T Wall Properties screw up resolution – the city actually makes some money nearly 20 years later and T Wall Properties fails to perform as promised.
I blogged about this earlier, but here’s the Board of Estimates discussion (starts 24 minutes or so in)
Alder Mike Verveer asks for a staff presentation. Don Marx from Real Estate explains that the city acquired the property in 1994, put out a request for proposals to develop it for industrial development. T Wall Properties was chosen to develop it. There was a development agreement that the city would hold the property and CIC, the LLC of T Wall Properties would take down the land in 23.5 acre increments over 10 years. They later let him take it down in smaller pieces. That was done because some of the acreage included roads and utilities and it didn’t make sense to have them take that down to sell a few lots. The original base price was $35,578 per acre. There was a 10% escalator, and every year the price went up 10%. That was a number they offered in their proposal. The escalator has caused the price of the land to go up to $83,891 per acre. The city was responsible for the construction of the roads and utilities and then the developer would pay that back through an assessment. It was a deferred payment plan and it was paid when the property was sold or they built something on it. A major agreement was that after 10 years they were required to take down the rest of the property. There are 72 gross acres (includes roads), currently the owe the city around $6M, they don’t have that and they will not pay that. He says this was the proposal we came up with to work it out. In their defense we thought the property would sell quicker, they have been marketing it, they put spec buildings out there to try to get development, but the market just didn’t work out. They aren’t willing to pay the $6M. The city’s recourse would be to have them go into default. The work out is the city will retain the property, they will give us back 21.2 acres they already acquired from us, we would assume the special assessments against the property. The city attorney’s office has opined that if we went to court, that the assets of the LLC would probably be nothing, so this is what they worked out. On a positive note, if you look at the excellently done fiscal note, we had $2.8M in revenues, we get the 20 acres of land back and get to sell them again at $3/ sq ft, we would net another $2M. On that we would net $4.8M. On the balance of the property we still own it, if we sold it and absorbed the costs of the roads, we will net another $2.2M. We will eventually have a profit of $7M. We were not initially in it for the profit, but that is always nice. The goal was to get industrial land for employment and tax base.
The Mayor asks staff and they say that we purchased this in 1994 and borrowed money and that debt is paid off.
Mike Verveer asks the city attorney Anne Zellhofer about the advice of their office in terms of the default on the agreement and our likelihood to recover. Zellhofer says that there was no personal guarantee and so it would likely not be recoverable.
Verveer says that personal guarantee will be discussed in TIF discussions, is it routine for personal guarantees. Zellhofer says this was a land transaction so that is different, but for loan transactions of a measurable size, her advice to staff is to have a personal guarantee to give security to the city.
Verveer asks about the map he asks if the roads are all installed on the map. Marx says that only Manufacturing Drive and the service drive are there, the rest has farm leases on it.
Joe Clausius was hoping Jeffrey Lee of T Wall Properties would be here. He says he has been trying to renegotiate this since he was elected, but we are dramatically ahead on this.
Dave Schmeidicke explains that the costs are $2.4M and revenues is $3.548M, so we are ahead and then there is the value of the land if it is ultimately sold.
Clausius asks about the 72 acres, is the estimate of $2.2M conservative for us to sell it in the next 10 years, if the economy rebounds will that be better. Schmeidicke refuses to guess. Marx says they figured the price at $3/square foot and some of it fronts on the highway. Mayor says we are picking this up at a good time.
Clausius asks if T Wall was given a deal here and he says that we are getting the land back either way, with or without a deal.
Aaron Olver, the Economic Development Director says that it is a misnomer that there is an individual involved here and that there is an LLC, Center for Industry and Commerce. He says there are two policy options to either sue that LLC or agree with this agreement which picks up $2M in revenue.
Chris Schmidt asks about the future sale value, and if that takes into account that Hwy 51 is going to become a limited access highway in the next 5 to 10 years. Marx says they are aware of that, the limited access will be on Hansen Rd. and that will be a left in and left out. On the other side there will be an interchange and that should provide even better access. Schmidt says that is still up in the air.
Clausius says that Hansen Rd is a major thoroughfare into the UW Hospital so there will always be limited access regardless of what the FAA says. They says yes it will always be there, but they don’t want a light there.
Why is this important?
The business community wants us to believe that they know better and have better ways of doing things. Well, here’s an example of a HUGE screw up.
– The property didn’t sell in 10 years.
– The escalator of 10% on the property is absurd.
– And the city lost out on money that could be used to invest in economic development.
This is being spun as a huge profit to the city, but if you think of the present value of the money we invested in 1994, the risk we are still taking by holding the land, the costs of the roads that we had to absorb and the lost opportunities may have had or other project we did not do, was this really that great of a deal for the city?
Sure, it looks like a windfall now, but have we really looked into all the various issues to determine how good of a deal it was – and it could have been so much better if they followed through, bought the land, gave us the money they owe us and took the risk to own the land. PLUS, it would be back on the tax rolls. I feel like I’m being sold a turd and being told its gold.
The other huge issue is that when dealing with LLCs – Limited Liability Corporations – their liability is LIMITED and because this particular LLC has no assets, doesn’t mean that the principles that set it up don’t have assets, but those assets are shielded and we can’t sue to get money from the LLC. If we had a person guarantee, then we could hold the principles in the deal accountable. This way, they get away without being held accountable for their bad idea. AND they have the staff making excuses for them.
Lastly – why isn’t anyone asking – WHAT THE HELL WENT WRONG?! How do we make sure this doesn’t happen again? How could they have been this far off? How do know if we are entering into a deal with someone who can do what they say they can do. Not that it matters any more in this case, but the city is stuck owning this land that apparently isn’t sellable and it isn’t on the tax rolls. Or, was it sellable, and was T Wall etc playing games with the city – I mean, T Wall made it very clear he didn’t like doing business with the city – was that how he was “marketing” this land?
So many questions . . . .but it will likely be on the “consent agenda” tonight, passed without discussion. It’s too embarrassing to do otherwise.
