City tries to recoup money from failed theater project
Deal OK'd in attempt to get back some of the $600,000
The Novato City Council has approved an agreement aimed at recouping some of its investments into the failed campaign to rebuild the Novato Theater.
Under the agreement, the nonprofit that owns the former theater at 924 Grant Ave. will provide a portion of property sale proceeds to the city.
How much the city could receive depends on the sale price as well as how much money the nonprofit has left over after paying off an estimated $100,000 in debt and the cost of selling the property.
After more than a decade of fundraising, the Novato Theater group announced in late 2022 that it had depleted its cash, was dissolving and planned to sell the property.
“At this point, my feeling is it's time to move on,” Mayor Susan Wernick said before the vote on Tuesday. “As that property sits now, it's not generating a dime of revenue.”
With the agreement, the city is attempting to recover some of the $600,000 it donated to the Novato Theater group for its plan to create a renovated 235seat main theater and an upstairs theater for performing arts, concerts and conferences.
The city sold the property at a loss to the Novato Theater group in 2012 for a bargain price of $50,000 with the condition that the property only be used as a theater.
The agreement approved on Tuesday rescinds this condition, a move that city staff and theater representatives said would give the downtown property a better chance of being sold at a higher price.
“It's probably the fastest way to get the property sold and hopefully someone will do something superb with it,” Novato Theater board member Keith Greggor said on Thursday.
An appraisal of the property by the theater group in August valued the property, which is gutted and has only a foundation, at $720,000.
City Manager Adam McGill said the city could recover at least $445,000 of the money it gave to the nonprofit under the agreement.
Federal tax law prohibits a 501c(3) nonprofit from refunding donations it has received, but it can donate its funds to other nonprofit organizations. McGill said that the city is legally considered to be a nonprofit entity, allowing it to receive funding.
The Novato Theater group is under no obligation to return funding to the city and is doing so voluntarily, McGill said.
“No one loves what's happened here, but this is
probably the best deal we can get and timing is of the essence to try to get this sold and we all move on from it,” McGill told the council. “There were definitely losses and in hindsight, I'm sure we all wish things would have been different, that there was a functioning theater there.”
Under the agreement, the Novato Theater group also could receive some of the property sale revenue. The group plans to use its portion to donate to other nonprofit groups supporting theater and the arts in Novato and Marin County, said theater board member Luis Rivera.
“We don't want to be making promises not knowing what the amount is,” Rivera told the council when asked whom the group plans to donate to.
If the net proceeds from the sale are $650,000 or less, the city will receive $445,000 and up to $25,000 in payment for legal fees, while the theater group would keep the remaining funds.
If the proceeds are less than $445,000, the city will keep all of the proceeds.
Should the property sell at a higher price and the proceeds are more than $650,000, the city would receive the $470,000 payment and 50% of the remaining proceeds, with the other half going to the Novato Theater group.
Not all were happy about the agreement. Novato resident Toni Shroyer told the council that the theater group “has the city hostage” and questioned why the city would allow the nonprofit to keep any funding.
“This is an absolute disgrace, this is a complete shame and I want to know where the money went, Mr. Rivera,” Shroyer said during the meeting.
McGill said the Novato Theater group owns the property and the city has no authority to tell it what to do with the sale proceeds.
The original 488-seat theater opened in 1946 and remained a downtown fixture until 1991, when it closed because of competition from multiplex theaters, according to the nonprofit group. The site has remained vacant ever since.
A campaign to restore the theater began in 1995 by the Novato Theater Restoration Co. Similar to this latest campaign, the first effort failed to raise enough funding and sold the property to the city in 2004. The city was unable to find a developer to renovate the theater and sold the property to the Novato Theater group in 2012.
Greggor said the group was able to raise close to $2 million, of which $1.4 million went to purchase the property, complete a design of the new theater, demolish the outdated structure and rebuild the foundation. Fundraising efforts faltered with the start of the pandemic, Greggor said last year.