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10/18/2007

Development

THINGS FALL APART
Four years ago, the city entrusted developer Cameron Kuhn with saving downtown. How's that going, anyway?

 

“From your mouth to God’s ears.”

That’s what developer Cameron Kuhn told a reporter in June 2004, minutes after the Orlando City Council had signed off on a lucrative incentive package to help him build a high-rise at the intersection of Orange Avenue and Church Street. The question: Could it possibly be true that Kuhn was about to bank between $28 million and $40 million with almost no risk?

Those were optimistic days. Real estate was booming and skyscrapers were popping up all over downtown. Between Kuhn’s development and Lou Pearlman’s Church Street Station – which Kuhn bought after Pearlman ended up in bankruptcy and, eventually, jail – a thriving high-end retail, dining and entertainment district was taking root that would help make Orlando a world-class city populated by Fortune 500 companies and their well-to-do employees who would spend their evenings dining at fancy steakhouses and watching movies at the downtown cinema rather than fleeing to the suburbs.

Anchoring it all would be Kuhn’s towers – 16, 21 and 30 stories tall, respectively – overlooking the city, providing ground-floor retail and dining, not to mention that long-awaited movie theater. There would be 305 residential units and 383,000 square feet of office space. The potential was limitless, and Mayor Buddy Dyer was willing to do whatever it took to make Kuhn’s project work.

What it took was $22.5 million in city loans and subsidies, the largest development handout in the city’s history. Included in the deal was a annual payment to Kuhn of $350,000 for 10 years once the movie theater opened, a $14 million loan to build a parking garage, tax breaks for 12 years on the increased property value of what is now called The Plaza and $3.5 million in cash, no strings attached.

The deal was rushed through at warp speed, cloaked in confidentiality agreements and a sense of inevitability. Minutes after the city council approved a preliminary agreement on Dec. 8, 2003, Kuhn’s bulldozers razed the Tavistock block. Questions about Kuhn’s ability to build and manage this megalith, and of the appropriateness of such largesse from the city were glossed over. Kuhn was Dyer’s friend and supporter; the mayor trusted him to get the job done. City officials said that speed and headstrong decisiveness was necessary to get The Plaza up and running by December 2005.

As of October 2007, The Plaza is up, but it isn’t running; the movie theater has yet to open, the residential condos are struggling and Kuhn himself has been besieged by lawsuits over this deal and others. At least some of those who bought office condos in The Plaza say Kuhn has mismanaged the building, and more lawsuits may be forthcoming. Even Kuhn’s original naming rights partner, Premiere Trade LLC, bailed out in January 2007. The Plaza has yet to find a replacement.

It’s too early to proclaim The Plaza a failure. Indeed, the building itself is a highlight of the downtown skyline and in Kuhn’s words, “the most beautiful building in downtown.” But had the city council acted as good stewards of the public trust, they could have foreseen the problems. Parts of Kuhn’s financial history were sketchy, a fact the city council knew when it approved the incentive deal.

LORD OF DOWNTOWN

Kuhn, a 48-year-old Chicago-area native, has been refurbishing buildings in Orlando since 1994, when he bought the Central Arcade on East Central Boulevard, rehabbed it and filled it with tenants that now include Tijuana Flats and Crooked Bayou. He renovated the old ABC Liquor warehouse into office space on West Jefferson Street and rented it out (for five years, 2000-2005, Orlando Weekly occupied the second floor). He bought and made over the collection of Wall Street restaurants and bars, and outbid dozens of companies to makeover the post office on Robinson Street.

As of 2001, Kuhn had played a role in the redevelopment of 14 Orlando properties; by 2005, that number was up to 27. He bought the Tavistock block, also known as the Jaymont block, at the intersection of Church Street and Orange Avenue, for $10.8 million in 2003.

