How The Palace Rescue Almost Collapsed

“I am stunned,” Yale’s top New Haven exec wrote. With a breakthrough deal hanging in the balance, he forwarded an outraged email message to City Hall’s development chief: ​“FYI. This is not the way to get the University’s cooperation.”

“[S]omehow,” City Hall’s development chief wrote back 50 minutes later in a lengthy stab at salvaging the deal, ​“we are getting off the path to a solution here.”

The exchange was part of a high-stakes chess match that took place over the attempted rescue of College Street’s Palace Theater, which had been dark for 12 years. New Haven’s Harp administration had found someone ready to renovate the shuttered 89-year-old theater and reopen it as a 2,000-capacity College Street Music Hall. But Yale owns most of the rest of the block — including an alley next to the theater. The theater’s owner needed an easement from Yale to use the alley as a fire exit. Without that easement, the theater’s owner wouldn’t be able to obtain a building permit necessary to reopen.

Or so everyone assumed.

Offstage, out of public view, a drama unfolded as negotiations over that easement hit a wall. Tempers rose, culminating in one retort expressed all in capital letters.

Email messages obtained by the New Haven Independent through a state Freedom of Information Act request reveal the drama that preceded the celebratory announcement weeks later that the theater had found a way to reopen after all without Yale’s permission, to stage folk, classic rock, and bluegrass concerts. (Details on how that happened can be found in the epilogue to this story.)

The email exchanges also offer a glimpse into how City Hall and New Haven’s dominant corporation sometimes communicate outside the niceties of press releases and press conferences, beyond earshot of the public. They also demonstrate some of Yale’s goals in the leading role it has assumed in remaking the swaths of property it controls downtown.

The goals preventing the opening of ​“another Crown Street bar, now or later.”

Cast Of Characters

Matthew Nemerson, the city government’s economic development administrator. Nemerson, whose previous credits include heading the local Chamber of Commerce and running a statewide tech-advocacy organization, took the city government post last year upon Toni Harp’s inauguration as mayor. Harp asked Nemerson to find a way to reopen the Palace, an 89-year-old former vaudeville hall that had previously been renovated and reopened in 1984 as a concert hall as part of the creation of a ​“Shubert Square” new-urbanist theater, shopping, dining, and residential district. But the Palace closed again in 2000 not long after the developer of much of Shubert Square, Joel Schiavone, lost his properties in the district to foreclosure. A not-for-profit entity called the New Haven Center For Performing Arts (NHCPA) has owned it since then. Nemerson’s mission was to regain some of that short-lived 1980s glory for the city.

Steve Mednick. Nemerson enlisted his friend Mednick — a local attorney and musician whose previous credits include serving as a New Haven alderman and corporation counsel — in the quest. Mednick knew a Waterbury promoter who had once inquired about reopening the Palace. That effort got nowhere; depending on who you ask, Yale didn’t budge on granting access to that needed alley, or the promoter didn’t pursue it. In any case, Mednick recontacted the promoter, Keith Mahler of Premier Concerts. They struck a deal with NHCPA under which Mahler would work through the not-for-profit to revive the theater and stage concerts beginning in May. To carry it out the deal, the city and theater believed, they needed to strike another deal with …

Bruce Alexander. Alexander, whose previous credits include serving as a top exec of the mall-building Rouse Corporation, returned to Yale, his alma mater, two decades ago. His role: serve as a vice-president in charge of development and government matters in New Haven. Yale was beginning to commit to a bigger role in developing the city; Alexander had the portfolio. Former Mayor John DeStefano convinced Alexander that Yale should buy a dozen properties in Shubert Square out of foreclosure from the Federal Deposit Insurance Corporation to ensure they stayed in local hands. Alexander proceeded to oversee the growth of retail and restaurant businesses in that district as well as along the other commercial corridor bordering Yale, Broadway. The Yale-bought properties did not include the Palace Theater, but Yale’s properties surround it. Including that alley next to the Palace where the city and NHCPA sought an easement.

The Setting

As negotiations proceeded on the easement, Alexander questioned whether Mahler’s outfit would be truly a not-for-profit, as required under the sale of the FDIC’s property to NHCPA; whether the envisioned new Music Hall might degenerate into a problem-generating ​“Crown Street bar”; and whether granting an easement would prevent Yale from proceeding with eventual plans to build on the interior block’s surface parking lot. (It would need access to College Street through the alley.)

