consultants are sandburs

Wednesday, October 24, 2012

A half dozen or so things wrong with the Wiser Choice land swap, with a boot payment. As the deal was written up when proposed earlier this month.

Monday's Strib report by Paul Levy, "New round of turmoil in Ramsey - The state has been asked to investigate alleged conflicts of interest in the city," focused on the Flaherty rental-by-the-rails dealings, and Councilmember and HRA Commissioner Jeff Wise's effort to secure the best deal he can in relocating his liquor store. Much on Crabgrass has already been written about Flaherty.

Looking in this post only at Wise - Start with the belief that Wise is entitled to as good a deal as he can gain, honestly, and if he does not like offers he can force things to eminent domain litigation to have an impartial judge set the deal.

The problem of appearances of the negotiations aside, start with a single page document, the city supplied synopsis of the deal Wise expects as fair to him, and generous enough that he would not litigate.

Set aside for now the fact that appraisal is a highly inexact and subjective thing and to say, "We got a second appraisal," is little different from saying, "We slaughtered a second chicken, and have two sets of readable entrails." Two Tea cups, two sets of readable Tea leaves.

And set aside the fact that appraisers can be crooked and at least one, Renne, hanged himself in his bedroom closet; in the past, in the course of the ever unwinding Town Center saga.

Put aside the situation where, if it was Landform's Lazan negotiating with Wise, each had an incentive to kite values, where a favorable pricing set to Wise that also included a big land price in Clown Center would mean Jeff's happy and Lazan's commission is maximized. With such incentives for less than fully adversarial arms-length dealings the scenario is wholly suspect. And, since dealings were kept secret (nonpublic, which for me, not a city politician, is "secret") as they unfolded, we have little cause to attribute much merit to the process. But put that aside. Along with the notion that a big pot of money from the county was expected and instead of putting that into concrete and rebar on the Armstrong road work, it was earmared for flowing to Jeff, then back to the HRA's slush account (purportedly now standing at around $300,000), an amount of roughly half a million county provided dollars, shifted into HRA coffers, for HRA - Town Center mischief, or sound fiscal practice, whichever.

Just look at the face of this document (click to enlarge it and read - highlighting added):

Start with $940,000, (building, business and land).

It is most unusual to not break tangible real property out as a separate line item, and then it should be "business impact" and not "business." Nobody was buying Jeff's business. He kept the trade name, the goodwill, and moving across the street was not going to confuse drunks and their ability to find liquor when wanted. Indeed, the use of the acquired premises for anything like the "business" was expressly disavowed, via the restrictive covenant on city use of once acquired real estate.

So "business" is wholly phony, and padding. Now, the value of the thing, besides retained goodwill and name, is inventory. Booze is highly portable potables; witness the Whiskey Rebellion and the ease of Prohibition era bootlegging. Moving a stock of booze across Armstrong would be de minimus in cost.

Next, "trade fixtures."

With the restrictive covenant, booze-shop related true fixtures [affixed to the land becomming part of the real property] would have little value, and would be moved if of much real value to Jeff. Moreover, "trade fixtures" always are regarded as personalty, not realty, and are not treated as a matter of law as if affixed to the land and intended to become a part of the real estate. Putting a "trade fixtures" line item in that thing insults the intelligence of readers.

Last, $90,000 to move a stock of booze across a street? Get real. A cash register or two? Clearly there is kiting going on. Business impact, and actual fair value of the realty, the building and the land, and parking lot improvements, are all that is real in that sheet's numbers.

Next, how is business impact ameliorated? Jeff has a year-and-a-half to move.

So, stripped to its essentials, the present Sunwood work may have lessened drunks willingness to drive around a bit to get their vodka or rye, and some may have found Coborn's shelfs sufficient as needed. But Jeff wanted that work and voted for it after all, it being integral to his plan for a top notch new location in Town Center. So that intermediate cash pinch, he willingly accepted - and voted to advance it.

Down to essentials - existing building and land swapped for improved unbuilt land [call that Sunwood reroute expense an improvement, although it is debatable in a larger sense of the meanings of the word "improvement" but as to the value of the land Wise had earmarked as his desired locale, putting the road past it did boost its value to him, for his purposes, and "improved" his expectations]. Then, he keeps the tradename and all the goodwill, and the inventory; so, he gives land and structure, for land, and his building a structure. And if he does not sign personally to be liable on the building, his corporation could turn around and sell that land to another speculator besides him, and he could consolitate and reinvest. It seems to all have been somewhat loosey-goosey, and you tell me what contract rights and conditions were to be imposed in any final dual closing, on obligations Jeff owed City of Ramsey in how he'd be promising to use the new land. Enforceable city rights, vs. declarations of a possibly later altered intent. I admit not knowing any detail in that direction, and I am unaware whether Jeff and the city have publicly released any such detail.

But, bottom line, the single page deal summary has several infirmities clear within the four corners of the document. Is that stuff worth $1.1 million? Not to me.

If I sat on that amount of wealth, and some beyond it, the nearly last thing I would think to do would be to buy that site - a presently operating liquor store - with a restrictive covenant that it would have to be otherwise used. It's not something I would expect many investors to find attractive as a deal, but this is City of Ramsey negotiating in lieu of exercising eminent domain, and it surely would inspire more faith on my part if there were more of an appearance of arms-length adversarial dealing, which I do not see as sufficiently present if it was a deal cut between Jeff, the city official, and Lazan, ostensibly the city's fiduciary, each with a personal stake on what to each would be the most fiscally rewarding outcome.

Mutual backscratching can happen, not to say it necessarily is a factor here.

However, given all that, it surely is best to postpone deciding on all that stuff until January. That is a small time window compared to the year-and-a-half Wise would have as transition time within his contract. And a review of the comment thread on Levy's article, the thumbs up and thumbs down annotations, suggests that the council sworn in this coming January might include several different faces; and it is a certainty that in January Wise will not be a city official when his desired current package of possible terms and conditions are best revisited. Indeed, there may be higher priorities for initial action in the minds of new council members, early in January. If so, waiting until late January or early February, on the year-and-a-half anticipated cutover time frame, would add little extra burden to Wise.

To me it seems there was undue haste in pushing the Sunwood reroute, and in also pushing the Wise dealings as if high priority, front burner. Surely they were that to Wise, but city officials have to maintain a broader perspective beyond setting a highest priority to accommodating one of their own.

Somewhat related, what drove me up the wall with that Reflections in Ramsey author's contentions about "Jeff sold his current position" nonsense; is that things are deliberately misstated by her as if this authoring individual had never negotiated to buy a used car with a trade-in, and had the car lot salesman say, "Well it looks fine to me but I have to check it with the boss." At that point, no trade-in's been done, no new car terms set. It is up to the boss. And in the Wiser Choice case, the boss was the councilmembers exclusive of Wise who recused himself; wearing their HRA hats, and the boss rejected the thing. No acceptance by the boss, no deal, and everybody knows that so that the Reflections lady, she simply wanted to mislead people writing as she did.

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