The idea to revamp the Tavistock block came from Buddy Dyer, over a cup of coffee he had with Kuhn during his first mayoral campaign. “I believe that, if we are to meet our goal of building that great city we dream of, we need more than just incremental change,” Dyer said in a Dec. 3, 2003 statement announcing the project. “We must have transformational change.”

“Many see [The Plaza] as the linchpin for downtown’s future,” the Orlando Sentinel wrote in a flattering Dec. 13, 2003 profile of Kuhn. “In the nine years since Kuhn bought his first building here, he has grown into the most daring of Orlando’s lords of downtown … .”

He’s still going. Earlier this year, Kuhn dropped $34 million on Church Street Station, Lou Pearlman’s ballyhooed – and city subsidized – 2002 purchase and redevelopment that never got off the ground. Kuhn has plans to turn what was once Orlando’s premier entertainment destination into a block with high end restaurants, a Hilton hotel and maybe a Ferrari dealership.

Kuhn has expanded his empire as well. He bought properties in Atlanta and New Orleans. According to another fawning Sentinel profile, as of 2005 he shuttled between cities in a $1.75 million helicopter and smoked Gurkhas, pre-embargo Cuban cigars valued at $800 a box.

In 2005, Kuhn paid $37 million for the SunTrust Tower in Jacksonville, later renamed River Watch at City Centre, and $6 million for an adjacent parking lot where he wanted to erect a 33-story building. By October 2006, he had bought nearly $60 million in Jacksonville properties, according to the Jacksonville Business Journal. Jacksonville’s business community hailed Kuhn as a “visionary,” and he announced that he was looking to expand into retail shops, groceries stores, restaurants and a movie theater.

But The Plaza was to be Kuhn’s crowning achievement, his largest contribution to the renovation of downtown Orlando and his biggest project to date.

At first, all seemed to be on track. In February 2005, Kuhn announced that he would repay the city’s $14 million parking lot loan eight years ahead of schedule because sales were so strong. The Plaza had already sold, or had under contract, 85 percent of its office space, Kuhn boasted back then. In response to questions for this story, he said the office space is 80 percent sold.

But late last month Kuhn announced that he was selling The Plaza penthouse he planned to keep for himself. He has laid off employees and sold his helicopter. For all outward appearances, he has become another victim of the bursting real estate bubble. Or is there something more to his problems?

NOBODY HOME

There is no directory of the companies that have moved in to The Plaza, and as of last week no one in the lobby to direct you. But you can wander around; security is almost absent and chances are good no one will stop you.

On the 12th floor of the south tower there are no signs on any of the doors indicating the offices behind them are occupied – though Kuhn’s website says nearly the entire floor is filled – and work is still needed in the hallways. The 18th floor of the south tower is in a similar state of disrepair in the common areas; baseboards are peeling from the walls and some walls are unpainted.

The movie theater on the second floor, originally supposed to open by the 2006 holiday season, and then by April 1, is not open. Kuhn has repeatedly announced that a deal is imminent, but nothing public has materialized. The escalators to the second floor are blocked off. It’s possible to get to the theater via the stairs, but once you do you’ll find it boarded up. As recently as Sept. 28, Kuhn told the Orlando Business Journal that he was in final negotiations with AMC Entertainment Inc. to run the theater, and it could open sometime in October. (For this story Kuhn put the completion date at sometime in December.) As of Oct. 9, there was no construction going on that would indicate a theater is about to open.

Two years ago, the OBJ ran an article stating that sales of condos in the Solaire, the residential component of The Plaza, were going great. The 305-unit Solaire at The Plaza was being built by Georgia-based Wood Partners Inc., and on April 9, 2005 – five days after Wood Partners opened its sales office – every single unit had already been pre-sold, according to the OBJ. All but 100 were under “hard contracts,” the paper said.

Since then, the condo market has nose-dived. Type in “Solaire” into a basic Craigslist search and you’ll get scores of would-be sellers who have reduced their prices or are willing to help cover closing costs to spark some interest in a sale. Today, Plaza Court LP, a company associated with Wood Partners, owns at least 105 of the 305 units, according to Orange County property records. Of the 200 units owned by someone other than the developer, only 83 list owners with mailing addresses at the Solaire. That means that probably less than one-third of the units are owned by people who live in them. Drive by the building at night, and you’ll notice that very few lights are burning.

