Wall Street—the center of our great city—has much to offer. Unfortunately, Wall Street has also been stifled by bad ideas, bad regulations and bad development for decades. Right now, the City is focusing on a minor issue which is a small part of one land agreement and is insignificant for the grand scheme of the Wall Street area. This misplaced focus is distracting from the larger issues and it is draining valuable resources. We should want to fix all of POKO and all of Wall Street. To do so we need to examine every policy. And we need a public discussion.
The main document that controls the POKO project is called the Land Disposition and Development Agreement or “LDA”. The document is long and cumbersome. It originally envisioned three phases for the POKO project.
Phase I: The “Tyvek Temple” is currently owned by Citibank. Phase I is in massive default and has no zoning approval. Phase I is 40 parking spaces short of approval even after counting the 155 space automated parking vending machine, which may not function. Currently, Phase I is not providing the 100 temporary parking spaces required during construction. The current structure is an unsafe, blighted fire hazard. Citibank has owned the property for over a year and has done nothing to cure the defaults. No work has happened at the property for years. There are no lawsuits against Citibank, and there were no lawsuits against the prior owner.
Phase II and III: These two phases consist partly of the five properties recently purchased by Wall St Opportunity Fund “WSOF”, a company that I control, and other properties that were never acquired. Phases II and III were always a grand illusion that only looked good on paper. Completing all three phases was never realistic nor viable. The completed project would have required the acquisition of 32 properties via eminent domain and the creation of two new streets. Many of the needed Phase II and III properties are privately owned with long standing businesses: Audiotronics, City Market, Peoples Chicken etc. Phase II and III properties also include the former El Dorado Club building. The owner John Dias is suing the city for reverse condemnation and approximately $3 million in damages. The next court date is March 2019.
POKO’s Record: Three phases, two decades, no completed buildings, many defaults, multiple lawsuits. The Phase I rotting carcass is a constant dark cloud over the area.
Contrast the POKO decades-long record with the progress in the three-and-a-half months since WSOF acquired its five properties. There have been considerable improvements made to the area. Approximately 75-80 parking spaces have been cleaned up and reopened for the public. Buildings have been repaired and painted. New tenants have signed leases. All this while the City has done everything imaginable to impede WSOF’s progress. The City has filed two lawsuits against WSOF. They have issued a zoning violation against one of the buildings owned by WSOF. To top it off, the City threw in a blight warning against two properties owned by WSOF. The blight warning was resolved immediately. Recently, Corporation Council tried to void a valid demo permit for a building owned by WSOF. Collectively, given the City’s history of weak and selective enforcement, these actions seem like typical City Hall bullying tactics. And they’re not working.
So back to the LDA, that long, cumbersome document that even our legal geniuses seem to stumble over. The POKO LDA has been repeatedly and materially breached with multiple defaults over the years. The city always found ways to bend, amend, and extend the agreement. The City’s amenability to compromise on the LDA gave me comfort that this minor breach–my purchase of some Phase II properties–could be easily remedied. As an investor in Wall Street’s future, the City’s outrage and aggressive enforcement strike me as surprising, unnecessary and counterproductive to our shared goals to revitalize the downtown.
Because WSOF was not a party to the original LDA it is not WSOF that committed a breach of the LDA by purchasing the Phase II properties. The old owner breached the LDA by failing to get Agency approval for the transfer to WSOF. The old owner had also breached the LDA dozens of times in the past. Not once did the city file a lawsuit as a result of any previous breach of the LDA. Nor has the City filed suit against Citibank for their continuous defaults.
In defense of the old owner, this project was never really his. His brother, the original developer, passed away. There was no personal guarantee on any of the agreements, including the LDA. In other words, enforcement of the LDA should not pass on to the surviving brother, and the breaches themselves–the result of trying to restart the project for the benefit of everyone–are either negligible or irrelevant. Richard Olson wanted to get out of this project, and that process was proving to be very difficult. The major benefit to Olson of my offer to purchase Phase II was speed. Olson had neither the time nor the energy, having recently lost his brother, to go through a lengthy and cumbersome approval process.
