CL Real Estate Seeks to End Lease Agreement for the Dawn Theater
Gelzer: 'There is all of the motivation in the world for the city and CL to make this breakup amicable and mutually beneficial.'
The TIFA Targeted Development Committee negotiated with CL Real Estate Development about the future management of the Dawn Theater during a meeting on Wednesday, February 5th.
The Keefer House Hotel, LLC—an arm of CL—has rented and managed the Dawn Theater since March 2022. But CL hopes to end its rental and management agreement with the city’s Tax Increment Finance Authority and allow a new company to take over operations.
CL sent a letter on January 17th to TIFA Chairman Andrew Gelzer and the board announcing its desire to “discuss…the future management of The Dawn to ensure operations and activities remain smooth at the theater.”
“CL wants to be done with the Dawn Theater,” Gelzer told the Hillsdalian. “To their credit, they’re not just saying they’re done. They want to talk and figure out how to responsibly move on.”
Keefer House Hotel is the party to the agreement with TIFA, but it has subcontracted the management of “daily operations for events, concerts, and community entertainment” to Hotel Investment Services (H.I.S.).
H.I.S. oversees properties across Michigan, and it will also manage the Keefer hotel when it opens.
CL stated in the letter that H.I.S. does not want to manage the hotel and the theater but would instead like to focus its “full efforts and attention on successfully opening and operating the Keefer.”
A ten-year Dawn Theater management, rental, and maintenance agreement was signed in March 2022 by Gelzer and Peter Limberger, the president of CL Real Estate Development and Keefer House Hotel, LLC.
The lease agreement requires escalating rental payments. CL has to pay TIFA $5,000–or $416.67 per month–in year 1, $7,500–or $625 per month–in years 2 and 3, $10,000 in years 4-6, $15,000 in years 7-8, and $20,000 in years 9-10.
As CL enters its fourth year of the agreement, its fixed costs, including high utility bills for the large building, will grow without a projected increase in revenue.
CL initially planned to manage the Dawn Theater as an extension of the Keefer Hotel. The continued delays in the hotel’s construction have deprived the Dawn of the stream of guests that it would reportedly need to be profitable.
The Dawn Theater management agreement also requires some community events to be hosted at cost.
These factors—the rising fixed costs, the delayed hotel project, and the at-cost community events—have combined to cause CL to lose thousands of dollars a year in the management of the theater.
TIFA and CL are open to the separation, but still have to negotiate final details.
Gelzer said another meeting between the Targeted Development Committee and CL should take place in the coming weeks, and he expects a good deal for both parties.
“They’re negotiating in very good faith,” he said. “There is all of the motivation in the world for the city and CL to make this breakup amicable and mutually beneficial. “
After CL moves on from its Dawn Theater lease agreement, TIFA needs to find a new management company, at which time the TIFA board will formally request proposals from prospective managers.
The Hillsdalian asked Gelzer about selling the building, but he said TIFA cannot do so at this time due to an April 2019 grant that the city accepted from the Michigan Strategic Fund
At the time, the group granted Hillsdale $1,415,000 in funds from the Community Development Block Grant to rehabilitate the Dawn Theater. The grant prohibits TIFA from selling the building for three years after the state has approved the project’s completion.
Gelzer said that “the grant’s conditions have been met,” yet the state hasn’t certified its fulfillment. The Dawn Theater hosted a grand opening nearly three years ago–on February 19, 2022.
The state could still take several years to certify the grant’s completion because of a bureaucratic backlog, according to Gelzer. Due to the state’s inaction, TIFA must own the Dawn Theater for the foreseeable future.
“TIFA cannot sell the building,” Gelzer said. “We’re not using TIFA funds or TIFA time—TIFA anything—to support the Dawn. Ideally, we don’t sink another dollar into this thing. It has taken more than enough resources at this point. Having said that, we can’t let the thing rot—we can’t let it go.”
Joshua Paladino
First you can sell the Dawn. You’ve met your obligations and any objection from the state would be vetted by a court. The state delaying certification wouldn’t work as a cause of action.
Second, it seems the reason that CL gives for wanting out is a direct result of their delays on the Keefer.