The negotiations limped along, then stalled. The main sticking point: Alexander sought the right for Yale to terminate the easement if it pursued other plans for the property, or if the theater hurt Yale’s other businesses on the block. In a 2005 license agreement Yale had granted the theater emergency access to the alley but retained the right to cancel permission on only five days’ notice. Mednick said the theater’s operator couldn’t risk losing the money invested in the theater in a sudden cancellation. He presented proposed legal language requiring 13 years’ notice of a cancellation — a non-starter from Yale’s point of view. Another issue: how much Yale would compensate NHCPA in the event of a cancellation.

The email exchanges obtained by the Independent begin as Alexander updates an anxious Nemerson in November on the state of negotiations. They never got to the point of argument over what the definition of ​“is” is. But they did argue over the word ​“bonafide.”

Prologue

12-Nov-2014 12:01
To: [email protected]
From: Bruce Alexander

Dear Matthew,
Thanks for your e‑mail. Let me add a few comments to your summary in an effort to move this forward.

When you first approached me about the entity involved in a potential lease of the Palace, you indicated that they wanted use of some of the University’s adjacent property, but that you had told them such use would need to terminate with very modest notice. It was on that basis I agreed to support the notion and take it to the President and Officers when we got a concept put together. When the language of the document I requested came through, it said nothing of the kind of what had been agreed to with you but rather stated, ​“This easement shall be for an initial non-cancellable period of thirteen (13) years…”! You have indicated as recently as our meeting last week that yo had reviewed the original understanding you had with the potential lessees of the Palace and they were prepared to proceed on that basis. I will suggest to Steve today that he resubmit the language and that will cover several of the issues that arose when I had this discussion with the President and Officers.

You were correct about our other concerns which I trust the City shares:

• Another Crown Street bar, no-or later if the music hall concept doesn’t work economically-would be terrible for the area restaurants (some of which are our tenants, but there are many others as well), the Shubert, and the College Street corridor now coming alive. Hence my question about due diligence on the nature and long-term success of the operator’s current operations.

• What will be the effect on the Shubert? I thought, but perhaps am incorrect, that the Shubert expansion space is designed for a similar purpose. The University has on two occasions, one just this past year, made substantial contributions to capital campaigns to keep the Shubert alive and well. We all have an interest in making sure the Shubert sustains itself.

• There are covenants that run with the land from the FDIC sale of the Palace for $1 that require it to be a nonprofit entity, and having been part of that deal. I can tell you the ownership was designed to be a nonprofit entity in substance and not just in form.

• We have a restaurant tenant for the adjacent property who wants to use part of the outdoor seating so we need to sort out how much space is actually required.

• Finally, we may ourselves want to develop the adjacent property with or without adding to it, as it is currently a development site as it stands.

We of course would like to support additional downtown attractions as the University has worked for nearly two decades to do just that! As indicated I have discussed the matter with the Officers and I am reflecting institutional concerns, an institution that will be here, as will the City, long after those of us currently in our positions leave them. Of course, we also want to try to make this work. A good start would be for the document to be recast to reflect your understanding and I will convey to that to their attorney this afternoon on our call.

All best wishes,
Bruce Alexander

12-Nov-2014 12:54
From: [email protected]
Subject: College Street Music Hall concept meeting with Steve Mednick Wednesday 11/12/14

Dear Bruce,

Thank you for the email and your detailed attention to this matter.

I have made it clear to Steve and Keith that the 13 years in their proposed easements makes no sense based on what you and I discussed. The easements, and in fact the very use of the building itself, would be subject to the possibility of another entity — most likely Yale — acquiring the two condominium interests for some other use. This could happen in 13 years or it could happen next year. This provision must be modified to allow for a bonafide change of ownership and use.

On your other very real points:

1) A bar….this must never have the possibility of being a bar or dance club or anything akin to these. There must be a curfew — and Keith is proposing 11 PM on weekdays and 12 AM on weekends. There must also be provisions against running the Hall without acts (weddings, meetings and bar mitzvahs excepted I assume?). This must have the impact of Infinity Hall or similar Halls in Northampton, etc. They seem totally willing to agree to this and we will demand it.

