Last week the Dayton Daily news had the sad, sad story of poor Steve Rauch who didn’t get paid for tearing down a perfectly good historic building. No mention of performance bonds- which is the norm for projects like this:
The company that demolished parts of the historic Dayton Daily News building at 45 S. Ludlow St. has sued Student Suites Dayton LLC for allegedly not paying its nearly $800,000 bill.
The civil lawsuit filed Thursday in Montgomery County Common Pleas Court by Steve Rauch Inc. seeks financial damages and a foreclosure on the mechanic’s Lien against Student Suites Dayton (SSD), which originally planned to build a 350-unit, $18 million housing complex that could serve Sinclair Community College students.
Steve Rauch told this newspaper last week that he stopped working on the project when the billing cost for his work hit $869,000 and he still hadn’t been paid.A demolition contract between Student Suites Dayton LLC and Steve R. Rauch Inc. specifies a payment of $1.292 million. Rauch said he stopped working on the project because he hadn’t been paid.
“What a mess that place is down there, isn’t it?” he said. “I’ve liened it — against Student Suites. They haven’t paid me a dime.”
Rauch said he initially held off on filing a lawsuit, hoping to get paid as the project moves forward. “We are not the bad guy that put a bullet in the deal,” he said.
Through an email, Student Suites Dayton declined to comment.The suit alleged Rauch performed all demolition of the former Dayton Daily News and Schwind buildings, and related services. The cost, $775,195, has been due since Jan. 21, 2014, the lawsuit alleges. Interest of 10 percent per annum on the principal has been accruing since then, according to the suit.
Rauch’s attorney, Gregory Page, said the total owed, including interest, is more than $900,000.
“Based on SSD’s ongoing refusal to pay the sums due and owing, Rauch caused multiple affidavits for mechanic’s lien to be recorded against the property,” the suit alleges. “SSD’s actions, including, but not limited to, its failure or refusal to pay the sums due to Rauch, constitute a breach of contract.
”Besides compensatory damages and pre- and post-judgment interest of 10 percent, Rauch seeks attorney fees and costs, and for a judgment ordering the property to be foreclosed and sold. He is also asking that the plaintiff’s liens be paid from the proceeds of the sale.
The city of Dayton, which originally committed $1 million toward the project, increased that to $1.215 million in April 2014. The city’s share went toward demolition and cleanup of the former Schwind Building property.
Aaron Sorrell, Dayton’s director of planning and community development, said at the time that the money was from additional grants, not city general funds.
Complications arose over the Schwind Building, which was demolished in 2013.
A deed restriction imposed by the U.S. Department of Housing and Urban Development limited use of the property to low-income housing, and the Students Suites project did not qualify.
Sorrell also said then that the Student Suites project was delayed because the developer could not obtain financing for it as a result of the deed restriction.
The plan to rejuvenate the area for housing while leaving the original Dayton Daily News “bank” building — which is on the National Register of Historic Places — was announced in April 2013.
Source: Ludlow housing project halted 
Considering that Rauch also “mistakenly” tore down a part of the historic part of the Dayton Daily news building that was supposed to stay, the developer could counter-sue, that Rauch damaged the viability of the project. Of course, the fact that Student Suites probably asked him to do it by “accident” won’t come out until the gloves come off in the courtroom.
Normally, in order to do demolition of any sort- there is a required performance bond- so as to make sure the job gets completed. Someone in City Hall should be getting fired over this, but since that someone is either Aaron Sorrell, or Acting City Manager Shelley Dickstein, no one is saying anything. After all, they engineered this cluster-duck.
Of course, I did a FOIA request on who got paid what by the city. I’m not a full time journalist, but lucky for us, the Dayton Daily news hasn’t fired Steve Bennish- their last remaining reporter with a brain, and he’s coming out with a long piece in tomorrow’s paper (available online this morning).
What bothers me, is that his answers from City Hall don’t match the ones I got.
Here is my request- and my follow up- with their answers:
From: David Esrati
Sent: Monday, October 26, 2015, 10:27 a.m.
To: Bankston, Toni
Subject: FOIA request-
I talked to Stan Early about this on Sat. morning-
I want to find out the status of:
“The city of Dayton, which originally committed $1 million toward the project, increased that to $1.215 million in April 2014. The city’s share went toward demolition and cleanup of the former Schwind Building property.
Aaron Sorrell, Dayton’s director of planning and community development, said at the time that the money was from additional grants, not city general funds.”
Were the funds released? To whom? Whom were they supposed to go to?
On Oct 28, 2015, at 12:10, Freeman, Angela wrote:
Please be advised that the funds came from the Moving Ohio Forward Grant, which was used to demolish vacant and foreclosed properties. We expended a total of $183,591.37. The funds went to Student Suites to finish the demolition of the Schwind Building.
Angela Freeman | Executive Secretary | City of Dayton | Office of Public Affairs |
Hmmm, only $183.5K- to Student Suites.
So, they committed 1.2 million- but only release 182.5K something didn’t sound right.
