Eight days ago, I asked about the hotel deal, "Who vets that $12.5 million valuation on the property put up as equity?"

I'm still looking for an answer to that question.

People who know about downtown real estate keep telling me that $12.5 million looks like a whole lot of money for that property.

Mike Weaver says in the Rhino that the tax value of Elm Street Center is $5.5 million, adding, "I don't know of any properties that have sold for nearly three times tax value. They can pay more for the property than it is worth because it is not their money. It's other people's money."

The equity figure would seem important in setting Skip Alston's payday as a broker.

The deal includes $30 million from the bonds.

Subtract the $1 million the Kaplan group wants for its office building (which I'm told last sold for a few hundred thousand dollars -- this is not verified information see valuations here and discussion in comments below -- thnx to Roch and alert emailer J for info). Take out whatever portion of Chisholm's $2 million fee that she gets up front, and perhaps also Alston's fee, and whatever other costs are associated with this big project. 

How much will it cost to actually build the hotel? If that number is less than $30 million minus non-construction costs, what happens to the rest of the bond money?

One other issue generating buzz: will the hotel get a sweetheart deal on parking spaces in the proposed city deck? That possibility is irritating other downtown business owners.

UPDATE: N&R recaps the news of the last ten days.

MORE: Biz Journal's Ivey says other projects face underwriting problems -- something that Chisholm seems to have worked out in advance.

Comments

[RecycleBill]

I'm beginning to reconsider-- I mean, would a 207 room 4 star homeless shelter be a bad thing?

[Sedge]

Empire Room Building bought for $925k in 2002. Office building on the corner bought in 2003 for $237,500, and parking deck also bought in 2002 for $450k. Not sure if they will be buying all of those properties that Elm Street Partners owns or not to take up the entire corner between Elm and Davie.

[Roch101]

I am not exactly clear on which properties Elm Street Center, LLC is selling to the project. There are three contiguous parcels owned by them. Here are their sales histories:

201 S. Elm St.: $237,500 6/15/2003
207 S. Elm St.: $925,000 4/15/2002
200 S. Davie St.: $450,000 5/15/2002

TOTAL: $1,612,500

If I remember correctly, I think the improvements to the Empire room were made after its last purchase (not sure about that though). If that's right, that would certainly ad value.

Sales history from: http://gcgis.co.guilford.nc.us/guilford_new/ -- a site that should be in every local citizen journalist's bookmarks.

[RecycleBill]

Doesn't matter, it's all a part of the master plan.

[Joe Guarino]

Ed, I have two questions:

1. I am not a subscriber, so I cannot see what the BizJournal says about the underwriting that Chisholm has worked out in advance. What does the article say about that? Or alternatively, what else is known about that?

2. Do you think the city council should vote to rescind its previous approval of this project?

[Ed Cone]

Justin has previously reported that Chisholm has a Texas investment bank lined up to handle underwriting.

I think the Council should see what the post-HVS report business plan looks like before making any further decisions. This round of money can't be reallocated. If the revised project looks like a disaster for downtown, then action by the Council could be appropriate.

What grounds do you see for rescinding?

[triadwatch]

don't forget king zoning stud henry isaacson as the lead lawyer who will get all the contracts together. I am sure he is getting a good cut as well.

[Joe Guarino]

I wonder if this Texas investment bank will issue a letter of credit for the new business entity that would satisfy the local bond commission.

I think it should be rescinded because of the corruption, improprieties, and conflicts of interest that have been discovered in connection with the proposal; because of the nature of the deal, and the manner in which federal tax-privileged bonds would be used; because feasibility has not been demonstrated; and because of potential impacts on federal taxpayers.

I guess I am just a little surprised you might still be willing to give the project a chance.

[Joe Guarino]

Keith, I found it interesting that Isaacson was quoted this week in YesWeekly, in connection with the civil rights museum, and said that the end justifies the means.

[Ed Cone]

What corruption has been discovered, Joe?

I agree with you that it's been an ugly process, but are you saying we know about illegal activities?

Also, what is the potential impact on taxpayers?

[Spag]

Joe, Ed isn't going to commit either way. He never does. It's called "error avoidance" or "hindsight is 20/20."

If Skip Alston was making threats, that would seem to be an abuse of his office and possibly criminal. He recused himself from the votes, but if then threatened those who were still voting, that is a conflict of interest and may also run afoul of the honest services law.

