Wednesday, July 2, 2008 | 2 a.m.
- Lady's luck is changing (6-22-2008)
Beyond the Sun
Las Vegas officials want to sell downtown property to the new owners of the Lady Luck for tens of millions of dollars less than what the city’s appraisers say the land is worth.
City redevelopment staff say the land must be discounted by more than half to get the California-based company to begin renovations of the shuttered hotel and casino.
But an analyst hired by the city to study the deal, which the City Council will consider today, in May questioned how much incentive, if any, the developer needs to be given.
The analyst, Tim Kelly of Keyser Marston Associates, a San Francisco-based development advising firm, noted on May 5 that the city should not be worried about whether CIM Group will redevelop the Lady Luck.
“CIM spent $100 million purchasing the Lady Luck,” Kelly wrote. “CIM is not in the business of investing $100 million and being a passive investor. Doing nothing is not an option. When CIM purchased the Lady Luck, there certainly must have been considerations by CIM of substantial new investment.”
Kelly also points out that the value of the land the city wants to sell for $24.87 million — 3.49 acres surrounding the old post office on Stewart Avenue and 1.03 acres on Ogden Avenue at Fourth Street — could soon be worth even more than the $52 million to $60.8 million it was recently appraised at.
The city, after all, is investing $50 million to convert the post office into a mob museum, Kelly noted. With that investment, the city already will be making the Lady Luck, across the street from the museum, more valuable, Kelly wrote. The museum could draw 600,000 visitors a year, according to city documents.
Also, the city is planning to spend another $50 million on infrastructure — including a parking garage — in the area, all of which will likely increase land values.
In his analysis, Kelly asks why the city can’t wait awhile before determining the sales price. “It is not clear how much the $75 (per square foot) is below fair market value at the time of conveyance, which could be several years out,” he wrote. “Why can value not be set at (fair market value) to be determined six months prior to close of escrow?”
Apparently, city officials don’t want to wait because a development agreement that incorporates the discounted sale is to be considered by the Las Vegas City Council today.
Kelly had reviewed a draft of the agreement and in one of his memos, he noted that “the benefit to the City is not clear.”
Scott Adams, director of the Las Vegas Office of Business Development, told the Sun Tuesday that it’s a good deal for the city because it locks CIM into making several improvements on the city’s timetable in addition to $100 million in improvements to the Lady Luck.
“I’ve got to be honest, I feel proud,” Adams added. “I feel good about this deal, and I’ve been doing this for 31 years. This is not a giveaway.”
Adams said the deal would require:
• That Lady Luck renovations start by Dec. 31, 2009, and finish in two years.
• Reopening of the hotel with a three-star hospitality rating.
• Substantial completion of streetscape and building facade improvements on Third Street.
• Improvements to the pedestrian bridge connecting the two hotel towers.
To further cement the deal, Adams said, CIM must provide a detailed summary of how it spent at least $100 million for renovations. The city also has the right to hire a certified public accountant to verify that the money was spent. If an audit proves the money has not been spent, CIM would be legally obligated to make up the difference.
CIM Group is a Hollywood-based development company founded in 1994 by three men: Richard Ressler, a former Drexel Burnham Lambert mergers-and-acquisitions specialist, and Shaul Kuba and Avraham Shemesh, Los Angeles real estate developers. Its real estate portfolio is said to be worth about $4 billion. The developers bought the Lady Luck, which was closed in February 2006, last summer.
Adams noted that the city was hamstrung in its negotiating position because not all of the land surrounding the post office is the city’s to sell.
A small chunk of the land is now owned by the Nevada Department of Transportation. Moreover, the National Park Service, which sold the post office to the city, maintains a right to approve or disapprove of changes made to some of the land surrounding it. The city is attempting to resolve both of those issues, he said.
Based on city e-mails obtained by the Sun, officials previously scrambled to resolve the discrepancy between the city and CIM’s preferred price and the much higher value set by the appraisals.
On June 5, after the first appraisal came in at $180 per square foot, Adams fired off an e-mail to CIM’s Jeff Rosen under the subject heading: “Appraisals – critical issue.”
“Please call me ASAP,” Adams wrote. “Appraisals are coming in extremely high and we can’t go forward with such. We have some ideas on how to address.”
About 3 1/2 hours later, at 6:24 p.m., Adams wrote to six city staffers, including City Manager Douglas Selby, explaining how to get around the difference.
“We expect the next appraisal to come in at $135 based on conversations with the appraiser. We agreed to a purchase price of $75 (per square foot) in the (development agreement). We could not rationalize this difference in value and called CIM to discuss.
“In order to resolve this difference we will add a clause to the agreement which stipulates that if (CIM) use(s) the site for gaming, they will pay us $140 per (square foot). If no gaming it stays at $75.”
However, Adams adds: “Up to this point in our negotiations (CIM) had never indicated an interest in developing gaming on this block.”
CIM also wants to buy a multi-story parking garage just southeast of the Lady Luck, on the southwest corner of Ogden Avenue and 4th Street, that it leases from the city. City Council members will consider a sale price of $6.87 million; appraisers put the value at between $11.4 million and $17.8 million.
Adams said the sale price is equivalent to the rate at which CIM Group is now leasing the garage.
“They’re paying us that now,” he said. “Why would they pay any more?”
But Kelly, the San Francisco analyst, asks: Why sell it at all?
“Sale of the garage is not necessary, unless the city wishes to sell,” he wrote in one of his memos. “CIM invested $100 million without this right” to buy the parking garage.
Council member Lois Tarkanian said that although the sale prices offered by the city are below the appraisals, she expects the City Council to unanimously approve the deal.
“I think there’s always a risk, and I think it’s something you have to watch carefully,” Tarkanian said. “How much are you going to give away to get something done?”
If the city approves the deal, it won’t surprise Greg Leroy, executive director of Good Jobs First, a 10-year-old Washington D.C.-based organization dedicated to making “economic development subsidies more accountable and effective.”
Leroy said cities all over the country do similar deals, “paying companies to do what they would have done anyway.”
What could make the Lady Luck deal more palatable, he added, is if it brings more investment to an area that always seems in need of more.
“Sometimes we think it’s good to use public money when the pump needs to be primed,” Leroy said.
In other areas downtown, redevelopment is slowly taking place. The Gold Strike casino, just across 4th Street from the Lady Luck, is undergoing a multi-year renovation. A few new businesses have opened recently in Fremont Square, formerly known as Neonopolis. And there are hopes for the Fremont East District, a repaved and neon-lit four-block section of Fremont Street where city incentives are offered for taverns or clubs that locate there.
But business owners just west of the Lady Luck “carcass,” as Mayor Oscar Goodman has called it, have publicly urged the City Council to ink a deal to get the casino up and running, hoping its success will help their own businesses.
It doesn’t help that land around the post office is currently home to a large daily population of homeless people, who gather there sometimes by the dozens. Goodman, who can see the homeless from the window of his 10th floor City Hall office, has frequently complained about them and once even walked into the park with a city staffer trying to get them to use city services.