2) The Shubert…Keith can explain to you that the number of ​“good” open dates at the Shubert are actually quite few and that he would still be looking to book acts that are more appropriate to their stage and size as he has for many years if they coincided with his acts availability and needs. Keith is an expert in this as he books acts into the Shubert, Warner, Palace (Waterbury), Rich, and many other locations. I think he makes a good argument as to why a Music Hall of this type will enhance and not detract from the Shubert. I do know the immense impact on parking and restaurants that he Shubert has. Keith books ​“great” acts who are on their way from New York to Boston and so dates and times are often not that flexible given the Shubert’s already very busy schedule.

3) The FDIC provisions are something that we subscribe to. My understanding is that Keith has worked out a deal with Ron Kaplan to both manage the nonprofit through contracts and to place new board members with an active show biz and music background on the board. The NHPAC entity will be overseeing the operations as before with stronger and more experienced directors.

Perhaps you and I should attempt to have representative on the Board itself. I am not sure now the Nonprofit and the condominium interests are linked, but I sense that Keith will be in a position to work with you in a coordinated way when or if the entire site needs to be acquired (not including 234 College Street condominium of course).

4) Restaurant next door — we are encouraging restaurants to use ​“terases” to supplement their outdoor seating and we would be happy to work with new restaurant to configure the site if the alley was not available. I noticed that the Mexican restaurant next door has been using the seating in front of the former Japanese location so there is some out door seating available as is…but more is certainly welcome and something we encourage. Perhaps we should explore other ways to attain access to the building without impacting the side alley.

Thanks again. Please let me know how your meeting goes this afternoon and I look forward to continuing the conversation.

Matthew

Friday, November 14, 2014 10:19 AM
From: Steve Mednick
To: Alexander, Bruce
Subject: New Haven Center for the Performing Arts, Inc. (“NHCPA”)

Bruce:

It was great speaking with you the other day. I reported our discussion to NHCPA and they were pleased with the progress. I will get back to you regarding a dollar figure regarding ​“recoupment” of the NHCPA investment so that we can resolve the issues pertaining to termination of the easement (in the event of bona fide development plans of the contiguous properties) and move this matter forward with dispatch.

Regards,

Steve

Friday, November 14, 2014 11:50 AM
From: Alexander, Bruce
To: Steve Mednick

Thanks Steve. Not sure how much progress we’ve made as I will need to take any proposal back to officers for consideration and a recoupment is only a possible solution. (If we do end up allowing use of our property, with respect to any termination i would of course not be supportive of any language that would leave the University open to a dispute about what ​“bona fide” means in practice.)

Good to talk with you as well.

All best wishes,
Bruce

Friday, November 14, 2014 1:32 PM
From: Steve Mednick
To: Alexander, Bruce

Bruce:

I just borrowed the language from a document that you have called the ​“Declaration of Restrictive Covenants.” I am not wed tot he term ​“bone fide”. The issue is that the not for profit cannot be expected to invest substantial sums of money only to be shut down by the termination of an easement that is entirely discretionary. The termination must be tied to a development transaction that is tangible and would somehow require the use of the land upon which the easements sit. My suggestion is that you ask someone in the Office of the General Counsel take a look at the easement agreement that we have forwarded and mark it up to reflect whatever concerns you have.

With regard to the officers: can you give me a sense of timing involved in that process? On the surface and in reality this is not a complicated issue. NHCPA has begun its work on the renovation of the theatre and is committed to moving toward operational status ASAP. We are committed to working with you to move this project forward in a purposeful and timely manner.

Respectfully,

Steve

Thursday, November 20, 2014 2:50 PM
From: Steve Mednick
To: Alexander, Bruce

Bruce:

It has been almost a week since we last communicated and I thought I would check in. I have a couple of questions. First, has the General Counsel’s office reviewed the Easement Agreement specifically with regard to the issues you have pertaining termination rights? If so, I would appreciate an opportunity to review their mark-up and alternative language. Second, do you have an estimate regarding the timing with respect to your internal officer approvals? As I informed you last week NHCPA is moving forward with renovations and would like to move operational status in the near future. We are prepared to meet with you prior to Thanksgiving to keep this matter moving forward.

