Why isn’t the IRG/UPS deal done? Is the backroom deal about to implode?

When this came up as an emergency resolution by the Dayton City Commission more than 100 days ago, this deal stank.

To recap, UPS has a lease on the former Emery Air Freight Hub at Dayton International Airport through 2019. UPS had an obligation to pay the city a lot of money, maintain the building as “aviation ready”- and provide security, maintenance. etc. Because it’s on ground that is ultimately under FAA control, all normal real estate rules don’t apply – so this gets complicated. A local developer (Mark Herres) tried to put solar panels on the roof, to help UPS pay the lease on the building they didn’t need or want. Soon after he had a “Memorandum of understanding” in place, all of a sudden, city officials started shopping the building to IRG, the “developer” of distressed properties across the nation.

Because either A) the people in the city are incredibly stupid, or B) the people in the city are on the take- the local developers’ deal got shoved aside, and instead of taking the building back for the city to own and dispose of– they decided it would be a good idea to hand it over to IRG.

UPS was offered to pay off the rest of the lease for net present value of the lease or about $6,9 million, and escape all maintenance, insurance and security bills through 2019. UPS of course, was happy to ditch this albatross, which according to FAA requirements must be used or held for use for an activity that is 90% aviation related.

Somewhere along the line the stupidity or corruption stepped in, and the city agreed to give the building plus $3 million to IRG, to give them the building for 3 years to “develop.” At the end of three years, if IRG hasn’t done anything, the building comes back to the city. The building has assets in place that could be scrapped/liquidated for at least $20 million- in scrap stainless steel, conveyor systems, etc. The value of the scrap has never been entered into the contract- or what the disposition rights are. In addition, the city has spent almost $40K on legal assistance from Thompson Hine to help refine the contract with IRG. The city would get $3.8 million to pocket, IRG $3 million- and there are no requirements for IRG to have to do anything for their money- other than take possession of the building and “market it.”

To the current state of the deal: the city had a clause that the FAA approval for this transfer had to be accomplished in 70 days for this deal to close. The FAA has still not approved it. Furthermore, the FAA has only been asked to OK the change of name on the lease from UPS to IRG- not to change the status of the structure, or requirements for use.

One of the people involved on behalf of the local developer sent an e-mail last week, Aug. 16, asking for a status update on this deal:

Subject: UPS Facility

Commissioners

It has come to my attention that the City as of last Friday had not received approval from the FAA for IRG’s plan for the removal of the security fencing and other changes requested for the property. It seems that the intent of the documents as set out in the three party agreement was to close on this agreement no later than seventy  (70) days after the effective date of the commission’s affirmative vote. This has not happened and we are now some one hundred days since the vote on this matter.

As you will recall, I pointed out what a flawed deal this was for the citizens of Dayton at the April 27th commission meeting, and I simply requested that you put off the vote for six weeks to give each of you time to read and understand the agreements. The city manager was insistent that you move forward and here we are. UPS seems to have vacated the property and it appears that the City is now doing the property maintenance at the facility. I believe that as the documents are written, the deal as approved in April, is no longer valid and any plans for that facility must be reapproved by the commission.  I would ask you to not approve any extension of this deal, instead take the time to exercise your fiduciary duty and fully investigate what is best for the City of Dayton.

Subsequent to the commission meeting in April I did meet with one commissioner and reviewed the failings of this deal and the entire process. I would be glad to do the same with each of you so that this time around you can make an informed decision.

John W.(Jack) Lohbeck

In a particularly odd response, Dayton City Manager wrote this back today, the 22nd:

Members of the City Commission,

I have reviewed the email from Mr. Lohbeck and I have reviewed the signed agreements on the IRG transaction.  Copies of the signed documents were given to Mr. Lohbeck  as per a public records request in mid-July.

