Hospital exits Obermeyer Place project
Aspen Valley Hospital, the anchor tenant of the Obermeyer Place development, has pulled out of the project citing financial concerns.
“We determined that it would not be financially prudent to move ahead with the lease at this time,” AVH board President John Sarpa said Monday.
The lease agreement, which was on the verge of being signed, called for approximately 9,000 square feet of medical office space, about 6,000 square feet of medical file storage space and some 36 parking spaces. The next largest tenant, Rocky Mountain Martial Arts, has committed to approximately 2,500 square feet, according to Obermeyer Place project manager Dwayne Romero.
“This is not good news for us,” Romero said. “Clearly the timing is a bit unfortunate, and we’re going to take a financial hit. It isn’t a death knell, but it is a significant setback.”
Currently a light-industrial neighborhood south of Rio Grande Park, Obermeyer Place is envisioned as a mix of free-market and affordable housing, offices, and service and commercial shops. The project is scheduled to break ground in May.
AVH’s medical offices, planned for the building’s second story, were a key component of the project; the basement storage space is less of a concern, according to Romero.
“We are now forced to research our various alternatives … to find a way to offset the loss of our anchor tenant,” he said.
The problem with filling that office space, though, lies in the zoning. Currently, the second floor of Obermeyer Place is zoned for medical offices. Such zoning commands a significantly higher rental rate than the remainder of the building, which is zoned for commercial and service businesses.
Obermeyer Place can, without a return to the City Council, fill the space with such a business, but the project’s bottom line will be affected. They can also return to the council to seek a change in zoning, to residential, for example.
“Fortunately, this is a mixed-use project, so we have some flexibility,” Romero said. “But the medical offices were very important, both financially and for the community. It fit perfectly into our vision for Obermeyer Place.”
Romero stressed that the development will move forward, and that as of now the project is still on track. Asked if the project may fold or be put on hold indefinitely, Romero said, “Both are possibilities. But the odds of these happening are very slim. We are actively pursuing every possible solution, and we will move forward with good faith to the extent that we can.”
To date, no other tenants have backed out of their planned lease agreements, and all 18 free-market condos are under contract for a total cost of $48 million.
Though there was no formal lease in place, Obermeyer Place did have a long-term letter of intent from AVH, and all signs were that the deal would go through. Still, Romero said he isn’t surprised by the turn of events.
“It’s pretty obvious, given their financial situation, that they did the right thing,” he said. “But we had made a few reach-out calls and were still under the impression, until very recently, that this was going to be a deal that came together.”
In response, AVH interim CEO Bob Karp stressed “there was never an agreement” for the space. He added that all negotiations with Obermeyer Place were made in good faith and that the decision to withdraw from the project was made only recently. AVH on Friday told Obermeyer Place representatives of its plight.
“It was only apparent to us in the last few weeks that this was not a good move. When the hospital’s financial picture was drilled down, meaning that the board got to the bottom of things, we realized that things weren’t as rosy as they seemed when we started the negotiations,” he said, referring to the recent news that AVH is in serious financial straits.
More specifically, Karp noted AVH cannot at this time justify the approximately $2 million affordable-housing mitigation required by the city for its part in Obermeyer Place, nor the overall build-out of renting the space.
“I’m new to this business,” said Karp, who joined AVH after CEO Randy Middlebrook resigned in January at the request of the hospital board, “but it seems to me that AVH is a public entity. We’re not developing anything … we’re just trying to serve the public. And that we have to spend $2 million to put doctors in offices is a lot of money.”
Karp could not say, however, that the reason AVH pulled out of its promise to Obermeyer Place was not a possible relocation of the hospital or expansion of its operations downvalley.
“We know that we serve the Aspen community, but we also serve the Basalt and El Jebel communities, and it seems to us that the money we’d spend upvalley and the mitigation money might be better spent, in these tough times for AVH, on our operations or in looking at development in other areas.”
Plus, the offices that would be relocated to Obermeyer Place do not need to be moved immediately. “Nobody was in dire need of space … AVH is not going to lose any critical services by not being there. So when we looked at risks and benefits of the lease, the downside was greater than the upside.
“It was a very serious decision,” continued Karp. “The only thing I can say to the community is that the fiduciary responsibility of the hospital board is to keep the hospital in good health so we can treat our patients. That’s the bottom line on why this decision was made.”
Concluded Romero, “It’s obvious that AVH’s financial woes and problems are not confined to the four walls of the hospital. This decision will impact Obermeyer Place, and it will affect the community.”
Jeanne McGovern’s e-mail address is firstname.lastname@example.org
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