I look forward to hearing from you.

Regards,

Steve

Thursday, November 20, 2014 6:21 PM
From: Alexander, Bruce
To: Steve Mednick

Steve,

I am stunned by this email. You were to get back to me with a proposal regarding a possible recoupment provision for unamortized costs. That was how we left our last conversation. PLEASE INFORM YOUR CLIENT THE UNIVERSITY HAS IN NO WAY AGREED TO THE USE OF OUR PROPERTY AND THAT HE IS PROCEEDING TOTALLY AT HIS OWN RISK.

Bruce Alexander

20-Nov-2014 18:35
From: [email protected]
To: [email protected]

Matthew FYI. This is not the way to get the University’s cooperation. Perhaps he has decided he does not need our property. Bruce. [Previous two email messages follow.]

20-Nov-2014 19:26
From: [email protected]
To: [email protected]

Bruce,

I am sorry that I have not been paying closer attention to your conversations with Keith and Steve as it has been a busy week here leading up to holiday. We were excited yesterday to receive the $21.5m bonding authorization from the state for the Coliseum project and we have been inundated with new developers who are looking for projects to start in 2015, etc. It’s all good as they say.

I can assure that nothing is proceeding inside the theater with the non-profit or this promoter and no one has pulled any permits or even suggested that theya re starting any construction work without a solution to how to exist the building legally from all the fire escapes.

Having said that, we both know Steven Mednick well and I have no doubt that he is 100% serious about gaining your full cooperation — if not enthusiastic support and collaboration. There should be no need to question his seriousness about working to solve your and his clients issues.

Still, somehow we are getting off the path to a solution here.

Without presuming to insert myself I do think you outlined it correctly: the issue is what damages would be due to the nonprofit if it moves ahead with rehabilitation and there is a period of un-interrupted operations too short to re-coup the investment they are making from promoter rents and fees. They suggested they need 13 years and you have implied you might only be able to give them one or two years.

So, I suggest we get from Steve his client’s schedule of what the actual minimum time is they would need to operate the theater and that you proposed what the maximum time Yale feels it could allow before it might reasonably decide to acquire and ​“re-purpose” the site. When we see the gap in years and determine the likely investment amount we will have a simple number of the financial ​“exposure” the project is producing.

I can then go to the Mayor with the possible orphaned investment costs and projected benefits. I will then address them by dropping the whole thing, through more negotiations with the two of you, a state grant, outside sponsorship or some outright city effort.

I think we are not talking about a huge amount of money given what we have all said is the possible upside of this effort.

Would it be useful if the three of us met to discuss this? At minimum it might be helpful to walk around the Palace and see first hand the short and long-term conflicts or cross purposes that the project could engender. I do understand from Steve that the insides are magnificent and in much better shape than any of us had been told. Rumors of seas of mold and complete destruction are apparently giving way to the need for some soap, paint and electrical updates. But then I am the eternal optimistic and Pollyanna.

Again, no work is underway and address and please lets work this out.

What do you suggest we do next?

Matthew Nemerson
City of New Haven
Economic Development Administrator

20-Nov-2014 22:26
[email protected]
To: [email protected]

Bruce:
Thank you for your response. Let me make it clear that NHCPA has pulled no permits and I don’t believe that I implied otherwise. We have simply been cleaning out the cobwebs and performing the preliminary due diligence as a normal prerequisite to the necessary renovations for which permits will be required.

It is for that reaspm that NHCPA will work with the University in order to establish a comfort level so that we can obtain the easements on your property. There is no reasonable alternative and we are committed to finding a balanced solution.

In that regard I reiterate that it would be useful to have a meeting. I know that Mr. Mahler would like to have that opportunity. He can walk you through the plans and address the issue of recoupment. In the meantime, as I suggested last week, it would be useful to have your counsel review the proposed Easement Agreement with your alternative language pertaining to termination rights (altering our fixed 13 year term). In my view the recoupment figure could be inserted once that language is negotiated.

In short, NHCPA is simply trying to keep this matter moving toward resolution.

