On the Selling Block Again?
[One of my investigative articles.]
The city is trying to take back a building it sold in 1995 because it says owner Michael Laine hasn’t fulfilled his end of the deal.
The city of Bremerton sold a downtown building to a broke, 27-year-old fledgling Web developer seven years ago and now may end up in a court battle to get it back.
They sold Michael Laine the office building at 245 Fourth St., next door to City Hall, in December 1995 despite misgivings about his finances. What they didn’t know, he now admits, is he didn’t have a penny to his name.
“It took insanity and a bit of courage to bluff the way I did,” Laine said. A month before the real estate deal closed, he learned he would not get an expected $3 million from venture capitalists. But by that point, he said, he didn’t want to back out of the sale.
Now, the city is seeking to foreclose on Laine, saying he has violated provisions of his deed of trust. And as legal proceedings continue, those who rent space in the 40,000-square-foot building – mostly artists – wait to hear their fate.
Kathy McCluskey, director of Administrative Services for the city, says they need not worry: The city wants to sell the building to someone who will preserve the Arts District.
The city’s foreclosure proceedings, which began in December and will likely continue until April, climax a seven-year battle.
Since Laine bought the building for $550,000, he has been a year behind on his property taxes, taken rent money from tenants when he wasn’t supposed to and let the structure fall further into disrepair, the city claims in its legal filings.
Depending on who you ask, you’ll get two pictures of Laine. He is either a saint who has provided a haven for artists, or a “slum landlord” who doesn’t care about his property.
Laine won’t give up. The 34-year-old says he loves the building and lives in the studio on the roof. He intends to fight foreclosure and thinks he can convince a jury he should keep his home.
“I’ve been a little nervous at times,” Laine says. “But I didn’t do anything that was going to cause anybody any harm.”
Former interim city attorney Loren Combs, who is handling the case, said a nonjudicial foreclosure such as this rarely goes to trial. It’s hard to tell how a trial may turn out.
The 245 Fourth St. building was owned by Edwin and Wanda Bjork who sold it to the city in 1991 for $475,000. Then-Mayor Louis Mentor wanted to connect the building to city hall and expand city offices next door.
But Lynn Horton became mayor in 1993, and by November 1995, she had decided she didn’t want the city to have to keep paying for maintenance of the building.
“I don’t think we should be in the landlord business,” Horton told The Sun in 1995, “and if we can help a new business become established in our downtown with the potential to grow I think that’s wonderful.”
She was talking about Laine, a 1986 South Kitsap High School graduate who spent four years in the Marine Corps before becoming a financial planner in Portland, Ore. In 1992, he went to Boston University to study business. Two years later, after taking out $30,000 in student loans, he dropped out.
Laine returned to West Sound in 1995 and convinced local investors to back his plans to start a Web-based company. They did, and Teknology-Laine was born.
He needed office space. He talked with the owner of the Old Wooly’s building in downtown Bremerton, but ended up looking at the Fourth Street building, which he and some prominent landlords say was never put out for public bid.
McCluskey says it was, but that no one wanted it.
City Council voted 6-1 to sell it to Laine, despite his refusal to divulge where he would get his money.
The only “no” vote was cast by former Councilman Bob Winters, who now owns a disc jockey company in Las Vegas.
The city didn’t use common sense, Winters said. “The entire public knew that this was a bluff. … A guy who has nothing is getting a building, putting nothing down?”
At the time, the council and mayor were willing to go ahead with the deal, McCluskey said.
“But we put a lot of restrictions on him. What sold him to the council and mayor was that he was going to start this Internet business and that it would be a good economic development opportunity.
Brad Smith, decade-long tenant and owner of Bremerton Printing Company in the building’s basement, said he remembers when Laine bought the building.
“The city was eager to sell it to whoever,” Smith said. “Michael sold the city a bill of goods and they fell for it, hook, line and sinker.”
McCluskey now says she realizes the city made a mistake.
Laine was to pay the city monthly installments of $5,399 until December 2002. He has.
The first month, Laine sold $8,000 worth of leftover restaurant equipment, which was stored in the basement, to pay his mortgage.
His Internet business soon took off. He eventually had 24 employees. At a 1996 economic development forum, former Congressman Rick White of Bainbridge Island singled out Laine’s company as the type of firm Kitsap County needed to attract.
But by the end of 2000, like many dot-com businesses, he had laid off all his employees and closed down.
His income now comes mainly from the four companies that rent space on the roof for cellular towers.
Two live-in residents were evicted by the city fire department last week. It wasn’t the first time people lived in the office building: Artist Alan Posner resided on the second floor for three years in the late 1990s, Laine said.
“Michael Laine has done a lot for artists,” said Posner, who now only uses studio space.
Last April, Laine was awarded a plaque by Horton for his contributions to the city’s Arts District. The plaque hangs in the building’s lobby.
Artist and writer Cheryl Hahn, who has rented space on the fifth floor for two years, said her ceiling leaks when it rains, and her sink is stopped up.
“But Michael has tried to accommodate me in other ways,” said Hahn, who is also a curator. “It’s not a full picture to say Michael is a full ogre and not a full picture to say he’s a saint.”
Ask basement tenant Smith what he thinks of Laine, and he pulls out a thick file folder full of complaint letters he’s written.
“Since Michael has taken over, it’s been a disaster,” Smith said. “If we don’t clean it up, it will never get done. Never. He’s a slumlord.”
Countless documents describe such problems as leaking water pipes, broken window frames, parking lot potholes, broken outdoor lights, lack of hot water, broken door locks, water-damaged carpets, scattered junk, out-of-date fire extinguishers, unusable sinks, broken toilets, no heat and no restroom towels and a leaky roof.
After liens were filed against the building by companies such as Brem-Air Disposal, Boston University and Reid Realty, the city had to take action, McCluskey said.
In December, the city attorney sent Laine a Notice of Default, the first step of the non-judicial foreclosure process. It noted that he broke three provisions in the original Deed of Trust: to keep the property in good condition and repair, to have tenants pay rent directly to the city and to pay property taxes on time.
Laine admits he’s a year behind on property-tax payments (according to the Kitsap County Treasurer’s office, he owes more than $10,000 for 2001) and has taken a portion of the rents for his own pocket. What he denies, however, is that he’s neglected the building.
He’s tried to patch up the roof, he says, but it keeps leaking.
He is refinancing his mortgage and expects that deal to close within three weeks. He expects the building could be appraised at $1.1 million, and the money from the deal will allow him to pay off his debt and complete the purchase of the building.
Laine and others say he has learned a great deal since the day he signed the closing papers.
“I think this was a sort of baptism by fire for him,”artist Hahn said, noting Laine’s lack of property management experience. “He’s trying to hang in there.”
This story was originally published in the Kitsap Sun. To Read the original article click here.