Downtown Bend’s historic Liberty Theater, the subject of a federal seizure effort and a bank foreclosure auction, may be sold for nearly $4 million to a private buyer in the near future.

A Bend buyer, whose identity has not yet been revealed, has submitted a bid on the theater and a sale is pending, according to Compass Commercial real estate agent Adam Hooper. He is advising Thomas Nielsen and property owner David Mendoza on the sale process.

Nielsen, a Seattle contractor who has been coordinating renovations on the building since the fall and is overseeing its sale, said the money from the sale would go to the federal government.

Before the sale can go through, it must be approved by the U.S. Department of Justice. Government officials said in March they were trying to seize the property as part of a larger drug distribution and money laundering case against Mendoza, who is from Seattle.

”It is under contract but pending some formal letter from the Department of Justice that they will allow the sale,” said Hooper. ”It sounds like they’ve got a verbal indication at least that the Department of Justice will allow the sale.”

Assistant U.S. Attorney Richard Cohen would neither confirm nor deny the sale agreement.

The Liberty Theater, which opened in 1917, has undergone extensive renovation during the past five years to turn it into upscale retail space with luxury condominiums above.

The sale of the reincarnated building could be big for its buyer if the federal government’s forfeiture action doesn’t hold up the process.

”It would be like a great big, if you will, high-stakes poker game of the winner takes all,” Nielsen said.

”The buyer is just kind of waiting in the wings,” he added.

Seizure case continues

Mendoza was indicted in December in federal court on charges of conspiring to import marijuana.

In March, the federal government moved to seize the Liberty Theater, at 849 N.W. Wall St., along with two other properties in Washington state, from Mendoza. An affidavit said Mendoza had made mortgage payments on the theater using cashier’s checks paid for with money from distributing marijuana.

Mendoza was imprisoned in the mid-1990s after being convicted of conspiring to import and distribute hashish and conspiracy to distribute cocaine, the affidavit said.

The Liberty Theater, which is on the National Register of Historic Places, opened in 1917. With a seating capacity of about 500, it was set up for showing movies and plays and also had an orchestra pit, said Des Chutes Historical Center historian Kelly Cannon-Miller. The theater closed in 1941 and was converted partially to offices. Sears and Roebuck ran a mail-order operation from the building in the 1950s and later, a realty office took over part of the space, Cannon-Miller said.

Mendoza bought the property in 2002, according to Deschutes County records. The building has been slowly renovated since then.

Ultimately, there will be a large ground-floor retail space with two luxury condominiums above it, Hooper said. While the retail space is largely complete, there is still finish work remaining on the condominiums. Balconies with views of Drake Park and Mirror Pond, as well as rooftop hot tubs, round out the building.

Nielsen, the contractor, is one of several people who have staked out their interests in the Liberty Theater property. Mendoza and his parents, who have not been charged with any crimes, have also filed separate court papers in recent weeks in the seizure case.

Nielsen said he spent thousands of dollars of his own money overseeing the day-to-day construction work at the theater since last fall. He said he knew Mendoza through Mendoza’s parents.

”I think we put in a little over $200,000 that I spent on materials,” Nielsen said. That included supplies like rock, wood and fabric, as well as design work, he said.

Mendoza’s parents said in court papers that they loaned their son hundreds of thousands of dollars for various real estate transactions, including at least $300,000 since December. Mendoza’s father, Albert Emanuel, managed the remodeling work at the Liberty Theater, the filing said.

In a separate court document, Mendoza’s attorney denied the government’s claims and said the attempted seizure of the property violated Mendoza’s Fourth, Fifth and Eighth Amendment rights.

The attorneys for Mendoza and the Emanuels did not return calls seeking comment.

Columbia River Bank, which is carrying a $910,000 mortgage on the property, says Mendoza owes more than $920,000 in principal, interest and fees on the loan. It said in a county filing last week that it would foreclose on the property and place it up for auction in October.

The attorney handling the bank’s foreclosure of the property did not return a phone call seeking comment.

Uncertain outcomes

With three distinct but related processes moving forward now – the federal seizure, the bank’s foreclosure and the pending sale of the property – the ultimate outcome is somewhat uncertain.

Normally, if the federal government were successful in its forfeiture case, it would turn around and sell the property, keeping the proceeds. Since there is a mortgage on the building, the bank would get its money back from the federal sale of the theater, said Tami MacLeod, a partner at Karnopp Petersen in Bend.

She said even though the federal forfeiture probably would make the bank’s foreclosure a moot effort, it still gives the bank a chance to move forward on its own if the federal case gets held up for some reason.

”They’re probably just racing to see who is going to get it first,” MacLeod said.

Hooper, the real estate agent, said the prospective buyer of the theater approached the owners after learning of the federal forfeiture action. If the sale goes through, the money would go to the federal government, which in turn would have to reimburse the bank’s lien on its mortgage, Hooper and MacLeod said.

Hooper estimated that the building could sell for between $3.8 million and $3.9 million. It cost $15,000 to build when it opened 90 years ago, historian Cannon-Miller said.

If the sale is approved by the government, it could give the building new life, several observers said.

”You never know if the owner cuts a deal with the government, or if the owner cuts a deal with the foreclosing bank, or makes good on the mortgage while cutting a deal with the government,” said Bend property lawyer Paul Heatherman.

Hooper and Nielsen said the proceeds of a sale on the property, if approved, would go to the federal government to satisfy its seizure effort. Some of that money, in turn, may be given back to Columbia River Bank, they said.

”The seizure would go to the actual funds from the sale, not the building,” Hooper said, ”so the new owner would have free and clear title to the building.”

Even after the seizure attempt was announced, renovation work has continued on parts of the building.

Nielsen said work crews installed an air conditioning unit in the building last week. The ground-floor retail space is largely complete, and a small hair salon at the back of the building is open for business. The condominium units don’t have kitchen appliances and the rooftop decks still need some work, but are nearly complete otherwise, Nielsen and Hooper said.

Though a protracted federal case over the seizure of the building could keep it in limbo and uncompleted for a year or more, Hooper was hopeful that the building would find tenants sooner.

”With a new owner coming in, I think the building has tremendous potential to be one of the coolest buildings downtown,” Hooper said.