Again, there should be no implication that my client is not interested in working with the University. It should be evident that an agreement would be a critical step toward the opening of the theatre.

The only reasonable inference to draw from my emails and in our conversations is that NHCPA is anxious and committed to putting this grand old theatre back to work on behalf of the City of New Haven and the retail and arts community that the City and University have nurtured over the years.

Let’s try to meet next week.

Regards,

Steve

Friday, November 21, 2014 8:11 AM
From: Massa, Maureen
To: Alexander, Bruce; ​‘Steve Mednick’

Steve, I reiterate Bruce’s statements. At no time has it ever been agreed that a new easement would be agreed to by Yale. If your client proceeds with renovations, they should understand that they do so subject only to the terms of any existing recorded easements relating to their property.

Maureen Massa
Senior Associate General Counsel

21-Nov-2014 09:49
From: [email protected]
To: [email protected], [email protected]

Maureen:

Thank you for your message. Attached is a copy of an email sent to Bruce last night. NHCPA is not proceeding on the assumption that Yale has granted an easement. My email simply suggested that I had not heard from Bruce on a request I had made last week regarding alternate language for the termination provision. In our conversation he stated his opposition to the proposed thirteen year term and I simply asked that he come up with alternate language that we could consider, including a blank space to address replenishment.

The current status: we have not pulled any permits. My client recognizes the position they are in and is ready to work in earnest and in good faith to resolve this matter. Yet, from my point of view, this is not a complicated request and my hope is that we will be able move forward swiftly with this discussion so that we may put this theatre back to work for the City of New Haven.

On other other hand, NHCPA continues to control the fee interest in the premises and will continue to engage in appropriate levels of due diligence so that it may proceed with the necessary permits for the proposed renovations if and when the easements are granted.

In the meantime my client is ready to meet with Bruce to disucss replemishment and to answer any other questions he may have.

Regards,

Steve Mednick

Nov 21, 2014 4:45 PM
From: Alexander, Bruce
To: Steve Mednick

Steve, as previously discussed, the next step from our perspective is for us to know what the investment will be in the property by major category and amortization schedule so we can discuss recoupment as a possible solution. Thanks, Bruce

21-Nov-2014 18:17
From: [email protected]
To: [email protected]

Bruce:

The number is estimated and expected to fall somewhere between $2.5 — 4.0 million in accordance with GAAP accounting standards. Again, Keith and I would be happy to discuss with you in New Haven next week. Please give me some times and we will meet you at your office.

In the meantime if Maureen could take a look at the agreement and mark-up the termination provision it would helpful to keeping this discussion on track.

Have a great weekend.

Regards,

Steve

Epilogue

That meeting and mark-up never took place.

As negotiations stalled, Mednick did some hunting in public records. He discovered that a brick archway at the side of the theater, on the theater’s property, once offered egress in case of a fire. A previous developer in charge of the Palace property, David Nyberg, had bricked over that space to put in a storefront, which is now vacant. NHCPA realized it could open that bricked space back up and use it as an emergency exit. NHCPA no longer needed Yale’s easement after all. The plan was set; Mayor Toni Harp, Nemerson, promoter Mahler, Mednick, and others convened at the theater Jan. 14 to announce the news, and renovations began.

In a conversation Thursday with the Independent, Alexander said Yale all along supported the concept of reopening the Palace. He said it needed to address the details raised in negotiations. ​“There was a lot of confusion” in the negotiations over the easement, he said. ​“We were talking past that.” Yale had heard concerns from two of its Shubert Square tenants, the restaurants Pacifico and Oaxaca, about ​“rowdy early-morning crowds.” Alexander noted that the theater has agreed to close at 11 p.m. on weeknights, midnight on weekends. ​“That gave us great comfort,” he said.

Mednick declined to comment for this article, because while the fire-emergency negotiations have ended, a new round of negotiations has begun. Less is at stake in this negotiation. NHCPA would like to use Yale’s alley for trucks to unload equipment before and after shows. If the two sides fail to reach agreement, the theater can still open. Trucks would unload from College Street (which could slow car traffic).

Yale internally ​“just had a meeting this morning” about the matter, Alexander reported. ​“I got involved in it so we could move it along. We need to get it settled.” He predicted an upbeat sequel to the story.