Editor’s Note: This story will appear in the Sept. 5 print edition of The Hartford Business Journal.
After more than three years of negotiation and planning, the viability of the scaled down $40 million Connecticut Studios project in South Windsor is in doubt.
As delays continue to plague the development, at least one town official says he thinks the project could be in jeopardy.
“The developers have been promising a start on this project for many months,” said town councilman Keith Yagaloff. “If the pieces are in place, then the project should get started. If the pieces are not in place, then South Windsor needs to look at other uses for the land and TIF financing.
“I would love to see it be successful,” Yagaloff added. “But I’m just very worried that it has tanked.”
The project’s developers say that’s not the case, blaming the lackluster economy and complex nature of negotiations for the slow progress.
The project is expected to be discussed during Tuesday’s town council meeting and officials say they are hopeful developers will provide some clarity.
Town and state officials began discussing the proposed state-of-the-art motion picture, production and television studio in 2008, but construction has yet to begin, even after a ceremonial groundbreaking took place last fall.
“Projects of this size and scope commonly take years to negotiate and plan,” Connecticut Studios Chief Financial Officer Ralph Palumbo wrote in a statement to the Hartford Business Journal. “In addition, we experienced an unprecedented economic cycle during the process that caused a major disruption in the capital markets. The project structure and business plan has continued to progress and evolve into a state of the art sound stage complex that will be the most desirable motion picture studio in the country.”
The Connecticut Studios proposal has been received with much fanfare and is considered to be a potential crown jewel of the state’s film tax credit program.
Connecticut offers three film tax credits for production, infrastructure and digital animation, and it’s always been a goal of the program’s architects to have a brick-and-mortar studio built.
The Connecticut Studios development is a partnership between California-based Pacifica Ventures and Halden Acquisition Group in Rhode Island. Originally slated as a 60-acre, $65-million project that would create as many as 2,000 jobs, the plan has been scaled back to a 40-acre, $40-million effort that includes construction of sound stages, production and executive offices, and a hotel.
But many questions still remain, and there have been many hiccups and surprises along the way.
Financing remains the biggest issue. A major part of the project’s funding is a $15 million tax-incremental finance bonding package that the town of South Windsor approved last year. But the bond has not yet hit the market and if the issuance isn’t completed by the end of this year, it could spell even further delays.
In a July 28 memo to town council members, South Windsor Town Manager Matthew Galligan laid out a projected schedule for the project, which included a Dec. 2 closing for the bond offering. The memo went on to say that the “project must be closed by first week of December to avoid delays. Delay of closing until after end of year would require redoing of bond resolutions and other documentation.”
Galligan did not return multiple requests for comments on the status of the Connecticut Studios project. Palumbo wrote that his company “is working with the town’s bond underwriter and financial advisor to complete all due diligence and satisfy all information requirements in a timely manner.”
Town Council member M. Saud Anwar, who remains hopeful the project will be completed, said the faltering financial markets have been a key factor in delaying the bonding.
“Things are delayed but are not changed otherwise to the best of my knowledge,” Anwar said. “The town is very much interested and willing to work hard to try to make sure we are receptive and helpful with the progression and completion of this important project.”
Anwar added, however, that the town has not seen the level of activity they expected to this point. “Market pressures have a lot to do with it,” he said.
A $5 million loan from Rhode Island-based Ocean Capital is another part of the financing package. A spokesperson for the lender said a closing for the loan has been scheduled later this month, depending on the completion of an appraisal that was ordered by the town.
Another issue is a controversial $1.5 million mortgage Connecticut Studios placed on property the town gave the company back in 2009. The 20-acre lot, the site where the studio would be built, was mortgaged so the developers could secure a $1.5 million loan from dck North America, the construction manager. But town officials didn’t become aware of the mortgage until earlier this year.
That’s a concern, said Yagaloff, because it remains unclear who would be responsible for the mortgage if the project doesn’t get built. As part of the land transfer agreement, Connecticut Studios has to construct at least one building within three years, or the property reverts to the town, leaving South Windsor to deal with the legal wrangling.
Now Galligan, the South Windsor town manager, is demanding Connecticut Studios to remove the mortgage from the property, saying it “puts a cloud” over the entire project.
In his statement, Palumbo said the purchase and sale and TIF agreement signed by the town and Connecticut Studios in May 2009 did not prohibit a mortgage.
Yagaloff said the mortgage also raises questions about whether or not the developers have any of their own equity in the project.
By some estimates around $2 million has been pumped into the planning of the studio so far. State grants have also been utilized in the planning stage.
Yagaloff said some town council members have asked the developers to show evidence of owner’s equity, but they have not seen any documentation yet. “The developers need to make disclosures about where they are at with the project, including the amount of equity they have in it,” Yagaloff said.
Palumbo wrote that “this information has been submitted to the bond underwriters and the town’s financial advisor as required by an agreement with the town,” and is “subject to a strict non-disclosure agreement.”
Meanwhile, state officials say they’ve been kept in the dark about the latest developments.
Originally, Connecticut Studios claimed to be eligible for up to $8 million in state film tax credits, but that was before the project was scaled down, officials said.
And the state has not been informed about the development’s new scope, so it’s unclear how much in tax credits Connecticut Studios will be eligible for, officials said.
George Norfleet, director of the Connecticut Office of Film, Television and Digital Media, said Connecticut Studios has not applied to receive any tax credits from the state. He said the state has been working with the developers since 2008, although there has been no recent contact. “Tax credits are still on the table as long as they spend the money,” Norfleet said.
South Windsor Mayor John Pelkey, who also remains hopeful the project will happen, said he expects more details on the state of the development Tuesday when the town council is scheduled to meet.
