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Lease worth millions keeps downtown St. Petersburg block trapped in time

ST. PETERSBURG

The Pheil Hotel at 424 Central Ave. was once the place to go for the finest steak in town. An elegant meal, 95 cents for filet mignon or 85 cents for a whole Florida lobster, could be followed by a movie at the hotel's Pheil Theater. From their debut in 1924 they were hot spots on the city's busiest block for about three decades.

Now the former hotel and an adjacent building that was St. Petersburg's first bank sit vacant at the southwest corner of Fourth Street and Central Avenue, shrouded in metallic mesh. The giant cheese grater effect was added in the 1960s.

Cars still park in a lot and a deteriorating parking garage, but the rest of the block is stagnant amid bustling downtown development. The ornate Wachovia bank clock on the west end of the property says it all, forever stuck at 4:41.

The key reason for the standstill: A 99-year lease splitting control of roughly a third of the block between the descendants of A.C. Pheil, a St. Petersburg founding father, and a California-based investment group. A Pheil trust owns the property, but the land and buildings are leased to First States Investors until 2058, providing substantial income that greatly complicates the possibility that the corner could be sold and redeveloped.

"It's really a shame that that's what's become of it because it's such a great corner," said Dave Goodwin, Economic Development Director for the city.

"I think one of the reasons downtown's center of gravity shifted to Beach Drive is because you have this black hole in what was historically the center of town," said architect and historian Tim Clemmons.

• • •

After the hotel and theater closed in the late 1950s, various banks operated from the Pheil buildings. Other buildings on the block were demolished in the late 1960s to make way for a bank headquarters that never happened. Both have been vacant since 2006 when Wachovia moved out.

First States Investors pays approximately $700,000 in annual rent, but the amount fluctuates based on the Consumer Price Index, according to David Punzak, the St. Petersburg attorney representing the investment group.

Forty-four more years of payments with just a modest CPI increase would total close to $45 million. That's far more than Pinellas County Property Appraiser's just market value for the property of $700,000, or the $12 million that developer Bill Edwards recently paid for the nearby Tropicana Block.

First States became saddled with the lease when it acquired a package deal of about a thousand properties in 2004. While it has never missed a payment, the investment group has tried numerous ways to get out of the lease or restructure it. It filed a lawsuit in 2010 that is still moving through court.

Another possibility is First States could offer the Pheils enough money to invest elsewhere in order to make the $700,000 or more they receive now. Punzak said he couldn't talk about specific options.

"Our folks have been very fair and generous with the Pheils and put a lot of options on the table. Not just check writing but other things as well," Punzak said.

First States also pays the taxes and insurance on the property and is responsible for its upkeep.

The real estate company "has let it go to rack and ruin," said Betsy Pheil, 72, one of the property owners.

"The lease states they can (make) improvements. What I wish is they would rebuild something of similar value but right now it's kind of at a standstill."

First States has filed a motion in court to clarify whether the buildings can be demolished, Punzak said. But even if they can, investors would be hesitant to redevelop land they only lease.

"You can't build something on the ground that you're not going to own at the end of the day," said developer Carlos Yepes, who tried to buy the lease from First States about two years ago. He also was trying to buy the property from the Pheils, but a deal never happened.

• • •

If the name A.C. Pheil rings a bell, it's because he was the first commercial airline passenger on Tony Jannus' famous flight across Tampa Bay in 1914. He has a place in St. Petersburg history, however, for numerous reasons, including building the city's first skyscraper, the Pheil Hotel.

As a City Council member from 1904 to 1907, and mayor in 1912, Pheil led the city to purchase its own utilities and widen and straighten Central Avenue. An avid tuba player, he started St. Petersburg's first orchestra.

Pheil started construction on the hotel and theater in 1916 and faced numerous delays such as World War I and a 1921 hurricane that pounded the project. In 1922 at age 55, he died of cancer before the hotel and lobby theater were finished. The city shut down for Pheil's funeral, which included a plane circling St. Bartholomew's Cemetery in his honor.

But his children and wife saw to it that the hotel and theater opened two years later. Many of them worked there as well. Betsy Pheil was one of the hotel's switchboard operators.

Because A.C. Pheil once was in a theater fire in Chicago, he designed his own theater so that patrons walked in facing the audience with the screen above them. Fires tended to start in the projector room, so Pheil reasoned people could evacuate out the front door without having to run under the projection area.

"He was such a smart man," Betsy Pheil said of her grandfather.

• • •

While progress on the property seems to be at a deadlock, it's still possible something could happen there before 2058. After a comprehensive 2010 study, the city pegged the corner as one of five potential sites for a downtown transportation hub. Two of those are in the process of residential development, so the Pheil/First States block is now one of three options.

If voters in November approve the proposed 1 percent sales tax increase to fund Greenlight Pinellas, the city will need a new bus terminal to service increased traffic. It's envisioned as a city center that also would house retail and office space. The city or PSTA could use eminent domain power to force the owners to sell for the public good.

"You never know how that would come out, and the city would pay all the legal costs," Goodwin said. "The value of the long-term lease gets discounted to some degree but you wouldn't know how much."

Punzak is of the opinion that the price of the property in the case of eminent domain would be based on fair market value and not the lease.

Clemmons believes all possibilities need to be pursued.

"It's easy enough for the city, like private developers, to say, 'We'll avoid this block like the plague because it's got the curse from hell on it,' " he said. "But the city does have an interest in seeing something happen with what was historically the key block in downtown for 50 years."

While he hasn't been in the buildings in years, Clemmons said he hopes they could be renovated if they haven't suffered water damage. Yepes and Punzak say they are not salvageable.

Aside from the Pheil buildings, however, First States Investors owns the rest of the block free and clear and could develop or sell those parcels.

So why doesn't someone step in and at least develop part of the block?

"I am working on something," Yepes said, slightly tipping his hand, "but we'll have to see what happens."

Times researcher Natalie Watson contributed to this report. Katherine Snow Smith can be contacted at kssmith@tampabay.com.

Lease worth millions keeps downtown St. Petersburg block trapped in time 06/27/14 [Last modified: Saturday, June 28, 2014 9:29pm]
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