by Rob Morris
At the Lexington Forum last week, CentrePointe’s developer spun a dazzling and dizzying tale about the history and the future of the pit in the middle of our city.
His presentation resonated with the receptive Forum audience. Looking around the room, filled with many of Lexington’s other business and civic leaders, I was a bit confounded. While many in the audience seemed familiar with the ongoing controversy of CentrePointe, few seemed knowledgeable about the actual details.
I then began to realize the scope of the challenge for CentrePointe critics: How do we effectively demonstrate the full extent of our skepticism and concern to the uninitiated or uninvolved (in other words, to the majority of our citizens)? CentrePointe is an elaborate project with an equally elaborate backstory. It is a complex web which is difficult for newcomers to disentangle.
Even so, there are at least 5 distinct patterns which lie within the web: 1) Secrecy, 2) Runaway Optimism, 3) Loss of Credibility, 4) Contingency, and 5) Victimhood. The patterns form the basis of our critique of the project, and should raise important questions about CentrePointe for any public official, business associate, or concerned citizen.
Secrecy. From the beginning, CentrePointe was shrouded in secrecy, and the developers have been hostile to reasonable inquiry into the details of the project. While seeking public commitments for tax increment financing (TIF), they refused to disclose the name of their secret financier. They failed to disclose that their financier had been dead for six months. On Thursday, the developer announced two new financial backers, but wouldn’t disclose their names either.
The developer claims that private property rights let him maintain secrecy, even as he publicly sought specialized TIF tax status. The premise of tax increment financing is that today’s public debt would be paid for by future tax increases (the “tax increment”) which arise from property improvements (increased property values, increased commercial activity, etc.). While the developer maintains his right to secrecy, the special status which the public granted to his property should require him to be more forthright and more detailed about the project’s timing, financing, and business model. Or, the special TIF status should be removed.
Runaway Optimism. The few details which have emerged have shown that the developers frequently engage in runaway optimism. They bank on the flimsiest of commitments, and lean on them to demonstrate the viability of the project. They are willing to mislead people to believe these commitments are real.
In last week’s presentation, the developer stated that one of the first calls he got upon announcing the project was from Hard Rock Cafe, who wanted to locate in CentrePointe. This was met with murmurs of approval from his audience.
Trouble is, it wasn’t Hard Rock. And they didn’t initiate contact with the developers. And they aren’t coming to CentrePointe. As Dr. Nick Kouns chronicles, Kouns initiated contact with House of Blues, who felt that Lexington wasn’t a sufficient market for their brand, but met with the developers out of courtesy. So the ‘commitment’ was never much more than an exploratory discussion.
Alas, such optimism pervades CentrePointe. On Thursday, the developer announced that he had 65 ‘almost-certain’ prospects for his 91 condominiums which will sell for an average price of $1.2 million. Trouble is, only 10 million-dollar properties sold in all of Fayette County in all of 2008. In today’s even-more-depressed market, what would enable the developers to attract 6 times more luxury property commitments, just for an unbuilt CentrePointe alone? Runaway optimism.
Loss of Credibility. The trouble with runaway optimism is that, eventually, reality sets in. And as the developer’s gossamer threads of optimism unravel, they reveal his profound credibility problem.
For the better part of a year now, the developer has continually decommitted from prior public statements. These decommitments have been on videotape, in print, and to the Urban County Council, and have touched on all major dimensions of the project: its financing, its business model, and its timing. The pattern which emerges is one in which the developer continually bends facts (and history) in the attempt to prop up his faltering story.
The developer rushed to create the pit in the center of our city last July, and was scheduled to begin construction on CentrePointe in 60 to 90 days. As the months dragged on, he claimed that the permitting process was holding him back from doing anything else with the property, but that he expected the permitting issue to be resolved in 60 to 90 days. Only later was it revealed that, even as he made such statements, he knew that his primary financier was dead. But even though the financier was dead, the developer told the Urban County Council he was certain that construction would begin in 60 to 90 days. Last week - some 60 days after he announced the death of his financier - the developer expected the financing to be resolved in 60 to 90 days.
Contingency. CentrePointe is a complex $250 million development with several intertwined components: over $100 million from 91 condos, a $100 million 250-room hotel, and some $50 million from retail and office functions in lower floors. There has been a year-long delay in securing financing. Construction has been delayed many times. Every piece is contingent on the others, and it all has to come together flawlessly for CentrePointe’s business model to ‘work’. And there are enough doubts about every single component that public officials, business associates, and concerned citizens should be worried.
As outlined above, the condo plans seem over-ambitious. While Marriott has expressed interest in and support for the hotel, they aren’t actually financing it, and the higher-than-average occupancy at higher-than-average room rates assumptions used in the CentrePointe business model are far from viable. The fact that the developer is willing to mislead a prominent audience about a major retail tenant raises questions about the rest of the project’s business model. The continual delays in securing financing and beginning construction - coupled with the secrecy of every major aspect of the project - have contributed to the mounting skepticism about whether CentrePointe is truly viable.
Victimhood. In his public addresses, the developer often adopts a persecuted posture, which often positions him as a blameless victim of the sinister agendas of press, of bloggers, and of ambitious politicians. He claims not to understand all of the fuss. He just “wants to shut these people up”.
Let’s take a look at the explanations the developer has provided for us:
The financier was secret because he feared public backlash. When he died, that was kept secret because it wasn’t going to affect financing. But when the financier’s heirs wanted to know whether he had sufficient assets to cover obligations like CentrePointe, the assets were tied up in numbered Swiss bank accounts. They couldn’t get access to the accounts unless they also took on the obligations, which creates a Catch-22: the heirs can’t see the assets without accepting the obligations, but won’t accept the obligations without seeing the assets. But even though the heirs can’t be certain of the dead financier’s assets, the developer somehow is…
Last week, the developer introduced two new financing sources. But both sources - an individual and an investment bank - also demanded anonymity.
Even though the developer has always claimed the financing was rock-solid, last week he introduced three additional contingency plans.
When challenged on the viability of CentrePointe’s condominium assumptions, he claims that 65 of the 91 condos are ‘spoken for’ through undocumentable ‘handshake deals’. He also names vague tenants for the properties - horse farms in Ireland and Dubai and vintners in Napa Valley.
He claims that people are lining up for the retail and restaurant spaces, but the one deal he has detailed to the public was both wrong and unconsummated.
- Every time he provides an update on the project, the projected start date is 60 to 90 days hence. Unfortunately, ‘60 days from now’ never arrives.
To the extent he is a victim, he is the victim of his own machinations. If he really wanted to shut these people up, he would simply provide some proof that his critics are wrong. But the proof which would silence his growing list of critics never arrives.
Looking through the tangle of explanations and the patterns outlined above, one is forced to make one of two conclusions about the developer’s ability to silence his critics:
That he is the unluckiest man alive (every opportunity to exonerate himself is confounded by another unfortunate twist in his story);
- That he is simply lying (every opportunity to exonerate himself is confounded by another convenient twist in his story).
Until we get a full and clear accounting for CentrePointe’s real-world status, I, for one, choose not to be silenced.