Correction: This story was modified to more clearly describe the developer's ownership structure.
Whether or not the $1.3 billion Hollywoodland project comes alive on Middletown's riverfront, the city could owe the project's developers $2 million by Christmas.
This is due to a pre-construction funding clause in the proposed development contract between the city and Main Street Community Capital LLC.
Middletown City Council will vote on the contract Thursday, Oct. 21.
The pre-construction funding clause requires the city to turn over federal stimulus money in four installments. The first payment is due two weeks after the contract is signed. City Manager Jim Palenick said he expects the contract to be signed by Christmas if council approves it as a non-emergency measure Thursday.
Lead developer David Rachie did not return calls seeking comment. Rachie and partners Robert Furst and Bob Johnson will be required to spend the money in accordance with federal guidelines, but the city will have no way to recover the funds once spent, Palenick said.
"It means that we will spend $7,500,000 of American Rescue Plan Act funds doing pre-construction activities regardless," Palenick said. "Moving this project forward, doing the various pre-construction activities to get complete schematic and design drawings so that we can can get a guaranteed maximum price, so that in turn they can go out to the market and see if the financing will work."
Developers getting paid before any actual development occurs rubbed Middletown resident Gary Armstrong the wrong way.
"I can't even respond to that," said Armstrong, who regularly negotiated business contracts in a 33-year career with Rotex Global, an industrial equipment manufacturer. "He ought to get that at the end, when the job's done. Seriously."
Despite the risks, the price tag, and the use of $7.5 million of COVID stimulus money, Palenick remains dedicated to the project and believes it can attract lenders and investors.
The city estimates the project will create at least 3,000 jobs that pay an average of $52,000 annually. That would generate $3.1 million in earnings tax, enough to hire 15 police officers and 12 firefighters.
"Are there risks involved? Sure," Palenick said. "We've tried to mitigate those risks as much as humanly possible. ... And we're coming out of a pandemic and this is the hospitality industry. It's a big ask, it's a heavy lift. Nobody is going to deny that. But if you don't try, I guarantee you, you won't make it."