From: David Esrati
Sent: Wednesday, October 28, 2015, 1:24 p.m.
To: Freeman, Angela
Cc: Bankston, Toni
Subject: Re: FOIA request-
So the million was never released?
And a response:
From: Freeman, Angela
10/28/15, 2:37 p.m.
To: David Esrati
In total, $938,591 was expended directly to Student Suites, under our development agreement. Of that, $183,591.37 was an amendment utilizing MOF funds. The larger, original balance was from the Development fund and was $755,000.00.
Other expenditures from the City were:
$220,000 to CityWide
$25,000 to Schwind Building Restoration Project
Who was the “Schwind Building Restoration Project” that got $25K and what did the taxpayers get back?
Who is asking about what CityWide did with almost a quarter of a million? And why aren’t they liable for the hole in the ground?
Why didn’t the city sue Student Suites- who got $183.5K and left us with a hole in the ground?
You think these questions would be answered in the Dayton Daily news piece coming tomorrow from Steve Bennish? But, no.
The best line in Bennish’s piece:
The city of Dayton, which owned the former Schwind building next door and agreed to have it demolished despite a deed restriction and lien on the property, now admits that was a mistake.
A breakdown of city of Dayton expenditures also shows the city has spent $938,591 on the project. That doesn’t include $420,000 the city spent to pay off liens on the Schwind building, which has been torn down.
More city spending could follow. Dayton Interim City Manager Shelly Dickstein is concerned that another round of winter weather could damage the historic former newspaper building.
“We’ve looked at the cost to fill the hole so it’s not sitting there blighting the community and so that the building could be buttoned up and not exposed,” Dickstein said.
Rauch estimates the cost to finish the demolition would be $500,000 — to remove basement walls and fill in holes.
So now the demolition costs are up to $1.75 million.
The crazy part- this exceeds the cost projections former local developer Bill Rain had estimated to turn the Schwind into housing for students and still comply with the HUD restriction, but the city wouldn’t offer to help at all, finally forcing him out of the deal which he was given hope on by his “friend” Steve Budd at CityWide. Rain was going to use the DDn building as first floor retail and convert the upper floors of the very solid building into parking for the project. The historic Cox building- would have been adapted use as well.
However, local “power brokers” weren’t paid off, and Rain left for Tampa, where he’s done a series of much larger projects, including the conversion and adaptive reuse of a hospital into a long-term care and assisted living facility. (Full disclosure, Rain is a friend, and a client, I visited the hospital project several times and saw first hand what he did. I also witnessed his work on the St. Clair Lofts and Ice Avenue Lofts in Dayton).
The DDn even admits that they were all excited about these out of town hucksters with their no-money down deal:
The stalled state of the project is a stark contrast to the excitement that accompanied the original announcement from Cox Media Group that “a preliminary plan has been agreed upon for the sale and revitalization of the vacant historic Dayton Daily News building and adjacent property.”
“In addition to the sale of the historic Dayton Daily News’ building and property, Cox Media Group Ohio is contributing $1 million to restore and protect the legacy of the historic building,” the April 2013 announcement said.
The Cox people were most excited, but won’t say this- to get out of the property taxes on their empty building (they also demolished Channel 7 asap to avoid paying property taxes) and to not have to pay the Special Improvement District tax that supports the Downtown Dayton Partnership.
Bennish does manage to get this gem into the story:
In the 2013 announcement, CMGO (Cox Media Group Ohio) said it had been working with the city of Dayton, Student Suites and a California-based nonprofit, United Housing and Community Services Corporation, to finalize a plan to build an $18 million multi-purpose complex on the property. Sinclair was not involved, but once the project was completed its students would have access to housing just a short walk from their classes.
United Housing would own the project “once it was leased up,” said Sorrell.
Attempts to reach United Housing were unsuccessful and there was no listing for the non-profit in a statewide telephone directory.
In a bond document on file with the city of Dayton, United Housing was listed as the borrower of the proceeds of the bonds issued by the port authority.
Student Suites, the document said, “gathers a team of architects, local contractors and financial experts to provide a completely finished project.”
Note the part about “bonds issued by the port authority”- yet earlier in the article Jerry Brunswick (withdrawn school board candidate), the current straw man in front of the Port Authority (another organization that screws up public money with little oversight):
Jerry Brunswick, president of the Dayton-Montgomery County Port Authority, said in the early stages of the project the plan was for the authority to issue tax-exempt bonds to finance up to $15 million. The bonds would be sold through an investment banker.
“I never heard that the (bankers’) investment committee approved it,” Brunswick said. “And we asked. We were told they never approved it. If there was a lien in front of the property, it would certainly impede a positive credit decision.”
He added: “A lien in front of you is not a great way to sell a project. The project still makes sense. We’d like to issue the bonds and we have a new program that can be a part of this.”
Uh, if it had a lien on it then, and now it has a lawsuit and an unfinished hole, I’d say this deal is dead.
Bennish briefly covered the buildings’ history- but, that back story is full of the institutional knowledge that is needed to really understand how we got to where we were today.