Since January, Kuhn has owed the city $180,000 for downtown traffic improvements near The Plaza, but the city isn’t worried. “That happens,” Downtown Development Board executive director Thomas Chatmon told the Orlando Sentinel Oct. 14. “He’s upfront [about it]. He’s not ducking our calls.”

Kuhn’s recent troubles extend beyond The Plaza. In July, he bailed on an agreement to buy the former Florida A&M University law school on Orange Avenue for $6.5 million, even though he’d already put a $200,000 deposit on it. In August, he had to delay the repayment of a $2.2 million loan to a Chicago investor, even though that delay will cost him $22,000. Kuhn’s Windermere home is for sale, listed at $2.9 million. Kuhn told the Sentinel it’s not a sign of financial distress. He wants to move into a downtown penthouse.

In August, he walked away from one of his Jacksonville redevelopment projects. Condo sales at the One12 – a historic downtown building that, when Kuhn bought it for $4.1 million in 2005, required a $27.5 million renovation – were suspended. According to the Orlando Business Journal, Kuhn is looking to sell the 18-story building.

LEGAL ACTION

In the past six months, Kuhn has been named in at least four lawsuits which, in
aggregate, paint him as a businessman who breaks his word and tries to slide out of paying debts.

On May 24, the general contractor Kuhn hired to build The Plaza, Brasfield & Gorrie LLC, put a $5.4 million lien on the building over money the company said Kuhn hadn’t paid. Kuhn sued Brasfield & Gorrie, claiming the company’s work was deficient and they overbilled him, even though The Plaza had received a certificate of occupancy from the city and Kuhn’s architect had signed off on the project. The company countersued, alleging that problems with The Plaza’s construction stemmed from Kuhn’s ineptitude. “The owner furnished plans and specifications that were neither complete, fully coordinated nor buildable in all respects,” the lawsuit says.

In September, the two parties settled the dispute for an undisclosed sum.

In July, Foliage Design Systems of Central Florida Inc. sued Kuhn Development Co. and Plaza Penthouse LLC, both of which are owned by Kuhn, for at least $29,417. The company did a “rooftop plantscape” for The Plaza. The total contract was for $57,962.62, according to court records, plus $245 a month afterward for maintenance. They finished the job, but allege that Kuhn didn’t pay. The suit says he owes more than $29,000. On Sept. 28, Kuhn filed a motion to dismiss. The case is still open as of Oct. 10. (Todd Fredrick Kobrin, Foliage Design’s attorney, declined to comment for this story.)

In early August, Kuhn filed two lawsuits against Minnesota investor Frank Vennes Jr. One alleged that Vennes planned to make “several false allegations concerning the plaintiff’s financing” of projects Kuhn and Vennes planned to build together. The other suit centered on a soured business deal. Vennes and Kuhn had partnered to build a medical facility in Orlando. Both sides originally agreed to pay $1 million toward the project, but Kuhn later told Vennes that he required $2.5 million in up-front capital. According to court records, Vennes agreed via an oral agreement. Kuhn’s lawsuit says that Vennes kicked in $1.7 million toward that amount.

In July 2007, according to court records, Vennes told Kuhn he was no longer interested. According to Kuhn’s lawsuit, Vennes accelerated the interest of a $2 million loan to 36 percent, from 24 percent, which Kuhn thought illegal. In a news release, Kuhn accused Vennes of “predatory practices.”

Vennes punched back with his own lawsuits against Kuhn, alleging that Kuhn owed him almost $14 million from various projects. (A Sentinel story put the figure at $25 million.)

