City goes to trial

2009-03-20 / Business

By John Temple Ligon temple@thecolumbiastar.com

The city appears to be going to trial in defense against the plaintiff Stevens & Wilkinson, the Columbia office of an Atlanta- based architecture and engineering firm. Among in- town architecture firms, S&W is Columbia's largest.

Also suing the city are Turner Construction, Gary Realty, and Garfield Traub Development, all on the same hotel development team with S&W.

S&W was engaged by the city to handle the architecture and engineering of the convention center headquarters hotel, a 300- room full- service Hilton to be developed by Columbia's Edens & Avant. S&W's fee was set at less than $2.3 million, reportedly, and almost $700,000 of that was paid in late 2003. The balance so far unpaid, $1.6 million, is S&W's offer to settle. The city has refused to settle.

The S&W team's hotel project was rejected by the city, mostly because it was a city- funded, city- owned, and city- operated project that came in with projected final costs far above what the city could afford to operate under market- responsive room rates, the city allegedly concluded.

In the spring of 2004, the convention center headquarters hotel project was redirected to a privately funded, privately owned, and privately operated approach aimed for a developer's reasonable return based on market responsive room rates.

That spring, the city was host to another round of competing presentations to design and build the hotel, this time privately. Edens & Avant pulled out of the development team while S&W stayed on. But this time, S&W's team (Garfield Traub, Gary Realty, et al.) asked the city to pay any costs above $40 million for the 300- room hotel, the same hotel S&W had proposed earlier and the same hotel the city had rejected earlier. The city feared the costs disclosed earlier, $72 million when last presented, would remain the same, and the city would be on the hook for $32 million, leaving the S&W team with only $40 million to pay to own the hotel.

At $40 million in total development costs to the S&W team, the hotel's 300 rooms would come in at little more than $133,000 each, a manageable amount under market- responsive room rates. At the earlier $72 million in total development costs the city was expected to carry, each room would cost about $240,000, a prohibitively expensive project.

According to the state's Hospitality Association, an industry standard rule of thumb allows for every $1,000 in the total development cost of a hotel room, $1 has to be collected nightly at an occupancy rate just under 70 percent. In other words, $133,000 to develop the room means it has to charge $133 per night to break even, and the $240,000 demands $240 per night, both at about 70 percent.

The city couldn't take the losses on a hotel needing $240 a night to break even, and the S&W team apparently couldn't either, which is why they asked the city to buy down the development total to a flat $40 million, or about $133,000 per room.

Up to the end of 2003, S&W had presented to city council the architectural renderings by Atlanta- based hotel design architecture firm Thompson, Ventulett, Stainback & Associates, and S&W demanded and received payment for the completion of the design phase, allegedly. Before the end of 2003, the city responded with a payment to S&W for $697,084.79, as recorded by the city.

How much of that was passed through to the design architects TVS is not known.

Calls around the country to hotel design architecture firms in late 2003 reportedly disclosed an architecture/engineering total fee (design and construction documentation and management of the contract for construction and the like) for a standard, somewhat off- the- shelf 300- room hotel could come in for less than $400,000, complete through postoccupancy punch lists. Whatever TVS got paid, their fees as a hotel design architecture firm could have been less than $2.3 million, even much closer to $400,000. If that's possible, what would TVS charge for just the design phase it presented to Columbia City Council?

Dated April 25, 2003, a memorandum of understanding (MOU) was circulated by Hilton Hotels Corporation (Greg S. Dickens, vice president, South Central Region) for signatures among the City of Columbia (Charles P. Austin, Sr., city manager), Edens & Avant Real Estate Services, LLC (John H. Lumpkin Jr., president), Gary Realty (Charles B. Gary, president), Stevens & Wilkinson (Robert T. Lyles, chairman), Turner Construction Company (Paul D. Little, vice president), Garfield Traub Development (Raymond Garfield Jr., president), Thompson, Ventulett, Stainback & Associates, Inc., Architects (Roger Neuenschwander, president), Enviro AgScience (Louis B. Lynn, president), and Construction Dynamics, Inc. (Nathaniel Spells, Sr., president).

The TCholeu mcobpiay Sotbatra ined by has only the signature of Austin for the City of Columbia. Other copies have all the other signatures, as reported by a city official.

In Exhibit A, Page 1, under GENERAL CONDITThIOe NCSo, l ausm rebpiao rSt teadr earlier in , the first condition says, in part: "...if the City determines that it is not feasible to proceed with the Hotel project it shall have no liability under this MOU."

Where the city might have to argue its position can be found in section "VI. ROLE OF THE DEVELOPER," item #3: "Pre-Development Funding — The Project Team will be responsible for the costs incurred prior to closing the financing. These costs include, but are not limited to, design, testing, bid packages, legal, underwriting, travel, etc. If the Hotel financing fails to close as a result of the City not meeting its obligations outlined in the Development Agreement, or as a result of an unforeseen catastrophic event not caused by any of the Project Team, the City will reimburse the Project Team for actual, documented costs incurred to that point in time up to an amount to be agreed upon. All studies, tests, plans, and the like prepared or obtained by the Project Team will be assigned to and become the property of the City."

Beyond the MOU, and beyond the lawsuit, are the campaign contributions. What follows are just two members of city council, E.W. Cromartie and Mayor Bob Coble, and some of their campaign contributors. Individuals have the right to free speech and the right to contribute to the candidates of their preference, so only company contributions are counted. A complete list of all members of city council and their contributors can be found at the S.C. Ethics Commission. A full and complete list needs to be composed, but that's not the purpose or the responsibility of this article.

According to records at the S.C. Ethics Commission, city council member E.W. Cromartie was given $1,000 on December 22, 2003, by S&W while the contracted work was pending and about the time the $700,000 was paid to S&W. Landscape contractor Enviro AgScience gave E.W. Cromartie $1,000 on October 15, 2003, still before the deal died. The McNair Law firm, bond counsel that collected $77,521.36 off the hotel project, gave E.W. Cromartie $500 on January 5, 2004. Nelson Mullins, lawyers who collected $149,570.70 in fees off the hotel project, gave E.W. Cromartie $1,000 on March 19, 2004. On October 15, 2003, Gary Realty donated $500 to E.W. Cromartie, five months after scoring the contract for the hotel and about five months before the deal died.

On December 30, 2005, S&W donated $500 to Mayor Coble, several months after filing suit against the city. DESA was on the contractor's team under the direction of Turner Construction, and DESA contributed $1,000 on 2/21/06 and another $1,000 on 3/10/06 to Mayor Coble. Working on the hotel with DESA was Construction Dynamics, and they gave Mayor Coble $1,000 on March 6, 2006. Contracted landscape firm Enviro AgScience donated $500 to Mayor Coble on December 3, 2004, and another $1,000 on March 4, 2006. Law firm Gottlieb & Smith collected $56,605.89 in fees from the city on the hotel deal, and the firm contributed to Mayor Coble $500 on 11/10/04 and another $1,000 on 2/21/06.

Further research beyond city council discloses another $2,000 from S&W to Coble's political action committee on August 24, 2004. And then there's S&W's lawyer Dick Harpootlian - on the check it says "Law Offices of..." - who contributed $2,000 to the mayor's PAC on August 18, 2004, filing a lawsuit on behalf of S&W about a year later.

And then there's Coble's run for the U.S. Senate, attracting contributions from familiar faces. The collection activity for the race for the U.S. Senate fizzled in the summer of 2004, about the time the hotel deal was no longer a contest.

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