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Architect: POKO faced funding gap from the start

Ken Olson of POKO Partners pleads his case to a combined meeting of the Norwalk Redevelopment Agency and the Common Council Planning Committee in 2014.

Updated, 2:32 p.m.: Copy edit, revised headline

NORWALK, Conn. – A major Norwalk redevelopment project was short of funds right from the beginning of construction, the project’s architect said in an interview with NancyOnNorwalk.

Developer Ken Olson of POKO Partners began building Wall Street Place in June 2015, with the support of most Norwalk officials.  The project was approved as a mix of ground-floor retail and 101 apartments, 20 percent of which would be affordable, according to the Land Disposition Agreement.  Norwalk contributed a municipal parking lot and the State of Connecticut provided a loan, a grant, and low-income housing tax credits.   Construction stalled two years ago after Olson became ill with ALS.  He died in November.

In the time since, Mayor Harry Rilling has pointed to Olson’s health issues as a reason why the project stalled.

“There was a problem with the owner being ill,” Rilling said in a November 2017 interview with NoN.   “My position is, we sit down, we do everything possible to salvage the project until we realize that it might not be, and then we determine what has to be done.”

 

An inside view

Architect Steve Schoch worked on the project for POKO Partners’, bringing it to final design and through construction, Schoch said.  Wall Street Place “ran into financial issues. It didn’t stop for any real construction reasons other than, from the beginning, when it went under construction, the owner was looking for ways to close a gap in the budget,” he said. “The number estimates and contracts were coming in higher than the available funds. That’s not terribly unusual, there’s always a gap. To an extent, you can work them out.”

In late summer 2016, Common Council member Doug Hempstead (R, then At-large) asked Redevelopment Agency head Tim Sheehan about a rumored funding gap of $4-6 million.  Sheehan said the project’s lender, Citibank, was reviewing a “project gap” amid “a high degree of uncertainty” about the project’s budget.

 

A $6 million gap?

NancyOnNorwalk asked Schoch about rumors that the budget gap was $6 million.

“It wouldn’t surprise me,” Schoch said.

A budget gap is “not terribly unusual;” a well-functioning team, working together can come up with ideas and hash them out, looking to save money, Schoch explained.  With Wall Street Place, there were big-ticket items such as an automated parking garage, he said.  In order to comply with parking requirements, the project included an automated parking garage with a conveyer system that would store vehicles underground and automatically retrieve them.  Schoch described the system as “basically an elevator for cars.”

Schoch denied a rumor that the foundation for Wall Street Place wasn’t built correctly, and that POKO needed to change its plan for an underground lot.

“{The automated parking system is} very, very specific in terms of what it requires for its foundations, for its clearances,” he said.  However, the foundation was already half-built when the late Ken Olson, POKO’s principal, decided to go with a cheaper bid submitted by another automated garage vendor, which required the foundation to be changed to accommodate different equipment.

Schoch didn’t know whether that decision actually saved POKO money, because changes made to the foundation also cost money.

Other tactics to save money included shifting from the original plan for metal studs to wood studs on the upper floors, Schoch said.

“These are things that are perfectly legitimate to do, as long as it complies with the code,” Schoch said.

Norwalk Chief Building Official Bill Ireland told NancyOnNorwalk by e-mail that the code allows wood stud construction.  No plans were ever submitted for POKO showing steel studs, Ireland wrote.

 

Why did construction halt?

“There comes a time when you have taken advantage of every major cost saving item that you can, and if you still have a gap in the budget, there’s not a lot left that you can do,” Schoch said. “… That’s the point when it ground to a halt, there was no more low-hanging fruit in terms of closing the gap.”

Olson was restricted by the complicated funding stack he had worked out, as the government grants connected to the affordable housing component came with many regulations, Schoch said.

NancyOnNorwalk is aware of four components in POKO’s funding stack:

  • $8.64 million in 9 percent Low Income Housing Tax Credits
  • $3.5 million Department of Housing loan
  • $5 million grant from the State of Connecticut’s Department of Community and Economic Development
  • $31.9 million construction loan from Citibank.

Together these funding sources total $49.04 million.

It’s a common misperception that affordable housing means cheap housing, but, “The opposite is true,” Schoch said. “This is the case in any state, any project funded by tax credits. Affordable housing funded in this way is some of the highest-quality construction that you are going to find because in addition to what everybody else has to do for the building codes, there are additional higher performance standards that are set by every state… It is very far from the truth that affordable housing is cheap housing. It’s actually more expensive to build. It’s only affordable to rent.”

There are strings attached to subsidy money; if Olson were a market rate developer he could chose different appliances or different windows.  POKO’s twenty percent affordable housing requirement means that “there are more things that are fixed in terms of things he has to do to stay compliant with the tax credit funding,” Schoch said.

 

A $9 million gap?

