Smoke and Numbers

In the Century Building scrap, everybody's deal is shaky, even the mayor's

Mayor Francis Slay and his band of shrouded intimidators need fresh schooling on a hard rule of political physics known as the Law of Inverse Rhetorical Hypocrisy.

This ancient rule holds that the staying power of the fibs and slanted numbers a politician aims at an enemy depends on the strength of the misleading statements and fuzzy math used to defend his own position.

Seems perfect for the fat bill of particulars rolled out by Frankie the Saint and his seconds to justify the bloody garroting of upstart developers Craig Heller and Kevin McGowan, just for having the brass to roll out a rival plan that shows the Century Building doesn't have to be torn down to provide a garage for the restoration of the Old Post Office building.

Mark Poutenis

The topline of this sorry bit of bullying is familiar to regular Speedloader readers. In late March, Heller and McGowan had a fiscal .44 Magnum cocked and pointed at their brainpans: Bury this plan of yours to save the Century and Syndicate Trust buildings, or we'll run you out of business in a year's time.

To save their skins, Heller and McGowan had to sign a press release flying the banner of their partnership but written by Richard Callow, the mayor's favorite poison-pen publicist, and Steve Stogel, lead developer of the mayor's favored plan for the Old Post Office.

This was one nasty piece of crow.

In essence, Heller and McGowan had to publicly proclaim they were a couple of headless chickens who knew absolutely nothing about putting together the complex business deals both of them do for a living. The boys -- and their reputable partner, Robert Bates of Mansur Real Estate Services of Indianapolis -- were forced to admit they made a $20 million miscalculation in their plan, even though they didn't believe they goofed and the admission put a serious smear on their business acumen.

More on this damnable document in just a bit.

First, a return to the realm of political physics.

A subset of the Law of Inverse Rhetorical Hypocrisy says the following:

When you take this much trouble to call the other guy's plan a shaky bit of financial claptrap, you better make damn sure your own $73 million blueprint sits on much firmer ground.

The Slay-and-Stogel plan doesn't.

As currently concocted by the wizard of byzantine public-private financial structures, the Old Post Office plan relies on a complex three-tiered ownership-and-leasing arrangement that must pass review by a bevy of state lawyers and tax experts and survive the unblinking gaze of a far higher authority -- the Internal Revenue Service.

In essence, this plan aims to let the state take advantage of its own historic tax credits -- a rude distortion of a program designed to lure private developers into the grand game of restoring historically significant downtown buildings.

"They accuse the other guys of having a shaky deal, but this thing is just as full of holes and may be illegal," says a major player in the downtown-development game. "Compared to that other deal, this is a house of cards."

That's the ugly truth about all of these downtown-renovation deals, particularly those of the publicly financed white-elephant variety -- they're damn complex and damn fragile, and they push the letter of the law to the max.

These rickety structures are also wide open to politically motivated shots and gotchas from anybody with a calculator and an accounting degree. The torpedo fired at the Heller-McGowan plan in a March 6 letter from Robert Miserez, executive director of the Missouri Development Finance Board, serves as proof of how easy this is.

Miserez's missive slams the trio's financial package as a doughnut with a $20 million hole in it. His letter flatly asserts that they wouldn't qualify for state tax credits for transportation and brownfield abatement, a fancy word for the removal of asbestos, lead paint and other hazardous materials.

"Based upon the above questions and substantial financing gaps I cannot find any basis to continue to consider this proposal financially viable, or even credible," he writes.

A mighty blast.

But Miserez is hardly an honest umpire, calling 'em as he sees 'em. He's head honcho of an agency where Stogel enjoys a hearty mortal lock. The degree of Miserez's politically indentured servitude is clearly underscored in two memos Stogel faxed to him March 4, secured in a Missouri Sunshine Law request by the Riverfront Times.

In both memos, Stogel dissects the Heller-McGowan-Bates proposal. He points out several avenues of attack Miserez used in his March 6 letter, including assertions of a miscalculated interest rate, a mistaken assumption about transportation tax credits, a loan structure that doesn't meet HUD requirements and a lowball estimate of so-called soft costs such as legal and architectural fees.

"It is clear to me that the numbers also don't work for the following reasons," Stogel writes in one memo, which was copied to members of the Schnuck grocery-store family who are his development partners and Barbara Geisman, deputy mayor for development and Callow's live-in girlfriend.

Callow's client in this firefight, Downtown Now! executive director Tom Reeves, was also copied. This lengthy list of cc's calls into serious question Slay's loud and oft-repeated denial of knowing anything about the garroting of Heller and McGowan.

Either the mayor did know and isn't telling the truth or Room 200 is a rudderless ship, with subordinates, hired guns and insiders calling the shots.

Either scenario's a bad one for Frankie the Saint.

From Stogel's brain to Miserez's pen: Such friendship will no doubt be a comfort to Stogel whenever the Old Post Office plan is presented to Miserez's board.

From Miserez's letter to the five-point press release McGowan, Heller and Bates were forced to sign:

This document claims the partners seriously underestimated the cost of removing asbestos from the Century and featured a reference to a mysterious "new administrative rule" that would cause the Century and Syndicate Trust buildings to be ineligible for brownfield tax credits.

