SALEM — When Mayor Kim Driscoll gave her state of the city address in the new Workbar co-working space at 120 Washington St., it was symbolic of how the city's investment in the building has paid off.

After all, she was giving the speech in what had been up until last year the City Hall Annex.

"What is more, Workbar is also proof that at least one of our strategic approaches to economic development is paying off," Driscoll said.

That Workbar had moved into the Peabody Building in March after the city had moved out in the spring of 2018 served as proof that the city had once again used its leasing power to improve a downtown property.

The City Hall Annex is now in its third iteration downtown having relocated in April 2018 to 98 Washington St., the Red Lion Smoke Shop building.

The annex was originally located at One Salem Green, a brick office building behind City Hall that was constructed about 1974 as an urban renewal project.

In 2001, former Mayor Stan Usovicz moved the annex over to 120 Washington St., which was sorely in need of renovation. One Salem Green has since become home to the offices of Salem Five Bank as it expanded downtown.

"Just like the city’s former lease of One Salem Green transitioned to prime office space for Salem Five to grow and prosper," Driscoll said in her address, "so, too, have we seen the transition of and power of the city’s former investment in this space for our annex offices now transformed to Workbar."

"It’s one reason," she went on, "I am so confident that our lease approach to the new offices at 98 Washington St. will — in time, and with sensible planning — lead to even greater economic opportunities in our downtown."

"It's a great way for the public sector to support improvements in the community," said Tom Daniel, the city's planning and community development director, about a city using its leasing power to improve properties.

"From an economic development perspective, using the value of our lease to help spur investment in old, dilapidated buildings has definitely been a pattern," Driscoll said in an interview. "There, here. Even One Salem Green didn't exist. That was part of a whole urban renewal new building that needed a lease to help capitalize the investment," Driscoll said.

On Friday, Driscoll gave a reporter a tour of the new City Hall Annex, which has offices for Building and Public Property, Capital Planning, Engineering, Health, Human Resources, Legal, Mass in Motion, Planning, Traffic and Parking, and the Treasurer.

It's a complete transformation of a building also known as 90 Washington St., which many viewed as an eyesore downtown.

The renovated first floor has public spaces with three various-sized meeting rooms. Bike racks are tucked under a stairwell. There is a shower system for employees who ride to work. In the large conference room, the lights come on automatically and a screen for electronic presentations unfurls.

The idea is to bring city meetings into the 21st century, Driscoll said. 

The improvements, built into the lease, were designed by Winter Street Architects of Salem.

The second and third floor's offices look like a high-tech startup. There is natural light, white walls, desks that allow workers to stand or sit at them, oddly-shaped light fixtures and high ceilings.

Employee work areas are more open than at 120 Washington St. to spark improved coordination and collaboration.

Driscoll said the new offices were carved out of a vacant warehouse space that she described as "a hot mess."

"But think about it, now that it's done, our lease is helping support this. We're thinking 20 years forward it's going to be something else, much like 120 (Washington) is now Workbar and living quarters," Driscoll said.

Matt Picarsic, managing principal with Somerville-based RCG LLC, which owns 120 Washington St., said it was his understanding the building "was in need of help" when the city moved in nearly two decades ago, before RCG owned it. RCG bought the property in 2006 for $7.75 million, according to city records.

The city "helped enable an injection of money into the building, which needed it," he said.

Now that the city has moved on and up the street, RCG has invested further in the building, including the modern Workbar space, a new lobby and roof deck. They are installing a snow melt system in the parking lot. They have added 14 apartments to the five that were already there. There are eateries on the ground floor as well.

"We are happy to move forward with the work that has been done," Picarsic said.

The deal for 90 Washington

In the summer of 2016, Salem signed a 20-year lease with Nine Zero Washington LLC. The building is owned by George Vernet III and his partners Kenneth and Thomas Carpi. 

The city has leased nearly 21,000 square feet on the first, second and third floors. It pays an annual rent of $425,000 a year for the first 10 years, which works out to be $21.15 per square foot on an annualized basis.

The rent includes $10,000 a year over 10 years for improvements such as audiovisual systems in conference rooms, data drops, wireless access points, new window treatments, alarm systems and signage, according to the lease. The city also pays a portion of real estate taxes.

When the owners purchased the building in 2015 from Mike Allen, owner of the Red Lion Smoke Shop — which occupies a smaller space on the first floor than it had in the  past — for $900,000, Vernet deemed it "the ugliest building in the city."

It was built in the 1940s, according to city records. It formerly housed a furniture store and warehouse on the upper floors and a Food Lion supermarket on the ground floor, Vernet said. 

Jewett Construction Company, of Raymond, New Hampshire, gutted the interior, and built a modern, two-story addition at the back to accommodate new conference rooms. Bricks were repointed. Windows and storefronts were rehabbed.

Historic Salem Inc. gave the project its 2019 Preservation Award and Jewett Construction won Preservation Massachusetts' 2019 Paul and Niki Tsongas Award for the project, the company said in a press release. 

"Everything is brand new," Vernet said — from the elevator to the electrical systems. The project took about a year, went over budget, and it was not easy, especially working in a tight downtown.

"I think the city made a big difference moving it forward. I don't think we could have gotten the construction loan without the lease," Vernet said. 

Leasing controversy

Politically, however, moving the annex was not a "slam dunk."

Driscoll recalls her first vote as a city councilor in 2000 was to approve the lease for 120 Washington St. Some councilors wanted to move to other locations, others wanted to stay put.

"And I remember it was controversial," she said. "We were at One Salem Green, leasing space there. The city had proposed this space and I remember saying: 'This is a slam dunk, right?' It was a dilapidated building. There had been a fire. We are not only going to have city offices downtown close to City Hall, but we are going to make an investment that over time is going to pay off."

But over the years — with Driscoll later as mayor — she and several councilors clashed over the terms at 120 Washington St. when the lease came up for renewal. Several years ago, with the lease ending, the city saw the opportunity to again leverage the annex lease at the Red Lion building.

"I think the benefit of moving was that we had a building that had long been...a vacant, dilapidated eyesore downtown," Driscoll said. "It didn't easily lend itself to redevelopment, and so it needed to have an anchor tenant to support the investments that needed to be made."

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