Herndon Armors Up Amendment for Downtown Redevelopment

Wednesday, September 18, 2024

News Analysis

The original Comprehensive Agreement on Nov. 1, 2017, between the Town of Herndon and developer Comstock Herndon Venture LC “had notable gaps that heavily favored Comstock,” said Herndon Councilmember Pradip Dhakal on Sept. 15. The agreement has undergone five amendments and four extensions to the Outside Satisfaction Date (OSD), including the most recent extension on Sept. 10.

“Had we not approved the OSD extension to Dec. 10, Comstock would have issued a Notice Not to Proceed,” Dhakal speculated. “[It] would have likely triggered a lengthy unwinding process. Given the contract's complexities and the potential for litigation, it could have taken years for the town to regain control of the land, possibly leaving it undeveloped for a prolonged period.”

Dhakal and Councilmember Keven LeBlanc are the two candidates for town mayor in the upcoming general election. They provided comments separately in writing centering them on the agreement, its amendments, extensions to their “outside satisfaction dates” and lack thereof, and the impact of global and national events on the seven-year wait for Comstock to get financing and construct the planned redevelopment.

The town and Comstock entered into the Comprehensive Agreement on Nov. 1, 2017, to redevelop the 4.675-acre town-owned downtown parcel into a mixed-use town center, a project with an an arts center, and associated parking under the Public-Private Education Facilities and Infrastructure Act of 2002 of the Code of Virginia.

According to LeBlanc, the town worked on additional protections in the Sept. 10 extension that allowed the town a much better exit plan and unwind if something were to go wrong; that was the key to protecting the town. “If we had not signed and agreed to move the OSD to Dec. 10, we would have been in default; we would have owed millions of dollars as a town, and then we would have had about a decade to unwind and bring it back.”

Leblanc explained that the extension is part of the fifth and most recent amendment to the agreement, and includes contractual safeguards intended to shield the town from monetary and litigation risks. He added that the 2017 contract became “problematic," making the town vulnerable and unprepared for the challenging and ever-changing national and international environments.

When asked what would happen this time if national and international events prevented Comstock from meeting the OSD dates, LeBlanc said that the council worked to include more exclusive penalties and outs for the town in the Dec. 10 agreement.

Dhakal said the current council worked “diligently to introduce risk mitigation strategies. They are meant to minimize the town’s exposure.” However, according to Dhakal, some details cannot be publicly shared now. “Extending the OSD was a decision made in good faith by the council, with the belief that the project can still move forward using 2024 figures and serve the best interests of both the town and Comstock,” said Dhakal.

The much anticipated and long-delayed Herndon Downtown Redevelopment project by Comstock Herndon Venture LC might begin in early 2025, according to Comstock’s Next Steps, as written in a slide presentation offered by Chris Clemente of Comstock Herndon Venture LC, during the town council meeting on Aug. 13.

This is contingent upon the continued drop in interest rates and other variables nationally and globally. On Sept. 10, William “Bill” Ashton II tempered project go-ahead expectations during a town council meeting. In the final hours of his seven-year tenure as town manager, Ashton opined that the project "could collapse" if interest rates did not decrease. The Stafford County Board of Supervisors has named Ashton the new county administrator.

The Herndon Town Council approved Resolution 24-G-52 on Sept. 10, 2024, by a vote of 5-1, with Councilmember Donielle Scherff dissenting.“My good faith in this is gone,” Scherff said.

The Resolution authorized the Mayor to sign a “letter amendment” to extend the outside satisfaction date to Dec. 10, 2024. That meant the town and Comstock finalized their Amended and Restated Comprehensive Agreement 2024. This included provisions requiring the closing of financing for the project to occur no later than March 31, 2025, and initiation of construction of the project to happen on the property no later than April 30, 2025, subject only to certain limited conditions.

In the film Groundhog Day, television weatherman Phil Connors finds himself trapped in a time loop, reliving Feb. 2 during the annual Groundhog Day event in Punxsutawney, Pennsylvania. The Town of Herndon, its councils, and Comstock have been in a "time loop" since 2020, repeatedly acknowledging and agreeing to extensions to the outside satisfaction date.

A historical overview reveals that after the town officially closed on transferring 4.7 acres of town-owned land to Comstock Holding Companies on Dec. 20, 2020, there followed four extensions and one pause:

• Dec. 21, 2021 - Letter Amendment to extend the outside satisfaction date to April 30, 2022;

• April 29, 2022 - Comstock exercises its contractual right to a 24-month Market Pause of the outside satisfaction date;

• April 25, 2024 - Letter Amendment to extend outside satisfaction date to Aug. 15, 2024;

• August 13, 2024 -Letter Amendment to extend outside satisfaction date to Sept. 10, 2024; and

• Sept. 10, 2024-Letter Amendment to extend outside satisfaction date to Dec. 10, 2024.

[Source: Agenda Item 6a Herndon Town Council Meeting Sept. 10, 2024]

In his comments a month earlier, on Aug. 13 during the council meeting and his slide presentation, Herndon Downtown Redevelopment, Clemente said they encountered impacts beginning in 2020 with the COVID-19 pandemic, followed by surges in building costs and inflation in 2021. According to Clemente, ten additional federal rate increases in 2022-2023 pushed the federal funds rate to rise to 5.5 percent. It would be at the highest level in 22 years. The market responded by raising the interest rate on commercial loans to almost nine percent. In January 2024, Comstock rebid construction costs for the redevelopment project. Costs increased by 65 percent. In April 2022, Comstock exercised its right to a Market Pause, as outlined in the agreement and provided a delay notice from April 30, 2022, to August 15, 2024.

The presentations shocked many residents, who voiced their opinions at the next public hearing. Instead of a 16,265-square-foot arts center, its rendering showed a 4,265-square-foot arts center, reduced by approximately 75 percent as part of the Historic Herndon District neighborhood. [Source: Comstock 8.13.24, Herndon Downtown Redevelopment] Comstock indicated two retail sections in its presentation, one at Station Street, 3,600 square feet, and the other at Elden Street, 14,000 square feet. Initial redevelopment plans called for 17,300 square feet of retail. The rendering has three residential buildings: BLVD W & OD, which has 94 units; BLVD Elden, which has 120 units; and BLVD Arts, which has 59 units, totaling 273. The Arts Center remains as initially planned, a cold, dark shell that Comstock is not responsible for finishing.

However, Comstock was hopeful, according to Clemente, that it could get approvals for bond and construction financing. That would enable its Davis Companies to begin site work on a utility duct bank in January and break ground in April 2025.

The town council unanimously passed resolution 24-G-46 to approve extending the Outside Satisfaction date to September 10, 2024. Ashton later said that on September 10, the deal came down to appealing to Comstock and that they were protecting the town. He added that with the town extending the deadline, it would be up to Comstock to follow through.

Comprehensive Agreement Documents

Comprehensive Agreement for the Herndon Redevelopment Project (2017)

First Amendment to Comprehensive Agreement (December 3, 2020)

Second Amendment to Comprehensive Agreement (December 21, 2021)

Delay Notice (April 29, 2022)

Third Amendment to Comprehensive Agreement (April 25, 2024)

Fourth Amendment to Comprehensive Agreement (August 14, 2024)

Fifth Amendment to Comprehensive Agreement (September 10, 2024)

Herndon Armors Up Amendment for Downtown Redevelopment

Did 7-year agreement merry-go-round leave town unprotected?