Let's flame-broil two of these:

· State Representative Joan Bray (D-University City), the Texas transplant who authored the bill for transportation tax credits, says a garage inside the Century would easily qualify for this credit because of its close proximity to a MetroLink station.

· No regulatory-rule change on brownfield credits has been made, nor is one in the works, says Kristi Jamison, spokeswoman for the Missouri Department of Economic Development, the agency charged with overseeing these tax credits. Repeated legislative attempts to cap the pool of dollars in both the brownfield and historic tax credit programs have been made as part of the draconian budget-slicing now taking place down in Jeff City, including a proposed $60 million lid on the historic credits that is now riding on the Senate's ballpark-subsidy bill.

As pilot of the complicated Old Post Office deal -- the pet project of a performance-anxious mayor -- Stogel should know better than to damn another guy's plan with such weak cheese.

Speedloader knows Stogel is smarter than this and is sure that his considerable political clout and close ties to Governor Bob Holden will win this project every bit of regulatory stretching, bending and winking the bureaucrats can get away with.

Given the budgetary chaos engulfing Jeff City, he and Frankie will need every inch of inside track they can get.

But that's only half the battle.

The Old Post Office project relies heavily on tax credits -- including $14 million in state and federal historic tax credits and another $14 million in tax credits from Miserez's agency that will be used to secure $28 million in corporate donations from companies in need of a tax break.

But this reliance makes the project particularly vulnerable to the gentle intricacies of a federal tax code that prohibits any tax-exempt building owner from taking advantage of these credits.

To step around this barrier, Stogel is resorting to a standard trick in the developer's magic bag -- one that takes advantage of a loophole in the federal tax code that allows a for-profit company holding a lease of 39 years or longer to grab the federal historic tax credits.

According to Stogel spokeswoman Marie Casey, here's how it would work:

The feds who now own the Old Post Office will assign the title of the building to the Missouri Development Finance Board. That state agency will grant Stogel's company and his development partners a long-term master lease, she says, which will allow the partners to claim historic tax credits after completing the renovation.

The partnership will then sublease the building to Webster University and the Missouri Court of Appeals' Eastern District.

But there's a problem here -- the state historic tax credit program is limited to for-profit owners only and makes no provisions for any long-term tenant to take advantage of the program.

"I'm not sure you can do that," says Ann Perry, who heads up the Missouri Department of Economic Development office that says grace over such projects.

To sneak the mayor's pet project over this hurdle, Stogel either needs a change in state law -- perhaps a midnight rider attached to the ballpark bill -- or a huge wink and nod from Perry's agency, say those familiar with the state historic tax credit code.

Casey says the project will meet the full letter of the law. But several other gotchas in the federal tax code make this difficult, says Sharon Park, chief of technical preservation services at National Park Service headquarters in Washington, D.C.

Even if Stogel wins his wink, the master lease can't be a sham or sweetheart deal -- market rates must apply. And the subleases to Webster U. and the judges must be short-term deals -- no longer than 20 years -- and automatic rollovers and renewal clauses are frowned upon.

That's a problem for the judges, says Doug Bader, court administrator. They want a long-term lease of 30 years or more.

"The court looks at this as a great opportunity to get a new home with bigger space and better security," said Bader. "We're not interested in having to do this again in five years or ten years."

All of this leads to another problem no one wants to talk about:

Despite all of Stogel's financial mastery, Slay's project fails to recruit brand-new downtown players as tenants for the Old Post Office building, such as a pricey out-of-town law firm to replace Husch & Eppenberger, the high-dollar outfit that faithfully handled so much City Hall business that it got rich enough to bug out of downtown and relocate to Clayton.

Instead, two public players who are already denizens of the city's central core are being ripped from their roosts, creating a gaping hole in two historic buildings -- the Wainwright State Office Building at Seventh and Pine streets, where the judges now wield their gavels, and the restored Lammert's Furniture building at Ninth Street and Washington Avenue, where Webster U. hangs its night-school hat.

And then there's that public bludgeoning of Heller, McGowan and Bates. The martyred trio have to live with big black marks on their reputations, but Slay has to deal with the growing reputation of city rife with cronyism and an administration hostile to players who aren't part of his select circle.

"Character assassination had already occurred. It even reached Mansur's offices in Indianapolis," wrote Bates in a March 22 response to Miserez.

While pondering Bates' words, it might also be instructive to review the reputation of the third target of this smear of numbers and half-truths.

Mansur is one of Indiana's biggest real-estate players, a major force in downtown Indianapolis' redevelopment and an experienced hand in historic-rehabilitation projects, says J. Reid Williamson Jr., president of the Historic Landmarks Foundation of Indiana and trustee for the National Trust for Historic Preservation.

"They have high standards," says Williamson. "They're top drawer. Bob Bates has done many historic rehabilitation projects."

Consider this final point:

Mansur cut its teeth in the historic-rehabilitation game 15 years ago with a turn-of-the-century building in the heart of downtown Indianapolis.

Its name? The Century.

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