OCEAN CITY — Resort officials this week approved on second reading an ordinance ratifying the contract of the purchase of the World Gym property on 67th Street, but not before some assurances the current tenant will not immediately be evicted.
The Mayor and Council had before them on Monday an ordinance for first reading that would authorize the town to purchase the existing World Gym property at 67th Street for a little over $1.2 million. The 18,000 square-foot parcel is one piece of a larger collection of properties needed by the town for a new water treatment plant in the future.
In September, the Mayor and Council voted to begin condemnation process for the gym property at 67th Street, which had been in foreclosure. Later that month, Wells Fargo purchased the property for $1.13 million at a public auction on the site. Because the town as a municipality was not allowed to participate in the public auction during a trustee sale, the town took the pre-emptive step to begin the condemnation process for the property.
Once Wells Fargo bought the parcel at auction, the town was free to negotiate a fair market price for the property, which has led to the proposed purchase for $1.2 million initiated on Monday. It’s important to note the roughly $1.2 million purchase price would be funded through the town’s water department enterprise fund, a self-sustaining fund generated by water system user payments.
When the condemnation process began this fall, culminating with the approval of the purchase of the property on Monday, the future of the current tenant, which foreclosed, was immediately called into question. The debate began anew on Monday with Councilman John Gehrig seeking some clarification on the immediate future of the gym property.
“Are we going to evict the tenant and demolish the building?” he said. “I’m not in support of eliminating that business. Let them have some time to relocate. We might not need this for another five years.”
City Solicitor Guy Ayres explained the ordinance before the council on Monday merely ratified the contract with Wells Fargo and the future of the gym tenant could be decided after the contract is finalized.
“We’re just ratifying the contract,” he said. “Those decisions will be made when the seller signs the contract and that hasn’t happened yet.”
Ayres said there was a process by which the tenant could remain on the property in the short term if that was the desire of the council. He also said he has learned of another future short-term tenant having expressed interest in the property.
“The contract requires the premises to be vacated,” he said. “You can get a court order if you so desire to allow the tenant to remain. I don’t know that the answer is in there now, but I do know there is another entity that wants to go in there.”
Gehrig said he had no problem with the overall concept of acquiring the property and others for the future water plant, but continued to raise concerns about evicting the current tenant.
“I do support the overall plan,” he said. “It makes sense to do it. What I don’t support is the piece of the contract that one business has to be closed.”
Mayor Rick Meehan reminded the council how the situation with the gym got to this point, but said the door remained open for future negotiations.
“We’re buying it from the bank and the current occupant foreclosed,” he said. “They were three years behind on local and county real estate taxes. That being said, we were open to them coming forward with a plan to remain open.”
Meehan sought clarification from Ayres on the ramifications of approving the proposed ordinance on Monday.
“That door is open,” he said. “Does that automatically close if we approve this tonight? Does this close the door to any future negotiations?”
Ayres explained approving the ordinance on Monday was a necessary next step in the process.
“As the buyer, we can negotiate with whomever we want,” he said. “That negotiation is contingent on finalizing the contract.”
Councilman Mark Paddack said he was satisfied with the two-part process including ratifying the contract, and then deliberating about the short-term future of the property.
“I feel very comfortable with this,” he said. “I will be voting for this tonight. I also feel comfortable with the second component of this.”
Citizen Tony Christ said he felt the council was rushing the purchase through without making all of its nuances known to the public. Christ called on the council to table the second-reading vote on Monday to further explore the future of the gym business and occupancy of the building. As he has done before, Christ also urged the city to consider siting the new water plant at a location within the existing public works complex to the south.
However, Public Works Director Hal Adkins explained again how the acquisition of the gym property was part of the larger equation that also include the VFW property purchase and ongoing negotiations with the Sandpiper Energy property.
“We have been incrementally working through this acquisition of land starting with the VFW and now the World Gym,” he said.
In terms of any concerns about possible rate increases resulting from the purchase of the gym property, Adkins explained there was a careful process in place to assure stability in water rates regardless of significant capital project expenses.
“We’re about to start work on a new rate resolution,” he said. “We do a water master plan every five years and we’re just now wrapping up that process.”
Adkins explained how that process works. He said his department works with the finance department and plugs all of anticipated expenses into a spread sheet to determine the water and wastewater rates for the next five years.
“We provide five-year projections on all operations and maintenance costs along with capital projects,” he said. “The numbers are put into a spread sheet. If we have to build three new water towers, that goes in there. If we need to build a new water plant, that goes in there.”
Adkins explained the rates are set to cover all of those anticipated expenses with no major spikes in either direction. For example, the fixture rates for end users on the water system might go from $20.01 in one five-year plan to $20.05 in the next and possibly back to $19.80 in another depending on changes in operational expenses and new capital projects. In short, Adkins dismissed the notion the purchase of the gym property through the water enterprise fund was greatly going to move the needle on water rates for consumers.
“My goal is always to maintain rate stability where possible,” he said. “With proper planning and projection, we can get that stability.”
In the end, the council approved the ratification of the purchase contract for the gym property on second reading by a 6-0 vote with Councilman Dennis Dare absent. The council also decided to keep the door open to negotiations with the existing tenant if possible after the seller signs the contract until such time as the property is needed for the future water plant.
