High-tech growth project in downtown Wilkes-Barre is a public-private partnership

i Mar 21st 2016

By Jerry Lynott, Wilkes-Barre Times Leader

WILKES-BARRE — Two downtown properties, disparate in form and function, are at the center of a project to expand the city’s growing tech sector.

The plans have been in developemnt for years and are moving closer to fruition with the pending sale of the Innovation Center @Wilkes-Barre and the former First National Bank building to private developer Red Talon Group 1 LLC of Pittston.

George Albert, a principal with Red Talon Group, estimated the developer will invest between $10 million and $15 million in the project, dubbed “Innovation Squared.”

The name plays off both the Public Square location of the long-vacant bank building, owned by Wilkes-Barre, and Greater Wilkes-Barre Chamber’s Innovation Center nearby that’s home to the business incubator for start-ups aiming to hit it big like anchor tenant eBay Enterprise.

“It goes beyond the simple real estate deal,” said Albert. “It’s not just buying a building.”

The project depends upon the alignment of a host of components and many of them are moving in the right direction with the commitment of public and private funds, as well as that of eBay Enterprise and its affiliate Digital Net Agency to bring additional high-paying jobs to the downtown.

“It’s a complicated matrix,” Albert said.

The unifying factors are the creation of jobs and the climate to encourage the growth of local companies. Wilkes-Barre, a partner in the project, sees the development of the property as necessary to continue the momentum of the downtown revitalization, said City Administrator Greg Barrouk.

“When you look at Public Square, you can really point out each section,” Barrouk said, mentioning King’s on the Square, the F.M. Kirby Center, Rodano’s bar and restaurant, the Luzerne Bank building and the Intermodal Transportation Center behind the First National Bank that was built in 1906. “That’s really the last piece to happen.”

As usual, it comes at a cost.

Grant money

Wilkes-Barre has received more than $1.3 million in Local Share Account grants to stabilize and renovate the bank building it bought in a Luzerne County delinquent-tax sale in 2005 for $225,000. Municipalities throughout the county compete for the funds awarded by the Commonwealth Financing Authority from gambling revenues of the Mohegan Sun Pocono casino in Plains Township. Last year, the city was awarded $500,000, with $325,000 of the total budgeted for the “Innovations Squared” project.

In addition, the city has been working with the state to secure Keystone Opportunity Zone status for the bank building. The KOZ designation provides tax breaks until 2024 and would be an incentive to developers and businesses to move in.

Albert and Barrouk defended the use of public money to support the project focusing on eBay Enterprise and Digital Net Agency, owned by private equity firms Banneker Partners and the Permira Funds.

The owners invest in the technology driving the companies and not on acquiring properties, Albert said. “They don’t do that, they just lease,” he said.

Still, they are vital to the project in terms of job growth, Albert said.

Often, the properties involved have debt that the developer alone can’t bear, he said, and for that reason looks for assistance with public funding.

“That’s where the gap gets filled,” he said and referred to the public-private partnership his group had success with in revitalizing downtown Pittston. It’s seeking a similar arrangement in the development of the Market Street Square property that includes the former New Jersey Central Station.

“There has to be some public funds to make it work,” added Barrouk.

Appraisal less than investment

The bank building was appraised at about a half million dollars, much lower than what’s been put into it to make it marketable, he said. The money’s been well spent and protected the city’s investment, he said.

“What we didn’t want to happen was something similar to the Hotel Sterling,” Barrouk said.

In 2013, the city demolished the historic building that it condemned due to deterioration, despite millions of dollars spent in an attempt to develop the property. The city is still seeking proposals for development of the prime real estate at the intersection of West Market and North River streets.

Albert was reluctant to discuss specifics and disclose the other people who make up Red Talon Group, only to say they were involved in the redevelopment of downtown Pittston and are also looking to develop Market Street Square.

Albert said he’s familiar with the Innovation Center having done work for eBay Enterprise’s expansion. Digital Net Agency, based in Dallas, moved in too, he said. The companies want to hire more people, thus the need for more space, he said.

Correspondence obtained through a Right to Know request with the state Department of Community and Economic Development said $125,000 of the latest Local Share Account grant to Wilkes-Barre would be used to continue renovations to the bank building and Digital Net Agency has committed to relocating there.

A Dec. 18, 2014, letter to Barrouk from Aaron Baker, president and chief executive officer of the company, said it had 18 employees and planned to add 17 to 24 more in the next 12 to 18 months. A letter on the same date from Michael Jones, a principal with eBay Enterprise, said the company also planned to add to 34 people its 63-member workforce.

Albert wrote to Barrouk on Dec. 8, 2014 on behalf of Red Talon Group outlining the Innovation Squared project.

“Per our discussions, it is our desire to secure the First National Bank Building. This property will be developed to serve as the corporate headquarters for Digital Net Agency,” Albert said.

“Additionally, we are working with the Greater Wilkes-Barre Chamber of Commerce to secure the Innovation Center located at 7 South Main Street. It is our intention to develop this property for the expansion of eBay enterprise marketing services currently located at this site,” Albert said.

The average salary of the jobs to be added is $55,000 a year, he said in the correspondence.

Negotiations ongoing

Joseph Boylan, the chamber’s vice president for economic development, confirmed there are ongoing negotiations with Red Talon regarding the sale of the Innovation Center. The chamber would be a tenant if the deal goes through, with the business incubator relocating to the bank building and the basement of the Innovation Center becoming the home to the Wilkes-Barre Connect, a business and entrepreneurial development initiative to be launched on April 20.

The chamber is getting out of the real estate business and focusing on job creation and economic development, Boylan said. “The need for the incubator space and Wilkes-Barre Connect, it’s there,” he said.

On the agenda for Luzerne County Council’s Tuesday work session are the sale of the Innovation Center, which opened in 2004, and the amendments of Community Development from the county to the Chamber. The changes will enable the chamber to proceed with the sale to Red Talon Group 1 LLC and apply $1.7 million to satisfy the debt obligations of three loans, according to the county.

A document describing the project contained updated figures and details. The number of jobs to be added by eBay Enterprise was 120 full-time employees at an average annual salary of $64,000. The Innovation Center has an appraised value of $2.6 million and the sale proceeds would go back into the county’s Community Development revolving loan fund. Without the loan modifications, however, the sale would be off, the document said.

Barrouk vouched for the Red Talon Group as a developer. The city did not put out a Request for Proposals to develop the bank building because it was still in the process of spending its LSA grant money to stabilize the bank building when it was approached by the developer, he said.

The Red Talon Group has done its homework and is capable of doing the deal, he said.

“I think it’s definitely viable,” Barrouk said. The city has a responsibility to eBay Enterprises that’s committed to staying downtown. “It really should be the city to work with a group like eBay to make it happen,” he said.