With the long-shuttered Arcade across the street, the Student Suites project was seen as a ray of hope for that part of downtown and possibly a catalyst for future development. Then came a snag.
A major legal hurdle involved the deed restriction and lien on the Schwind building, which was imploded as part of the development plan. HUD had imposed the restriction after funding a previous owner’s plan to put low-income housing there.
Records show the Schwind had a rough history. The city originally acquired the building from HUD in 2003 after the owner defaulted on a HUD-insured mortgage. The city transferred the building to Rain & Associates in July 2004, but the building then went into foreclosure and was sold in 2007 through a foreclosure sale to the Schwind Building Restoration Project. The city re-acquired the building in August 2013 as part of the Student Suites project.
The “snag” was fully known and ignored by the city and by Student Suites. This is what we normal working stiffs call incompetence. That Dickstein failed the Wayne Avenue Kroger – with no contract with a tenant before expending over $4 million to aggregate a 12 acre parcel, using multiple rounds of real estate options, blighting the neighborhood wholesale, and spending enormous sums on appraisals, and negotiations should have been the end of her and Sorrell.
Bennish didn’t talk to Rain. The Schwind Building Restoration Project was when Bob Schiffler took over the project. Schiffler had successfully and beautifully done the old Chemineer building at the corner of Fourth and Main- but, soon after they transferred the property to him- PNC took over our beloved local lender, National City Bank- and called his notes- forcing him to sell his beautiful mansion on Oakwood avenue and regroup. The Schwind was ancillary damage.
The education of Aaron Sorrell and Shelley Dickstein at taxpayer expense is getting expensive. Bennish gets this beautiful piece in:
Sorrell acknowledges that the lien and deed restriction were raised by Student Suites as a hurdle to financing, but he said the developer redesigned the project to make the Schwind site part of a second phase that would kick in when the lien was removed.
“We’ll take responsibility for the HUD lien,” Sorrell said. “But the developer has struggled to find financing.”
Dickstein too acknowledged that the city made mistakes. “Looking in the rear view mirror, the project moved forward without financing in place,” she said. “In hindsight, we would change things.”
Maybe the reason the developer has trouble finding financing is because it’s really hard to do much in Dayton or even Montgomery County, due to it having the second highest tax burden in the state? Add to that, the additional tax to support the Downtown Dayton Partnership which gets away with no blame on this mess. Lenders aren’t bullish on doing any renovations in Dayton- or the use of Historic Tax credits to finance them- not a single one has worked since the Cannery- and that went into foreclosure as well- despite a very high rental occupancy rate. (Rain was one of the initial developers in that project- but left early when it was pretty clear that his partners, Beth Duke and Dave Williams had a different vision. Williams, by the way, after flopping a big project in Clayton, got hired by CityWide).
Before he died, Alan Rinzler once told me that he owned the only building in the central business district (the Talbot Tower) that hadn’t been foreclosed on). This is how damaged the Downtown real estate market is.
Considering the city has been going to town issuing tickets to home owners in South Park for peeling paint (I completed painting 3 of my houses this summer) it’s crazy that this boondoggle hasn’t brought the wrath of Nan onto someone (I’m pretty sure my neighbors are paying for my sins).
A contract between Student Suites and the city required Student Suites to provide the city “with a fully executed copy of a payment and performance bond issued by a surety authorized to do business in Ohio and acceptable to the city … which bond will guarantee completion of the developer’s obligations under this agreement and payment in full of all contractors, material suppliers and others who contribute to the design and construction of the project.”
Student Suites has not provided proof of the performance bond, Sorrell said, although it did pay to insure the demolition activities.
The city’s Housing Inspection Division last year issued a violation to Students Suites ordering the LLC to remove trash and debris from the area. The city says there was no response to the order, which was sent by registered mail to Student Suites’ Independence, Mo., offices.
Whoa, wait- the demolition permit was issued before the proof of performance bond was filed on a project this big? And Sorrell still has a job?
The final chilling end to Bennish’s piece, suggest more of our tax dollars will go to prop up this clusterduck:
Dayton officials are now working to see how they can at least secure the building from the weather before winter arrives.
“We are very concerned about getting it done in the next month or so,” Dickstein said. “With the freeze and rain there is exposure on the historic building. It’s an important project and we want to see it be successful.”
If no one comes to the table, Dickstein said, “We will explore our abilities to move forward with enforcement action on the historic building and move forward to preserve the building and remove the blight and fill in the hole in the ground.”
A good start would be firing Sorrell and Dickstein, and then liquidating CityWide Development to pay for the fixes, and then dismantle the Downtown Dayton Partnership and start returning the tax to the property owners. Those who want the common area maintenance performed by the “Ambassadors” (minimum wage workers in green shirts hired by an out-of-state firm) can band together to hire their own street sweepers.
Then, maybe, we can learn to leave the development to the private sector and concentrate on providing basic city services like plowing snow and collecting leaves, and hanging basketball nets on city courts.