[Ed Cone]

Except for the part where I just said they should not rescind, based on present knowledge, that is.

[Joe Guarino]

I am very troubled about the manner in which the financial interest of the household of Deena Hayes was concealed as long as it was. I am troubled that Skip Alston is brokering the deal. I am troubled about the threats. These represent, at the very least, improprieties and conflicts of interest. But I am also concerned laws might have been broken.

It would be up to a court of law to determine whether criminal extortion had taken place; or if the federal law to which Sam Spagnola had referred, which apparently has snagged some of our state officials, had been broken.

It appears to me that there is an indirect federal taxpayer subsidy when a tax-free instrument is being used. Money is not flowing into the federal treasury that ordinarily might be. I am not sure whether we are dealing with a "moral hazard" risk to federal taxpayers akin to Fannie Mae.

While the bonds themselves will not pose any costs to the city, ancillary expenses may be generated for city taxpayers to make the project happen depending on how this develops, e.g., parking decks, etc.

[Ed Cone]

Joe, I agree that Hayes' interest is relevant to her public advocacy for the project and leadership of a threatened protest against the rival hoteliers, but what in the world does that have to do with the Council?

I also dislike Alston's role, and have written here about it. But he seems to be within the letter of the law as a broker, and very much in keeping with the spirit of our local, real-estate dominated government.

Tax-free bonds are common instruments, and reasonable tool for economic stimulus, so I don't have a problem with them in general. I agree that this project should receive closer scrutiny than it has to see if it should qualify for them.

[Jordan Green]

"This round of money can't be reallocated. If the revised project looks like a disaster for downtown, then action by the Council could be appropriate."

My understanding is that if the council rescinded its approval of the hotel project, the allocation would be forfeited to the state pool anyway, so I can't think of any purpose that would be served by that action. Lots of projects will be turned down by the Local Government Commission in Raleigh (including, perhaps, the downtown project), and that money also goes back into the state pool. The deadline for the second round of allocations is Feb. 15. Anyone who got cut out of the first round (e.g. Don Linder's hotel and retail project at the old Carolina Circle Mall site) can apply again.

It just really seems like a moot point whether the city council rescinds its decision or not, although I think it would serve the public interest for them to go on record with their reasons for support because their current silence only invites speculation and skepticism.

[Joe Guarino]

I don't like the idea of the council making any decisions in favor of projects or programs that directly benefit the financial interests of elected officials. But Hayes and Alston were also allegedly involved in communicating, relating or generating the threats that had been received. I think council would be justified in denying the project on those bases.

Tax free bonds may be a legitimate instrument-- when used for legitimate projects. Otherwise, the taxpayers' interest in the premise that these bonds should be used well is not being well served.

[Ed Cone]

Hayes has every right to lead a protest (and the public has every right to note her interests in doing so; that did not go well for her).

I just don't see how she belongs in a conversation about the Council.

[Joe Guarino]

Jordan, it doesn't bother me personally if we lose our allocation. High Point decided to forego it voluntarily in the first place. I think we need to be concerned about whether we are doing the right thing for the right reasons.

If the proposal stinks, and it reeks of corruption, then the council ought to rescind. (There is also the issue of the hotel being placed in competition with other hotels with advantaged financing.)

[Joe Guarino]

Ed, she does not have the right to make threats against those making decisions when her own household has a huge financial interest in the project. That, and the fact that she is an elected official who is presumably machine-affiliated, should make a huge difference to the city council. We ought not be approving projects and programs under those kinds of circumstances.

Ed, I guess I am surprised. I thought from the tone of your sequential posts that you were opposed to this thing.

[Ed Cone]

Hayes has every right to organize a protest march, or threaten to do so. The fact of her domestic arrangement undermines her credibility, but it has nothing to do with the Council's role in the process.

I agree with Jordan that the Council should explain itself clearly. I'd like to see the final plan for this thing, and I'd like to see the records sought by Q&W, before making a final judgment on it. If it dies, it should die in sunlight -- which would be fitting, given the way it's progressed so far.

[Tim]

Hayes can do what she wants. Even though her husband is directly connected with the project, she is not which makes it all legal. Ethically there are some issues I agree. Since Skip Alston will benefit, he should have kept quiet throughout this process. Bottom line, if the bank wont send a letter of credit, the hotel project dies. If they do send a letter, the project moves to the next step. Things could get complicated when it comes to the parking deck. Zack Matheny has already said he wont vote for it for the fact that council was misled throughout the process. Thats not a good reason to vote against the parking deck but I do understand council's frustrations on this matter.

