Norwalk Redevelopment Agency tells its side of ‘POKO’-Milligan story

Updated, 9:02 a.m.: Copy edits

NORWALK, Conn. – For months, city officials have had little to say about a case against developer Jason Milligan, who they claim improperly purchased properties that were part of a Wall Street-area revitalization initiative.  Now they’re making their arguments before a judge who has described the situation as “cloudy” and “very confusing”.

Monday through Wednesday, Redevelopment Agency attorney Joe Williams argued in Stamford Superior Court before Judge Charles Lee for a temporary injunction which would prevent Milligan from leasing or making changes to the properties while the plaintiffs make their case.  If the plaintiffs convince Lee that they have a probability of winning at trial, he may issue the injunction and allow the case to proceed.

The City of Norwalk and its Redevelopment Agency claim that Milligan’s purchase of five properties from developer Rich Olson violated a tri-party agreement governing how the properties would be developed, because the transfer occurred without the City’s consent.   The City is involved in the development because it contributed municipal parking lots to the project under conditions which were spelled out in a Land Disposition Agreement (LDA).

Milligan maintains that the LDA is unenforceable for a number of reasons, and has called it a “pie in the sky” document that has already been violated by the original developer many times with no penalty.

Milligan’s efforts to rent out retail space “prevents the timely development of the site,” given that the buildings would need to be demolished for Wall Street Place to continue into Phases II and III, in accordance to the 2004 redevelopment plan, Redevelopment Agency Director Tim Sheehan testified.

Why file a lawsuit?

The Redevelopment Agency wanted to protect public assets, Sheehan said.

“The City has has received no compensation relative to any of the land… and there is a significant value there,” Sheehan said.  There was an obligation to replace the public parking that was lost and the “agency’s instinct was to seek to protect the rights that it had in terms of protecting the public’s interest.”

Also, there was a redevelopment plan developed with considerable public input, “for better or for worse,” and it provided for residential development, which may not happen with Milligan in control of the properties, he said.  He noted that under the original plan the development would have had a “unified ownership.”

Redevelopment Agency attorney Joe Williams asked Sheehan why a monetary damages settlement wouldn’t be sufficient.

“I don’t think you can quantify the impact of this in terms of monetary damages,” Sheehan replied.

Olson has not attended the hearing.  Under the entity of ILSR Owners LLC, Olson sold five Wall Street area properties to Milligan, under the entity Wall Street Opportunity Fund LLC, on May 31.  The properties were slated to be part of “POKO” phases II and III and included the former municipal parking lot at 23 Isaac St., which the City deeded to POKO in expectation of development on the site.  Construction on “POKO,” officially known as Wall Street Place Phase I, halted in mid-2016 after the project started going “financially sideways,” in Sheehan’s words Monday.  Citibank foreclosed on the property, and “thought they had gotten very close in making a deal” with Olson when Milligan swooped in, Sheehan said, explaining, “I think it’s fair to say that they were surprised by Mr. Milligan.”

Milligan bought:

• 83 Wall St.
• 97 Wall St.
• 21 Isaac St.
• 23 Isaac St.
• 31 Isaac St.

According to Sheehan, Citibank declined to buy the properties from Olson in the short time window they were given when they became aware that Milligan had a purchase and sales on them in May.  Sheehan also said the purchase didn’t occur because Citibank didn’t have the time to go through a due diligence process.

At a May 31 meeting in the Mayor’s office, Milligan told city officials he wouldn’t close on the properties the next day, but he had already bought them. Sheehan testified that the meeting was scheduled for 4:30 p.m. and the transfer was recorded by the Town Clerk’s office at 4:31 p.m.

‘Very confusing cloudy situation’

Williams said the debt on the properties appears to be about $11 million, more than double Milligan’s $5.2 million purchase price.  The Norwalk tax assessor’s office, in the 2018 revaluation figures, calculates their total appraised value as about $4.2 million.

There was a $5.8 million mortgage on the five properties issued by MC Credit in 2015 and then transferred to CC Rivington, Sheehan and Williams said.

The purchase and sales agreement for the properties required that the $5.8 million mortgage had to be released as part of the sale, Sheehan said.

“The mortgage hasn’t been released, to my knowledge,” Sheehan testified. “It’s unusual.”

“Wasn’t there an escrow agent that was supposed to make that happen?” Lee asked.

“We need to get to the bottom of that, your honor, but it did say in the purchase and sale agreement that there would be an escrow agent,” Williams replied.

“Maybe Mr. Milligan can explain when he takes the stand,” the judge said.

CC Rivington did not release the mortgage but assigned it to Komi Ventures LLC, an entity managed by Milligan, Sheehan and Williams said.

