State DCA Turns Down Loan for Beach Theater

CAPE MAY — The state Department of Community Affairs (DCA) has determined the Save the Beach Theatre Foundation does not qualify for a $100,000 loan it has requested from the city.
DCA granted the city $600,000 which was loaned and repaid by Congress Hall Hotel. The state agency continues to administer the loan through the city.
City council passed two resolutions of its intent to loan the foundation $100,000. A June 22 memo from City Manager Luciano V. Corea to council and the foundation outlined the problems.
The memo states “After several discussions with Mr. Bruce Benton from DCA, they have determined that the loan request from the Beach Theatre Foundation does not conform to the program that was established for the City, and by the City, in accordance with the requirements of the Housing and Community Development Act…”
The memo states the Beach Theatre project does not fit criteria of the project because:
• The loan for this type of project must be for the addition of permanent, full-time jobs to low and moderate-income individuals, and not for the retention of existing jobs.
• There is no provision for the providing of a loan that involves leasing of a facility, as opposed to physical acquisition thereof. The Beach Theatre loan was for a one-year lease purchase agreement.
•The loan must be secured by either real property or personal guarantees.
Corea’s memo said in order to have the Beach Theatre Foundation apply for a loan utilizing this program, they must follow the same procedures as Congress Hall did when applying for their loan. Some of the items required would include a public hearing to determine need for development of this area, and review of the potential performance of the loan.
Such a loan would also require the preparation of a “Programmatic Agreement identifying the needs and obligations of the foundation,” identification of the number of new jobs to be anticipated, and the identification of those to be filled by low and moderate individuals with a substantiation that at least 51% of new jobs will be made available and hired into by low and moderate incomes.
The memo notes, should the city wish to move forward with this type of modification, it must request the approval of the DCA to modify the current plan to include the ability to lend money to a group or organization where no loan guarantee is in place
Also, the city must guarantee the loan with a line item within the current fund budget, in which it commits to repay the difference between any monies loaned and any monies repaid in the event of the default of the loan by the receiving party.
“In summary, the city is essentially becoming a bank with the custodial responsibilities of the monies provided to it by DCA…” said Corea’s memo. “Therefore, at this time the city is unable to move forward with advancing the money requested by the Beach Theatre Foundation until such time as all of the above items have been advertised, discussed, and submitted to DCA for their review and potential approval.”
Save the Beach Theatre Foundation Co-Chairman Jerry Gaffney told the Herald “It is very disturbing because we feel Trenton (DCA) was told things that would convince them we don’t qualify after council had voted three separate times to give us the funds.”
He said Benton said to him in a conversation last week “Good luck, I hope the foundation is successful, they definitely meet all the criteria to qualify for this loan.”
“What all of a sudden happened?” asked Gaffney.
Corea told the Herald he received calls from DCA June 20 and 21 seeking more information.
“I guess there wasn’t a complete understanding as to what the foundation was proposing,” he said. “Once they found out what was being proposed, they looked at the grant agreement and the city’s reuse agreement, and at that point determined it did not conform to what the city was allowed to use that money for.”
Corea said if the city wants to investigate amending the agreement and reuse plan, it would take several weeks. He said when the city loaned $600,000 to Congress Hall, it was guaranteed with a mortgage and the hotel had $20 million in financing in place.
Corea said Gaffney was mistaken in assuming DCA had approved the Beach Theatre project loan.
Members of the Save the Beach Theatre Foundation had paid a return visit to city council June 19 to further plead their case for the loan that would enable the group to sign a lease/purchase of the 57-year old theater and explain how they would repay the money.
The foundation is requesting a 10-year loan carrying a 2 percent interest rate with the first payment due in 24 months. Monthly payments would be about $920 per month.
Deputy Mayor Niels Favre asked what would happen if the foundation was unable to repay the loan to the city.
Gaffney said the foundation anticipated accepting “quite a few donations” by November 2008, the end date for the one-year lease from Frank Theatres, owner of the Beach Theatre.
Favre asked what recourse the city would have if it could not collect the debt.
City Solicitor Tony Monzo said it would be an uncollectible debt to the city.
Favre said Gaffney was quoted in a local newspaper as criticizing the city’s Historic Preservation Commission for issuing a demolition permit for the theater to Frank Investments. Gaffney said the demolition permit could make it more difficult to raise funds for the project.
Councilman David Craig asked if the foundation defaulted on the loan, could it jeopardize future grants from the state DCA for the city.
Corea said he did not believe that would happen but the city could be liable to repay the $100,000.
Gaffney said the foundation would be responsible for 51 percent of the property taxes on the complex for a total of $26,000 annually.
Foundation board member Harley Shuler said there were risks to the city in loaning the money, such as the foundation not meeting revenue goals or poor attendance at movies.
“To think of Cape May with no movie theater is the first problem,” said foundation treasurer Bernie Haas. He said the current condition of the theater was described by one an individual as a “litter box.”
The first goal is to save the theater and clean and paint the facility, said Haas. He said, later, a developer would be sought to rehabilitate the building to a state-of-the-art theater.
Foundation board member Susan Tischler asked “Why should we send people to Rio Grande to see a movie?”
“Without this money, September 2007 could very well be Cape May’s last picture show,” Tischler continued.
Gaffney said the one-year lease with the Beach Theatre’s owner, Frank Investments would begin in November with the NJ State Film Festival as the first event. Proposals from developers would be reviewed from December until May 2008 when the theater would open on a full time basis with four or more employees.
In October 2008, finalization of the new owner would occur, whether a developer or the foundation itself is able to raise enough funds. Renovation would start in November 2008 with a grand reopening in June 2009.
Gaffney said the option to purchase the theatre could be assigned to a developer along with the entire complex of retail stores.
Haas said the foundation’s sources of revenue would include accepting donations, fund raising events, grants, ticket and concession sales, theater rentals, sponsorship, “buying a seat” for the upgraded facility, sale of merchandise with the foundation’s logo and on-screen advertising. He said the foundation currently has $25,000 in the bank with another $20,000 pledged.
Shuler said the foundation anticipated $1.1 million in revenue and $1.1 million in expenses with a $3,400 profit in 2008, based in part in selling 21,800 tickets.
Starting in November this year, the foundation would employ a theater manager, two projectionists and hire an executive director, a fund raising director and two administrative assistants, he said.
Shuler said it was also anticipated to hire 10 persons for ushering, the box office, concessions and the foundation store. He said a new policy would be instituted when the foundation takes over operations, cleaning the theater in between shows.
Gaffney said the theater would be used for “on-going art-cinema programming,” music and jazz festival use, film festival, whole theater rentals and city use. The foundation’s wish list calls for one, full-size theater with high-back rocker style seats, digital projection and sound and ability to show satellite high-definition broadcasts.
Gaffney said historic preservationist Joan Berkey prepared an evaluation of the historical and architectural significance of the theater. Her report said the theatre was constructed in 1950, a time when shore towns were in a decline.
“As an example of a mid 20th century building that combines strip-style stores anchored by a centrally-placed theater, the Beach Theatre appears to be individually eligible for listing in state and national historic registers,” she said.
Berkey said further research could determine if the Beach Theatre was one of the first in the nation to combine retail space with a theater.
Council amended an earlier resolution of its intention to loan the foundation $100,000 to reflect a slight change in the loan documents.