Differing expectations killed Birchmere deal

On Sept. 25, 2006, the county’s economic development office sent a decision memorandum to then-County Executive Douglas M. Duncan outlining the project and detailing participants’ contributions. At that time, the project’s total value was $11.1 million.

The Birchmere, based in Alexandria, Va., had planned a 700-seat music hall on the site of the old J.C. Penney department store on Colesville Road. The updated plan included a $4 million contribution from the county and state, as well as $1 million from Birchmere and a $2 million land donation from the Lee Development Group, which owns the Silver Spring property.

The project fell apart in July.

Since then, County Executive Isiah Leggett (D) has confirmed the county is talking with Live Nation, a Los Angeles music promoter, and others to develop the site. Live Nation operates the Fillmore clubs, which range from 800 to 3,500 seats.

Last month, Leggett told about 20 Birchmere supporters that the company’s refusal to provide the county with a letter of intent that detailed its plans as the main reason for ending negotiations.

But an Aug. 27, 2006, letter to Duncan — which begins, ‘‘The Birchmere Music Hall is very pleased to advise you of its intention to open a second location on the Lee Development Group site...” — was the company’s letter of intent, said James J. Matthews Jr., who headed the project for The Birchmere.

Regardless of whether the company considered that correspondence a binding letter of intent, subsequent documents from the county and the Lee Development Group refer to the company’s lack of commitment in putting up its portion of seed money.

Before Leggett’s meeting with community members and in response to media inquiries, Leggett and Birchmere representatives had been vague as to why the deal failed. In an interview with The Gazette after acquiring the documents, Leggett said detailing the differences in the media would have been poor business policy.

‘‘The county is working with other entities for this site and on other projects, and for us to go out and air everything in the papers would have placed the county in a bad business light,” he said.

A lease outline dated March 14, 2007, showed how the project changed drastically since the start of negotiations in 2002. At that time, the deal was a low-interest loan to the Birchmere paid back over 30 years as rent.

The project was a 25,000-square-foot building to cost $5.6 million, paid for mostly by the county. The project grew to a 32,000-square-foot building costing $8 million, paid for mostly by the county. By the time the county presented its final document for approval by the Birchmere in May 2007, the company had reduced the facility to 22,000 square feet with a monthly rent of $7,500 to the county.

In the county’s version, sent to Birchmere April 17, the county listed the project as a 30-year lease in which the Birchmere would pay taxes, insurance, and maintenance above the $7,500 monthly rental amount. The county plan also called for the rent to increase at 3 percent each year. Birchmere’s version, dated April 24, set the rent escalation at 7.5 percent every five years and set the lease at 20 years. The music hall also said it would not pay real estate taxes.

In a July 17, 2007, letter to Birchmere officials, county economic development Director Pradeep Ganguly declared the deal officially over. His letter followed a June 5, 2007, letter from Birchmere attorney Mark Gilday to the Assistant County Attorney John J. Fisher outlining the company’s concerns about changes to its original letter of agreement, which was completed during Duncan’s tenure.

Of significant concern to the company was a provision allowing for a parking and turnaround area behind the site to accommodate tour buses.

‘‘The new [letter of agreement] is conspicuous by the absence of the access⁄parking issue. This issue is, and always has been, a condition precedent for the operation of the Birchmere. The site is simply not suitable for a Birchmere operation if minimal access⁄parking conditions are not met,” the June 5 letter says. The letter goes on to say that the parking issue needs to be clarified in writing before the agreement letter was finalized.

Other issues, said Matthews and according to the documents, were the company’s request for county officials to help lobby for a special exemption to the state liquor law. Under current requirements, a company’s revenues must include 50 percent food and 50 percent alcohol. Birchmere wanted a one-third food to two-thirds alcohol ratio, similar to that granted to Strathmore Music Hall in North Bethesda.

‘‘It came down to finishing up the one issue on a default payment and the liquor law, but [the liquor requirement] was not a contingency,” Matthews said. ‘‘As far as we were concerned on May 8 [2007], subject to council approval, we had a deal. We had one meeting on [the final plan], not years of negotiations. We had one two-hour meeting with them. It was a work in progress.”

Matthews said the change in the county’s leadership also played a role in the deal’s demise.

The Birchmere has not abandoned its intentions to open a second venue in Montgomery County, just not at the Colesville Road location, Matthews said.

‘‘We’re baffled,” he said. ‘‘No one has ever said to us the reason that the Birchmere was kicked out of the deal.”