CC Rivington is suing Olson and the estate of his late brother, Ken Olson, because they personally guaranteed that mortgage, Williams said, producing an amended complaint filed by CC Rivington in April.

At that point, Milligan’s attorney, David Rubin, objected to allowing that document in, questioning the relevance to the case.

“It means two people are trying to assume the same debt,” Williams said.

“It may contain some information that is helpful,” Lee said, allowing the evidence to be submitted. “This is a very confusing cloudy situation here and I …. welcome information from all parties.”

In July, Norwalk A LLC took over the chore of suing the Olsons, telling the court that it had claimed the promissory note.

Norwalk A LLC was formed in June, according to the New York Department of State. The registered agent is VCorp Agent Services, Inc., a company founded in 2008.

“Apparently, the note and loan were assigned to Norwalk A LLC, but the mortgage was assigned to Komi Ventures,” Williams said.

This led to another revelation: Wall Street Opportunity Fund (a Milligan entity) in June leased the former municipal lot to Komi Ventures (a Milligan entity), for 25 years.

Komi owns the mortgage on the properties and is leasing the lot, Williams said.

At this point, both Milligan and Rubin, who have sat quietly through most of the testimony, appeared to react, rocking back and forth in their chairs.

Komi leased the lot to Milligan Real Estate in August, Williams said.

Then Lee summarized: Milligan’s Wall Street Opportunity Fund bought the properties on May 31.  The next day, Milligan leased the lot to Komi, then two months later Komi leased it to Milligan Real Estate.

A ‘very complicated’ set of transactions

Williams returned to comments about the $5.8 million mortgage.

“Apparently the note, held by CC Rivington, they sued on it but they only sued the personal guarantors… (the Olsons)… then assigned that note to this Norwalk A LLC but they assigned the mortgage to Mr. Milligan’s company, Komi Ventures,” Williams said.

“We may need a flowchart at some point. This is a very complicated little set of transactions,” Lee said.

CC Rivington v Olsons 18-0705 motion to substitute party

CC Rivington v Olsons 18-1005 answer to complaint

CC Rivington v Olsons 18-0426

Milligan real estate transaction docs POKO 20181214

Land valuation

When Milligan recorded the prices of the properties in the Town Clerk’s office, he valued the lot at $3.2 million. Sheehan said he didn’t believe it was worth anything near that. The “assigning price” would have some impact on the City’s ability to buy back the parking lot because, “It’s exceedingly high,” Sheehan said.

The lot was used as collateral for the $5.8 million loan issued to POKO. The LDA specified that the City would be able to buy back the lot from POKO for $3 million.

Milligan recently explained to NancyOnNorwalk that he valued the properties by dividing up their square footage; the $3.2 million is 61 percent of the total purchase price, in correspondence to the 61 percent of the land mass involved.

City appraisals done in the 2018 revaluation make the lot 34.1 percent of the five lots’ total value. That would make the lot worth $1,768,000, 34.1 percent of Milligan’s $5.2 million purchase.

NancyOnNorwalk contacted two real estate professionals, who said Milligan’s appraisal method was valid.

Deed-in-lieu didn’t happen

Milligan in July announced that he had taken a legal action – a deed-in-lieu property transfer – that he said made the lawsuit against him irrelevant.

Komi was foreclosing on Wall Street Opportunity Fund, he said.

Sheehan said Monday that he saw this move as an attempt to circumvent the process, to give Milligan the privileges extended to a lender under the LDA.

The transaction is barred under the LDA because the entities are related, and the Agency had 90 days to approve the deal, he said.

Milligan and Rubin agreed in a court status conference not to proceed with that transfer, Lee said Monday, and Williams requested that it be written into the injunction.

Sheehan’s objection to demolition

Milligan in August demolished 21 Isaac St., and claimed at the time that Corporation Counsel Mario Coppola attempted to interfere by seeking to void a valid demolition permit.

Sheehan said Monday that the Redevelopment Agency hadn’t been notified that the permit had been issued and he protested to Coppola.

The process “relative to demolition” wasn’t followed, Sheehan said.  He testified that a demolition delay could have been issued and the public hadn’t been notified.

While demolition of the building – which Milligan said in August was moldy and unsafe – was “most likely inevitable,” the Redevelopment Agency doesn’t know what Milligan’s plans for the lot are, Sheehan said.

Hearing is ongoing

Sheehan has testified for three days, and Rubin grilled him Tuesday and Wednesday. The hearing was paused Thursday and is resuming Friday. Another court date is set for next Wednesday.

In addition to Williams, who was hired to represent the Redevelopment Agency, have been a lawyer with his firm and Assistant Corporation Counsel Darin Callahan. Coppola watched Tuesday’s proceedings from the audience and said nothing.