The Rialto Theatre Foundation — a key player earlier this month in killing a city development agreement for a downtown arts and entertainment district — may soon be facing default on its own 2004 agreement that established it in the first place.

The five year-old development agreement was made so the Rio Nuevo Multipurpose Facilities District could acquire the theater from its previous owners, Paul Bear and Jeb Schoonover. The other parties to the agreement are the Congress Street Historic Theatres Foundation, City of Tucson and a group known as Congress Street Investors LLC.

Under the agreement, the Rio Nuevo district was to put up the $1.9 million to purchase the Rialto, 318 E. Congress St., and begin capital improvements. Also, within five years Congress Street Investors was to spend $3.28 million on improvements on other properties it owned within the Rio Nuevo district surrounding the Rialto block.

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That five year deadline is the end of August. Only $100,000 of that $3.28 million was ever invested — and that $100,000 went to the Rialto Theatre Foundation.

Instead, Congress Street Investors sold off its downtown properties and, according to the Arizona Corporation Commission, the limited liability corporation was dissolved in February 2008.

Doug Biggers, executive director of the Rialto Theatre, was a non-controlling member of that group and says the foundation can’t be held responsible for a third party not executing it’s portion of the agreement.

“The foundation has done everything that has been asked of it,” Biggers said. “The theater in no way should be blamed or punished for the inaction of a third party it didn’t have control over.”

Except the 2004 agreement lumps together the Rialto Theatre Foundation and Congress Street Investors when it comes to defaults, saying that if either party is in default for more than 60 days, the Rio Nuevo Multipurpose Facilities District can eject the foundation from the Rialto and end its authority to operate it.

“You could say that was accomplished in spirit by the One North Fifth project,” Biggers said.

He said Congress Street Investors was the group that began plans for the project that included renovating the former Martin Luther King low-income housing at Fifth Avenue and Congress Street before selling it to Depot Plaza Investors LLC, a partnership that included planners and developers Williams and Dame, from Portland, Ore., and Tucsonans Scott Stiteler.

“In terms of the intent of that provision, it was put in there for two reasons,” Biggers said. “First: it was to incentivize them to do something, and second it helped to sell the prospect of the (tax increment finance) investment in the theater. It was before the Fox worked out and the concern on the city’s part was that this would be like Fox.”

Greg Shelko, whose job as director of Rio Nuevo facilities district ends on Tuesday (June 30), referred questions to City Attorney Mike Rankin, who did not return calls.

“My bottom line is that it’s in everyone’s interest to work together to make this happen,” said Councilwoman Nina Trasoff. “We have the ability to make everyone win and the citizens of Tucson will be the real winners. The rest of the block needs to be developed and we need to have the theatre in operation.”

Last week, Stiteler’s and Don Martin’s Downtown Tucson Development Co., which owns the Rialto block, sent a letter to the Rialto foundation advising that it would being charging rent on spaces it is leasing to the theater.

Stiteler and Martin want to charge the theater $15 per square foot for the use of 1,000 square-feet the theater uses for storage and 2,500 square feet space being used as a green room and offices.

“It is really quite high because the one space is a boarded up storefront that is literally that,” Biggers said. “It has no mechanical systems, nothing. It’s 1,000 square feet with nothing. And the green room, wouldn’t be worth anything if we didn’t spend nearly $70,000 to $80,000 to fix it up. No one is disputing that they should make money on their property but sometimes we have to look at the overall good. Regardless of the cost, a month to month term is not acceptable they could simply terminate it at anytime.”

Martin said the $15 per square foot is fair and even a bargain compared to the $20 per square foot that’s being charged in the area. 

“It is part of a historic building,” Martin said. “At One North Fifth, we are getting $20 per square foot for a steel and glass building. This isn’t that new, but it is historic and it is valuable. If we go broke downtown, how does that help revitalization?”

Contact reporter Joe Pangburn at jpangburn@azbiz.com or (520) 295-4259.