[Joe Guarino]

Ed, I am going to be out of this discussion after this comment. But when someone issues threats against public officials who are deciding on a matter from which they will benefit financially, that can potentially be viewed as criminal extortion.

The whole matter of elected officials gaining financially from projects or programs voted on by the city council is fraught with difficulty, particularly in our machine politics environment. It needs to stop; and the city council ought not feel compelled to play along with these types of demands. I think the city council needs to "just say no" in these cases.

The fact that the council was grossly misled by staff, of course, made this situation much worse; and that is another reason they ought to revisit the matter.

[Tim]

Joe I think it depends on exactly what Skip said. If Skip was just passing information that he heard from someone else, its not a threat by Skip himself. Council may have been pressured by Skip but there is a difference. Skip Alston certainly skirted the law but its all within bounds.

[Bubba]

"But when someone issues threats against public officials who are deciding on a matter from which they will benefit financially, that can potentially be viewed as criminal extortion."

And the possibility that they will be the subject of a criminal investigation is about as close to zero as a chance can get.That's not the way things are done here.

We know the truth of that from many past experiences where certain favored groups and people operate under protection that our local power structure enables.

[Spag]

Jordan, you are correct about the ability to rescind and request a reallocation elsewhere or simply waive the allocation back to the state. I made that point about five days ago on this blog. Ed should have known that, but you know, he never reads my stuff...I can't possibly know anything and certainly never more than him.

"Ed, I guess I am surprised. I thought from the tone of your sequential posts that you were opposed to this thing."

Joe, see my 4:50 comment. Lather, rinse, repeat.

[Joe Guarino]

Tim, how do you know it was all within bounds? Were you there when the various statements were made?

[Tim]

like I said, it depends on what was said in the conversation and how it was said Joe. Only a few council members and the mayor know exactly what was said. I'm sure if they felt Skip had done anything illegal they would have called him out on it and Nancy was pretty pissed about it. But Joe were you there when those statements were made. Those are pretty serious accusations you are making.

[Mike J Baron]

"And the possibility that they will be the subject of a criminal investigation is about as close to zero as a chance can get. That's not the way things are done here."

You tell it Bubba!

[Joe Guarino]

I was not there, but I have read the media accounts. I did not make accusations myself; but if you look further back in the thread, merely drew from the information in those accounts in restating the allegations that had been made.

But there can sometimes be a very fine line between sharing a threat made by others, and actually issuing it. Even if one accepts the premise that it was merely a transmitted threat, how is the recipient supposed to interpret that?

One also has to consider the credibility of each of the individuals involved.

[Ed Cone]

Joe, distasteful as Alston's behavior may be, he is not the developer, or the party putting forth the project for City approval. Expecting the Council to rescind its decision on a huge project because the broker on the deal showed his ass seems wrong to me.

[bubba]

"Expecting the Council to rescind its decision on a huge project because the broker on the deal showed his ass seems wrong to me."

I expect the Council to rescind its decision based on the bad faith shown by certain perps, in addition to the certain knowledge that this is a disaster waiting to happen.

That seems VERY right to me.

[Spag]

How about rescinding it because it appears to be a bad investment. If it fails, you'll still pay for it at the federal level in the form of taxes.

For all the railing about banks making bad loans on this blog, you'd think some people around here might be skeptical of any bank underwriting these bonds considering the information that has been presented concerning the viability of this project give current economic circumstances.

[Ed Cone]

Right. As I said, "I think the Council should see what the post-HVS report business plan looks like...If the revised project looks like a disaster for downtown, then action by the Council could be appropriate."

[Roch101]

Yeah, but how about rescinding it because it appears to be a bad investment?

[Ed Cone]

Good point, Roch.

And yet another reason would be if it's not a good investment.

[Spag]

Good point, Ed. Another reason would be to look at the studies that have already been done which indicate this would be a bad investment. You know, those same studies that you have blogged about before. Or one could engage in wishy-washy, non-committal statements like "action by the Council would be appropriate" (without stating which kind of action would be appropriate?) and just wait until the project is either killed or goes through and then say "I told you so" regardless of the outcome.

Let's mark this day that Ed is willing to make a commitment either way as soon as the post-HVS report comes out. I wouldn't bet on it, though.