I am very excited about Wall Street. I believe that we can make Wall Street amazing again. I felt comfortable buying the Phase II properties despite the language in the LDA requiring prior Agency approval because the LDA specifically accounts for transfers like the one that happened between Rich Olson and myself, and specifies precisely what the City’s remedies are in the event of a transfer. There are clear steps to follow, and there is supposed to be opportunity for dialogue. The City cured defaults in the past. I had no reason to believe the City would not cure this one using remedies provided in the LDA. To date, the City has not issued a “notice of default” for the “unauthorized transfer.” The “notice of default” is important because the “notice of default” triggers a 30-day period during which the parties have an opportunity to cure the default.
Instead of a “Notice of Default,” Rich Olson of ILSR/POKO received a letter from the City’s legal team. Here’s what the June 1, 2018 letter said, in part.
“To date, the Agency has not received any written request by ILSR Owners, LLC in accordance with article 13 of the LDA. Accordingly, this sale of Phase Two Properties constitutes a breach of the terms and provisions of the LDA. Further, any rights you may have had for notice and an opportunity to cure your default under the terms of the LDA are considered waived by the fact that your breach is incapable of being cured.”
Notice the completely circular logic. The signatories to the LDA cannot cure their default because the default is incapable of being cured. What does this even mean and how could this flawed logic carry any weight in a court of law? Perhaps more important, what gives the City the right to invent a way to waive the parts of the LDA they find inconvenient? Their entire legal argument rests on the assertion that this breach is incurable.
Text of full letter
Obviously, this breach is very capable of being cured, just like the other numerous defaults by other owners have been cured over the years. Here are just a few potential cures:
- Consent to the transfer, after the fact
- Accept application for me to become the Redeveloper
- Accept a deed in lieu transfer just like Citibank did for Phase I
- Cancel the City’s obligations under the LDA
- Amend the LDA and other documents (again)
- Buy the lot back. The LDA gives this right/remedy
- Transfer the properties back to ILSR/POKO (If you are really paying attention this is the incurable cure the City is proposing in their new lawsuit. If this cure is available with court intervention then surely it is possible without court intervention.)
Why not instead send a “notice of default” and allow a cure to take place so Wall Street development can resume and the blight of the Tyvek Temple can be addressed? POKO has been a complete and utter disaster from the start. It needs more than just a minor cure to satisfy the LDA. There have been, and continue to be, many defaults that receive no enforcement. The original POKO plan is not viable for a variety of reasons, not least of which are an aggressively high affordable housing requirement (40%) and an underground automated garage feature that even the “preferred” developer doesn’t want to inherit. No matter what course is taken, significant changes to the original plans and agreements will be necessary to ensure success. This is an opportunity to examine all Phases of the Wall Street Place plan and all of the Wall Street area, including existing, cumbersome zoning regulations I’ve written about before. Every policy should be reviewed. Maybe most important, there should be public discussion.
The good news is nothing drastic or irreversible has happened by WSOF acquiring the properties. All possibilities are still available. What is no longer possible is for the city to continue to operate in secret!
Hopefully the CNNA meeting this Monday 24th of September at the Wall Street Theater will be the start of a much-needed public dialogue.
13.2 Transfer of Property and Assignment of Agreement
ARTICLE XVIII MEDIATION/ARBITRATION
Section 18.1 Mediation.
Section 18.2 Arbitration.
ARTICLE XIX DEFAULTS AND REMEDIES; TERMINATION
Section 19.1 Event of Default.
Section 19.3 Default by Redeveloper. The occurrence of any one or more of the following, beyond any applicable notice and cure period, shall constitute a “Redeveloper Default” as that term is used in this Agreement:
Section 19.4 Remedies for Redeveloper Default.