After construction of Wall Street Place stalled, city officials looked for another developer to take over and resume construction.  Paxton Kinol, developer of the Waypointe complex, was one of several local developers who evaluated the possibility.  Kinol said he spent two months researching the project’s financials because he and others thought they could solve the issues.  They couldn’t, he said.  Kinol estimated the funding shortfall as $9 million.

“That project stopped because it was going to cost $9 million more than budgeted,” Kinol said.  “If you do the math, 101 units at $500,000 a unit, it’s $50 million.  Even at market rate you can’t make the math work.  You would lose money.  The building would be valued at $20 million and the construction costs $50 million, then you’ve lost $30 million.  That’s crazy.”

“In my opinion they tried to solve too many problems in one piece of property,” Kinol said. “The underground parking garage, with 30 percent below market rate housing, it just doesn’t work.”

Although the LDA specifies that Phase I would have 20 percent affordable housing, the Connecticut Housing Finance Authority in a 2013 document outlining tax credit applications states that the development would have 36 affordable units. That would make the project 35 percent affordable.

Redevelopment Agency Executive Director Tim Sheehan and Rilling did not reply to emails seeking responses to Schoch and Kinol’s comments.

Disclosure: The writer lives in affordable housing.

13 comments

Milly August 6, 2018 at 9:47 am

Not much was built – tear it down – return it to a parking lot and the city will be better off.

Jason M. August 6, 2018 at 9:49 am

“Affordable Housing” is a total SCAM! This project required $50 Million to build 101 apartments. $500,000 per apartment! 300-400 inexpensive apartments could be built for that amount of money.

Like many things the government controls “Affordable Housing” costs more & takes longer. Patient, astute business people play the game with the politicians who give out other peoples money. Politician gets elected to “help” the poor, developer donates to campaign. Once elected developer is given back the donation in spades with governement projects and subsidy-our taxes

It is a noble cause to help the poor, but at what cost, and at whose expense?

The taxpayers get hosed, and less poor people are helped than could be.

Good Cause. Bad system!

Norwalk can get more affordable housing without government subsidy and the inherent corruption that follows. All that is needed is a few tweaks to the zoning regulations to allow affordable housing to be built. Currently the regulations require every project to have lot’s of expensive components that drive up the cost of the project, and therefore higher rent must be charged.

Building legitimately affordable apartments is currently illegal in Norwalk!

Hopefully, the smart leaders in Norwalk’s will fix it shortly. They are working on it. Let’s go Tim & Steve! -and others

Jason M. August 6, 2018 at 9:51 am

Milly,

I agree with you. The former parking lot there would be terrific.

Try to convince Citibank who currently owns the property to tear it down and put a parking lot. They claim they have invested over $18 million already.

Where did all that money go?

Michael McGuire August 6, 2018 at 10:25 am

The City can really help out to make this a viable project – How?

1. Make the property more valuable by putting in a train station on Wall Street. The State is putting up funds for a study but where is the City on really pushing hard on this. Ditto Redevelopment. Statements of support are one thing, real action is another.

2. Change the 40% (and yes it is a 40% affordable project) affordable threshold to a market norm of 10%. How do you do this – use the rainy day fund to pay off the grants that would need to be paid back. The total amount is ~ $16M but likely that could be done for less. If this is not suitable use for the $46M in the City’s rainy day fund use than I don’t know what is.

3. Alleviate the prospective ownership from having to deal with the underground automated garage by making two condo units on the site – one for the underground garage that can be run by the City, and one for the market rate housing development.

4. Modify zoning regarding parking regs for this site. There is a 400 unit parking garage 1/2 a block away (Yankee Doodle) which has historically been no more than 25% used by the public (note the City does lease out ~ 100 spaces to an auto-dealer for inventory storage but that can, and should, be changed to accommodate fixing the POKO issue).

5. Once all this is done put the revised property out for bid to the open market and take what the market will bear. Then, if there is a shortfall – fight with Citibank about it. At least we will have our downtown back and running.

Staying the current coarse will only further blight our downtown, lower property values, and send a clear message to the business community of “stay away”.

We are tired to being held hostage.

John S August 6, 2018 at 10:46 am

TEAR IT DOWN AND TAKE BACK THE PARKING LOT!

THIS PROJECT HAS BEEN CHOKING THE SURROUNDINGS BUSINESSES LONG ENOUGH!!!

Patrick Cooper August 6, 2018 at 2:12 pm

@Mike McGuire – that’s a lucid, well thought out – sound plan. Only one issue as I see it. The “untouchable” rainy day fund will be used in 2019 by the mayor & common council to ease a major budget crunch (BOE, standard services and new needs based on the mall, new town hires, and fat raises for city workers) because…. it’s an election year. Your / Norwalk’s priorities take a back seat to self-preservation. Norwalk’s taxpayers have long suffered Stockholm syndrome with our municipal leaders. It’s charter reform or move.