Joe, if you're still reading this, I told you that Ed won't give you a straight answer until the end game is clear.

Ask him who is going to win the Super Bowl. He'll tell you in the 4th quarter if the game isn't close and then link back to it a few months later and say "I told you so".

[Ed Cone]

The Council action under discussion is rescinding support, obviously.

We're discussing what should be done, and when, and according to what information, not making predictions. I'm not saying what the Council will do, but what I think it should do, which was Joe's question.

The developers say they will respond to the HVS report. I'm interested in seeing that response.

[Bubba]

"The developers say they will respond to the HVS report. I'm interested in seeing that response."

And just how would we expect the developers to respond when the report is unfavorable to them, as all prior indications would lead us to believe?

How many more assessmeents do you think will be needed?

Why don't we just let Tim make the decision for us?

That makes about as much sense as anything we're liable to get from so called decision makers in this town, knowing full well the external influences that always manage to come to bear in situations like this one.

[Ed Cone]

I'd expect them to put as positive a spin on things as possible -- to make projected occupancy rates and room rates multiply out to a number that pays off the debt.

That doesn't mean we have to believe them.

[glenwoodobserver]

Why not rescind because this project did not meet the criteria set forth to qualify for the bonds by the Dec. 15th date? It was not financial viable on that date. It was not shovel ready. And now, it is a different project other than what was voted on on that date. They should feel free to pursue bonds from the statewide reallocation process. By the council rescinding their vote, they acknowledge that they voted without complete information; that they did so on the basis of bad information and that knowing what they know now, it does not meet the criteria. Rescinding the vote doesn't mean the developers can't continue to pursue their project, they just won't be doing so with the Guilford Co. allocation.

[Spag]

Okay Ed, but if you are waiting for the business plan before committing, what will be your criteria for determining whether you will believe them? What markers do you measure the credibility of the plan against?

It certainly appears that the bulk of the information out right now is that it is a bad investment for everyone except those who get paid up front. How is a business plan going to overcome fundamentals about the local economy and the hotel business that we already know?

You're essentially saying that you don't trust them going in ("positive spin"), so what are you really waiting for?

It certainly appears that you are dancing around taking a stand which is consistent with your record of not taking a stand and linking back to earlier posts and saying "I told you so" in hindsight when you never really did.

Easily your most annoying trait.

[Ed Cone]

GO, those are good arguments. I also respect the argument that government shouldn't be involved in undermining local businesses.

Sam, what part of "I don't think they should rescind now" do you not understand? I mean, beyond the part where it's an opinion on what should be done, not a prediction of what will be done, and thus offers no opportunity for me to either crow or eat crow?

I don't see how the financials can be made to work. I'm willing to be proved wrong on that, but if the numbers don't add up, and/or the information request turns up something hinky, then the project should be killed by the weight of that information - as I said earlier, "it should die in sunlight -- which would be fitting, given the way it's progressed so far."

[glenwoodobserver]

Ed - Whose business is undermined? And by what action? Are you suggesting a vote on rescinding their approval of the hotel project is undermining those businesses...or am I misinterpreting your commment?

[Ed Cone]

Sorry if I wasn't clear, GO -- I meant that the downtown hotel would (to whatever extent) undermine existing hotels, and that's something government should be leery of doing.

[Spag]

Let's see if I understand the Ed Cone answer to Joe's simple question.

"It's a bad idea based on what we already know, but I don't think they should rescind until a business plan that I am skeptical of is produced. Then if the plan confirms my skepticism, I will go on record saying they should vote to rescind."

Does that sum it up or is there some other Waiting for Godot part of the equation we are missing?

[Speedy McJerky]

Can you please just jump to a conclusion or react without thinking for once Ed, you are driving the rest of us simple-minded morons crazy what with your liberal prudence and politically correct fact gathering.

[cheripickr]

Titters, giggles, snickers and guffaws, Speedy. That was good.

[Spag]

Almost certainly written by Roch who must believe that Ed has some facts at his disposal that the rest of us don't.

I forgot, he's waiting on a business plan that he's skeptical of and already believes will be a spin job. When asked what he would use to measure the credibility of the plan against, he declined to answer.

So he's waiting to be lied to before committing one way or another. At least they got the example of "liberal prudence" right.

[cheripickr]

Roch would never post pseudonymously. Why that would be cowardly!

[Spag]

Aw c'mon, CP, everyone knows that cowardice is relative to ideology.