  1. The section referred to indicates that IRG needed to get any required FAA approvals.  The FAA did not have any required approvals as we reported to the City Commission at the time.   IRG is required to maintain security at the building to FAA & TSA standards.  The fence when erected will reduce IRG security costs.
  2. We have closed on the agreement and we did it prior to 70 days.  There is no further City Commission action to be taken.
  3. There are continued allegations about the City maintaining IRG property (cutting grass).  These are not true.  Mr. Herres has been observed sitting in his vehicle possibly with binoculars just outside the facility. (I find this strange). I assume this is where the allegations materialize.  The city DOES cut grass in that area on CITY-OWNED not IRG leased land.

Tim Riordan

cc. Mr. Lohbeck, Mr. Herres

If you find the part about “Mr. Herres has been observed sitting in his vehicle possibly with binoculars just outside the facility” strange- you aren’t alone.

The questions Mr. Lohbeck asked had nothing to do with Mr. Herres- or his plan. Nor is sitting near the airport watching planes illegal or odd- as an aviation buff who has often sat with many others outside Wright Patterson watching planes come in when there is a storm off the East Coast.

Riordan is now claiming no FAA approvals are required either for the change of ownership or the change in use of the building. The main reason the city was supposedly handing this deal over to IRG was that they were unable to find tenants that could meet the FAA requirements of 90% aviation use- or could get a change in use pushed through. Somehow, IRG had this skill- yet, they have not had any changes approved by the FAA.

As to having closed on the deal- sure, the city got its money, IRG got its money- and whomever IRG paid off got theirs. Judging by Mr. Riordan’s email, one must wonder if he was complicit in this deal and paid as well. The former airport director and his assistant who crafted this deal left town for New Orleans. I have a call in to the current airport director to get a statement at this time. Hearsay has him questioning why this deal was done in the first place.

Because Federal regulations and agencies are involved, it may be time to request that the FBI investigate what is really going on with this deal, before IRG scraps the entire building’s contents, then claims that the needed FAA approvals to change use were never granted and then walk in 3 years many dollars richer.

Remember, the city passed this ordinance as an emergency, not giving the citizens time to review the contracts because it was an “emergency” and the deal had to be done in a timely manner- however the clause about FAA changes didn’t happen, therefore the deal should have been dead. However like all things cooked up in the backroom- we’ll probably never truly know what happened until it’s way too late.

 

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4 Responses

  1. Hall August 22, 2011 / 4:25 pm
    “Mr. Herres has been observed sitting in his vehicle possibly with binoculars just outside the facility”

    Like you, that part certainly jumped out as I read it…. Who, from the city, is out there checking people who are sitting nearby ? And, they recognize Mr Herres ?

    It would be interesting for Mr Herres to comment or respond to that allegation. If he is, good for him. I’d hope he wouldn’t deny if in fact he’s trying to catch some shady stuff.

    Finally, regarding the FAA approval, why speculate ? Ask them !  

  2. gary August 24, 2011 / 11:51 am
    The building has assets in place that could be scrapped/liquidated for at least $20 million- in scrap stainless steel, conveyor systems, etc. The value of the scrap has never been entered into the contract- or what the disposition rights are.
    Something doesn’t look right hereIf the scrap is worth $20 million, why didn’t UPS or the City scrap it down a long time ago?
    At the end of three years, if IRG hasn’t done anything, the building comes back to the city.  Hey then, demolish the darn building …
    Now I’m going to look up disposition rights …  
    (Again, I’m just trying to learn something here, in business and contracting; I’ve admitted long ago on a prior post of the same subject that I was confused on this deal, so pardon the questioning.)
  3. David Esrati August 24, 2011 / 2:48 pm

    @Gary the reason it hasn’t been scrapped is because the FAA requires it to have an 90% aviation purpose- it has to be maintained in its last configuration- until a new use is OK’d. If the aviation use requirement is scrapped- the insides can be scrapped.

  4. gary August 24, 2011 / 4:56 pm
    Thanks David! What a bunch of bureaucracy / red tape / and politics, not to mention shady dealings, when; jobs could have been or could still be created there, like recycling jobs if nothing else …

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