all programs associated with improving River Road North.

Eppley isn’t sure what Keizer would do with the reins of a movie theater, but he’s hopeful it never comes to that.

“It’s not a traditional way of doing business for a city, but we are not a traditional city,” Eppley said.