SUNDAY EDITION | Louisville Mayor Greg Fischer defends paying Cordish $5.25 million to exit Omni deal
By Chris Otts and Marcus Green
LOUISVILLE, Ky. (WDRB) – More than seven years ago, former Mayor Jerry Abramson and the Cordish Cos. unveiled a striking plan for downtown Louisville: a $250 million entertainment district with shopping, restaurants, a movie theater and perhaps a hotel.
The project known as “Center City” didn't make it off the ground before the recession took hold. Plans evolved, and Cordish -- the Baltimore-based developer of 4th Street Live -- got several extensions to make it a reality.
Ultimately, Cordish never built anything.
But the company is still set to receive $5.25 million from Louisville Metro government simply for walking away from the project, which will now be constructed entirely by Omni Hotels & Resorts of Dallas.
Mayor Greg Fischer announced last week that Omni would be the sole developer of a 30-story hotel, apartment building and grocery store at 2nd and Liberty streets. Cordish, which had planned to build the apartments and grocery store, is now out of the deal entirely.
But Cordish's exit from the project does not come without a price for Metro taxpayers.
According to the mayor and his aides, Metro government has agreed to a two-part payout to “facilitate” Cordish's stepping aside:
- Cordish will get $3 million in city money from a reserve account set up to pay for “soft costs” such as marketing and design of the old Center City project. The account, created during the original deal in 2008, had $2.1 million remaining as of this year – to which Fischer agreed to add $900,000.
- Fischer's administration also agreed to pay Cordish $250,000 for nine years to be used at the Cordish-owned 4th Street Live for free concerts and other promotions and events.
Fischer said in an interview that the payouts to Cordish were negotiated as the city pushed to have a single developer, which would streamline the $289 million project.
“We felt like that was best for the city, and so that's part of the cost of doing it,” Fischer said.
He noted that Cordish “had the development rights to the block” – rights that had to be legally transferred to Omni.
Fischer's staff will now present details of the Omni deal to the Metro Council, starting on Monday with a meeting of the council's ad hoc budget committee. Construction could begin as early as this summer, and the hotel is to open by March 31, 2018.
Council member Kelly Downard, a Republican who has raised concerns about the city's deals with Cordish in the past, said it's regrettable the company is getting an “awful lot of money” from taxpayers to get out of the Omni deal.
“Giving them another dollar doesn't make me very happy,” he said.
But Downard said he can live with this small part of an “enormous transaction” by which the city will get the type of hotel leaders have coveted for years.
“We'll have that all downtown and people won't ask about how much money Cordish got. They're going to say, ‘My gosh, look what's here.' And that's kind of what we want. I've come to terms with it,” he said.
After talking with Fischer's economic development staff, Downard said he understands the main justification for the payoff is to reward Cordish for getting Omni interested in coming to Louisville.
Omni's involvement was not publicly known until last March; Cordish said in April 2013 that it was working with a marquee hotel brand not currently in Louisville.
“They got Omni to the table. The fact that they brought them in is critically important,” Downard said, adding that it's hard to say exactly how much that's worth.
In a statement issued by Fischer's office, Cordish vice president Blake Cordish said: “We are very pleased to have delivered a world-class development for the city as we promised. Omni will be a great addition to Louisville.”
A Cordish spokeswoman did not respond to WDRB News' requests for more information and an interview.
Metro Council President Jim King, a Democrat, did not respond to a request for comment.
“It positions us as a city and region to attract even larger conventions to the city and other large-scale events,” such as NCAA postseason basketball games, he said.
After months of negotiations that led to Cordish's exit, Omni now plans to build a 600-room hotel and 225 apartments, a 20,000-square-foot grocery store, 3,000-square feet of retail space and a parking garage with at least 820 spaces, according to a development agreement filed with the Metro Council last week.
It will all be within the old Water Company block bounded by Muhammad Ali, Liberty, 2nd and 3rd streets, which Omni will buy from the Metro government for $1, according to the development agreement.