Bill Nightingale August 6, 2018 at 4:17 pm

It was clear from the beginning that Poko never had any substantial equity to contribute to this project. I pointed this out to the RDA, Planning Committee, Common Council and various Mayors many times. Below is one example of letter I wrote to city government and published in Norwalk Hour in August 2014. There were many many red flags on this project yet the RDA pushed it forward anyway giving awful advice to the city. Again, the Redevelopment Agency needs to be abolished. It is astonishing that they still have a hand in this. Do we ever learn and take corrective action?

Dear Norwalk Hour Editor:

After being given a Land Disposition Agreement (LDA) extension in 2011, POKO Partners is back asking for another in 2014. We had this debate in 2011 and the same questions were asked then as now. At another future date we will be in the same place if a new LDA extension is approved.

It is time to terminate POKO Partners as the redeveloper for the Wall Street project. They do not have the financing to get the job done much less started. The Wall Street development project needs to be completely reset.

Norwalk should also undertake a total reform or abolishment of the Redevelopment Agency, which has failed this city in almost every way.

In the long run, a level playing field and equal opportunity for competition – with no special treatments, tax abatements or other favors – should be the best motivator for quality development in Norwalk.

Sincerely,

William Nightingale, Jr

Bill Nightingale August 6, 2018 at 4:47 pm

and Mike McGuire

sorry but I disagree that so much as 1 cent of Norwalk taxpayer money should be spent to bail out any grants on this project. Poko should be auctioned off at market clearing price factoring in whatever liabilities go with it. Purge the Redevelopmnet Agency and City of Norwalk of anything to do with it expect zoning compliance.

Jason Milligan August 6, 2018 at 6:32 pm

Agree Bill.

NO MORE TAXPAYER MONEY INTO THIS FIASCO!

Citibank is a big sophisticated bank. Sometimes there are project failures and losses that come up. It is Citibank’s responsibility to absorb the loss here.

NOT Norwalk Taxpayers!!

enough August 6, 2018 at 8:32 pm

Just tear it down and start fresh. Let Jason buy it and revamp the entire area and call it a day.

Mitch Adis August 6, 2018 at 9:02 pm

The City should stand up to Citibank. Demand they finish the project in the next 12-18 months or the structure will be condemned. Let them figure out the best way to get it done, but with a defined deadline.

James Cahn August 7, 2018 at 3:09 pm

More than 4 years ago, I said (not infrequently) that Ken Olsen wasn’t qualified to “develop” his way out of a wet paper sack.

Harry Rilling told me that he had set “very realistic and appropriate time frames” on the POKO project. Ken Olsen told me that he was excited to see people “engaged in what they cared about.” And promised to host a meeting to explain “where the project was” and what his “schedule was moving forward.” To nobody’s real surprise, Harry’s “realistic and appropriate time frames” were never met and within literal hours, Ken Olson failed to advance any dates of further mentions of this “meeting.” It was explained to me, by people who “knew better” that Ken knew what he was doing and that there was nobody better in the business and that I was risking personal embarrassment to point out the clownish appearance of POKO Partners.

2 years ago when this project still hadn’t moved forward, I was told that it was rude to suggest that I wouldn’t have hired Ken Olsen to re-seal my driveway. I was told that it was inappropriate to critique him due to his illness. And here, again, I’m being told about Ken Olsen’s illness and death to excuse away the fact, that as it turned out, I was right. Ken Olsen WAS in way over his head. This is a guy whose firm hasn’t managed to get their website updated since 2011. Yet, somehow, he was the genius mastermind behind a project that nobody else could get to work.

That Ken passed away so young is tragic. It’s also a completely separate issue from the fact that we continue to use it to excuse away a dumb project undertaken by a failing firm. Real businesses have succession and contingency plans. In some industries, not having one is an immediate dis-qualifier. It may have been allowable to do business with a firm that didn’t have this planning in place. It’s absolutely and completely UN-acceptable to continue to offer up Ken Olsen’s illness and subsequent death as rationale for why this project begins its SECOND DECADE as a poorly conceived, blighted hole in Norwalk Center’s landscape.

Let’s do some back of the napkin math and use Kinol’s estimate of a $20,000,000 building value and knock it down to $15,000,000 for fun. At a 26.6050 mill rate, that’s $400,000 of tax revenue PER YEAR that we could be collecting. Instead, that property is generating $110,000 of revenue. This, of course, ignores the fact that if that building wasn’t a shed wrapped in Tyvek, the surrounding properties could also potentially be colored up.

“Harry and his team” are “figuring it out?” What’s to figure out? When Paxton Kinol looks at the project and tells you that it’s unfeasible, it’s unfeasible. Period. Full stop.

Is there EVER going to be a time when Norwalk’s tax payers and stake holders can expect to be fairly represented on this project? Or will we continue to be fed excuses and incompetence?

The question is rhetorical.

Alan August 8, 2018 at 11:41 am

It is astonishing that anyone could seriously put forward the notion that a $20M urban development project could be brought to a halt due the the illness of one of the developer partners. This is pure City government incompetence on display. Time for charter change. Time for leadership in City Hall. Make Norwalk Smart Again!

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