The 21c public/private partnership
By Danny Mayer
In April, marital partners Laura Lee Brown and Steve Wilson, founding owners of Louisville-based boutique hotel franchise 21c, held a press conference under the pavilion at Cheapside Park to announce their $36 million purchase and renovation plans for Lexington’s 15-story First National Building, the city’s first skyscraper. Along with a pair of smaller adjoining buildings, Wilson told a crowd of local leaders gathered for the occasion, the iconic downtown structure would become the fourth 21c Museum Hotels franchise location. “This is a combination hotel and a real art museum. It is not art for decoration,” Wilson said. “The 21c Museum is the only museum in the country dedicated to collecting and exhibiting contemporary art by living artists.”
Local talk of the renovation has tracked city leader and 21c talking points, which have focused on aesthetics and downtown revitalization. But whatever its aesthetic value or ability to inspire a new urban “confidence,” 21c’s economic foundation comes straight out of the past two decades: a public/private partnership in finance in which the public assumes collateral and risk and the private owners reap the returns. Of the $36.5 million needed to purchase, renovate and open 21c as a boutique hotel with an attached modern public art museum, over 60 percent of it ($22.5 million) will come from tapping public funds at the city, state and federal levels, much of it through programs geared toward low- and moderate-income citizens.
If you want to see the democratic/economic policies pillaging the nation and globe writ devastatingly small, look no further than 21c. Here’s three themes that should be familiar to you.
Rank cronyism: the Rupp Task Force
The 21c renovation has been deemed the first project in the redevelopment of the Rupp Arena District, for which the city has already committed itself to $2.5 million in preliminary funding (with another $2.5 million in state funds). The sentiment of 21c as Rupp standard-bearer even appears on a 21c federal loan application for funds dedicated to low-income residents.
Here’s Herald-Leader writer Tom Eblen introducing his readers to 21c business partner Craig Greenberg: “Greenberg said one thing that attracted [21c] to Lexington was the new, visionary plan for redeveloping 46 city-owned acres around Rupp Arena and Lexington Center. The plan calls for renovating Rupp, moving and expanding the convention center, adding mixed-use private development and uncovering Town Branch Creek to create a downtown water feature. Greenberg said the plan’s success ‘will be absolutely critical to downtown.’”
One would hope Greenberg would feel this strongly about the plan that enthusiastically endorsed a $350-$700 million public/private redevelopment of the area. Eblen never mentions it, but in 2010 Greenberg was appointed by Jim Gray to the Rupp Task Force’s Planning and Design subcommittee. It is in part Greenberg’s plan that Greenberg cites, and he’s not the only Task Force member with 21c connections.
Joining the 21c business partner on the task force was Central Bank CEO Luther Deaton, who, as it turns out, now holds the note on 21c’s only known privately-funded revenue stream, a $14 million building loan. Deaton , who served on the finance subcommittee, no doubt talked downtown finance ideas with Paul Varga, vice president of Brown-Forman, the billion dollar distilled spirits corporation that is also the source of 21c owner Laura Lee Brown’s immense wealth. At $15,000, Brown-Forman landed fifth among donors who contributed the $350,000 for the Rupp Task Force to exist. Only UK Athletics ($50,000), Toyota ($25,000), Kentucky Utilities (KU) parent company LG&E ($25,000) and Mayor Jim Gray ($15,500) gave more.
Leveraging failure: Museum Plaza
Greenberg’s tie to the Rupp Task Force is one among several items left intentionally fuzzy by local media and city leaders. Most glaring has been the lack of reporting on the failed Louisville urban development Museum Plaza.
In 2007, Brown, Wilson and Greenberg entered into a business relationship as lead investors in Museum Plaza, a mixed-use urban development imagined as a public/private/educational venture. Situated on a plot of gifted land nearby the Ohio River, Museum Plaza was to incorporate a hotel, art museum, private lofts, retail, dining and the University of Louisville MFA program. It was 21c by another name—only massively larger. Think CentrePointe, and then Louisville-size it.
And like CentrePointe, the $480 million development project has never happened. Land was purchased and bulldozed, a gigantic skyscraper was proposed that the city mayor deemed out of scale, the necessity of creative public financing was stressed by the filthy rich developers, a market crashed, and the project has since languished amid calls, some successful and some not, for fresh infusions of money.
Some of that money has included a 2007 state bill authorizing $135 million in funds for it (HB 549). Another was $3.7 million in liens filed for nonpayment by two separate contractors in 2009. The most recent was a 2010 gambit to secure a $100 million “Section 108” loan from the federal department of Housing and Urban Development (HUD).
Fuck the poor: Section 108
Section 108 loans emanate from HUD’s Community Development Block Grant (CDBG) program. Described as “one of the most potent and important public investment tools that HUD offers to local governments,” the low-interest loans are intended to help finance projects that primarily benefit “low- to moderate-income persons.”
In Section 108 loans, city and state governments operate as pass-throughs for the entity receiving the loan. Loan limits are capped at five times a government’s allotment of CDBG funds. Thus, Lexington’s current $1.9 million of CDBG funds allow it to leverage close to $10 million in Section 108 loans. Though loans can pass through to private entities such as 21c, they are backstopped, ultimately, by the city, which must dedicate its current and future CDBG funds as security for the loan.
21c owners have demanded $6 million, or 60 percent of the city’s lending capacity, in Section 108 loans. As proposed, the art hotel will pay only the interest for the first six years of the twenty-year loan, meaning that while 21c will receive needed capital infusions for its renovation of First National Building, the city will be stuck for the foreseeable future with limited leverage for other 108 loans. On top of this, everyone seems to agree that federal budget cuts will continue to reduce Lexington’s amount of CDGB money. Six million dollars in committed loans equates to 60 percent of lending capacity this year, but say the funds get cut to $1.5 million next year. With nothing paid to principal, that same six million dollars now represents 80 percent of lending capacity.
Greenburg, in particular, is adept at acquiring these types of public financing. While a lawyer at Frost Brown Todd, Kentucky’s largest law firm, he specialized in locating New Markets Tax Credits that helped clients raise and invest over $300 million in low-income communities across the country.
I can’t speak for the other communities where 21c has invested, but here’s “the low income community” he and 21c are investing in here: an iconic building on the corner of Main and Upper Streets, adjacent to the recently redeveloped Cheapside Plaza; acre for acre, perhaps the most valuable land in town.
Here’s the low income jobs that our public loans will fund: chambermaids, dishwashers, bellhops—mostly jobs designed to cater to the needs of guests paying to stay at a modern art hotel.