The Parking Authority of River City, a city agency, has agreed to buy the garage for an estimated $17 million once it's built.
The deal calls for Omni to spend about $150 million, while another $139 million will come from various city and state subsidies, according to the development agreement and Fischer.
The block once was viewed as the leading site for a new downtown arena, which ended up farther north at 2nd and Main streets.
Cordish announced in 2007 it would invest $250 million in the block and surrounding areas, including the now-vacant Louisville Gardens arena at Muhammad Ali and 6th Street, which is no longer part of the project. The Center City plan fluctuated in cost and scope for years and drew criticism from council members who claimed the deal was too generous to Cordish.
A history of subsidies
Since entering the Louisville market in the early 2000s, Cordish officials have proven deft at landing subsidies from the city, beginning with taxpayers' purchase of the old Louisville Galleria, which was given to Cordish to build 4th Street Live.
In 2009, several Metro Council members complained after it was revealed that Abramson had given Cordish a $1.8 million forgivable loan, most of which was used to renovate Lucky Strike, the former bowling at 4th Street Live, into the Sports & Social Club, a Cordish subsidiary.
The remaining $850,000 of that giveaway was used last year to create the Tavern, a bar above the Sports & Social Club.
In 2012, former University of Louisville economist Paul Coomes estimated city and state taxpayers would subsidize 4th Street Live by $31 million in all over 20 years – figures that do not include the recent $250,000 annual payments that Fischer agreed to as part of the Omni deal.
Those payments are meant to continue an arrangement that dates to the beginning of 4th Street Live.
As a tourist draw, 4th Street Live has gotten aid from the state in form of tourism tax credits worth about $1 million annually since 2005. The state credits have differed from year to year because they are based on actual sales taxes at 4th Street Live.
Since 2005, Metro government has been supplementing the credits to bring the total amount of annual aid for 4th Street Live to $1.3 million. In 2012, for example, city records show Cordish got $881,582 in sales tax rebates from the state, while Metro government chipped in $418,418.
Now that the state rebates have run out after 10 years, Fischer said Metro government has agreed to continue paying Cordish $250,000 a year for nine years --- with legal assurance that the money will continue to be used for 4th Street Live.
Free public concerts are one example of how that money is used, Fischer said.
“We like what's happened as a result of that agreement. Those funds went to Cordish, and they used those funds to enhance 4th Street Live,” he said.
The other part of the Cordish payout – the $3 million reserve account that the company will get to keep – dates to the 2008 Center City deal signed by Abramson.
Under that deal, the city set aside $2.5 million for Cordish to use for “soft costs,” such as design, engineering, marketing, planning and market studies. According to the 2008 agreement, Cordish was to request distributions from the account to pay for these costs as they were incurred.
Cordish withdrew only about $400,000 from the account, leaving $2.1 million, Fischer said. The city agreed to add $900,000 to the account.
Fischer implied that Cordish is entitled to the money in the account, saying the $2.1 million “already was going to be going to Cordish.”
However the 2008 agreement says any distributions from “soft costs” account should be related to Cordish's actual expenses for the development, and that Metro government could ask for invoices orcanceledd checks to substantiate those expenses.
Despite multiple requests, a Fischer spokesman declined to make Jeff Mosley, the city's chief negotiator on the Omni deal, available for questions.
Bruce Traughber, who helped strike the original Center City deal with Cordish as Abramson's economic development director, declined to weigh in on the payout to Cordish.
But Traughber, who left city government in 2011, said he never doubted Cordish's commitment to the project. It was announced, he noted, just as the “Great Recession” began, triggering turmoil in financial and credit markets and ultimately scuttling projects across the country, including Museum Plaza in Louisville.
“I have no question they entered into the original agreement for Center City in good faith and they wanted to do that. It took more time to do than anybody wanted,” Traughber said. “I think the development is great. It looks wonderful. It certainly fills the need in that block that we saw so long ago.”
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