“He just didn’t pay,” says Tucker Byrd, Vennes’ lawyer. Kuhn owes $2 million over the medical center deal that was due in August, and when he didn’t pay, Byrd says, Vennes increased the interest rate to 36 percent. That, Byrd says, might not be a legal rate in Florida, but it is in Minnesota, under whose laws the contract is governed.

Another Vennes lawsuit claims that Kuhn agreed to buy out Vennes’ $8 million interest in a development project called Project Riverwatch LLC. But when the closing date came on Aug. 8, Kuhn didn’t pay.

Those cases have since been consolidated and referred to business litigation court.

On Oct. 3, the Orlando Improv filed suit against Kuhn, alleging that Kuhn broke a promise to secure the club’s liquor license. Without that license, the comedy club was forced to close Oct. 1. According to court records, when the club signed its lease in July, Kuhn agreed to add on the liquor license clause as an addendum to the contract, but he pressured the Improv to sign the contract immediately so he could secure financing for his Church Street Station deal.

“At the time that the lease was executed, [Kuhn had no] intention of providing a liquor license to the plaintiff for the Improv Comedy Club, and falsely represented to the plaintiff that Kuhn would provide the license for the sole purpose of inducing the plaintiff to execute the lease so that [Kuhn] could obtain financing and close on the acquisition of Church Street Station,” the lawsuit says.

The day after the Improv filed its lawsuit, Kuhn tried to have the locks on the building changed. The Improv, which still had equipment inside, had to call the police to stop him. The same week Kuhn announced he had already inked a deal to put a steakhouse in the Improv’s space.

ABOUT TO GO TO WAR

The lawsuits involving Kuhn already on the books may be just the beginning. There is a lot of dissatisfaction among people who have bought into The Plaza regarding Kuhn’s management of the property, and more legal action could be on the horizon.

Paul Bidhendi, for example, paid $2.8 million for his part of the south tower’s 18th floor, which his company, AE Concepts, will split with Orlando lawyer Mark NeJame’s law firm, NeJame, LaFay, Jancha, Vara, Barker & Joshi. But as his move-in date approached, Bidhendi started noticing problems. The common area he was to share with NeJame was unfinished. More importantly, his section of the office was missing a wall.

He says Kuhn wasn’t in a hurry to rectify the situation, so he paid $10,000 out of his own pocket to get it finished. He’s not holding his breath for Kuhn to pay him back. “I’m gonna lose money to sue [Kuhn],” he says. “I think he actually takes that into account.”

Bidhendi might not be ready to sue, but NeJame feels differently. “I’m about to go to war with Cameron,” he says.

For the last five months, NeJame has battled Kuhn over the construction of the 18th floor’s common areas. NeJame purchased the floor in December 2006, assigning part of it to Bidhendi. From December to May, Kuhn’s contractors worked on the common areas. But in May, NeJame says Kuhn stopped paying and construction stopped. The two are in a dispute over who should pay to finish the common areas, a dispute that devolved into Kuhn’s senior advisor, David Dix, calling NeJame names via e-mail. “You are a loathsome character and I to (sic) want nothing more to do with you or your threats. … All over $80,000,” Dix wrote in the e-mail, which NeJame provided to Orlando Weekly. (Dix resigned as Mayor Buddy Dyer’s chief of staff a few days after the city approved The Plaza deal with Kuhn. Dix went to work for Kuhn in 2005.)

Another lawyer who bought space in The Plaza, Thomas Vaughan, is meeting with other owners who are also having problems, according to an e-mail forwarded to the Weekly.

Vaughan declined to comment on the situation, other than to say, “We’re in a little bit of limbo.”

“I’ve heard rumblings [of unhappy Plaza buyers],” adds Byrd, Minnesota businessman Vennes’ attorney. “People could take action anytime. After a while, you’ve got to accept reality. I’d be surprised if lawsuits are not imminent.”

BULL’S-EYE

Kuhn sees himself not as a bad guy, but as a solid businessman with a big bull’s-eye on his back.

“The fact is that the projects I am involved in are high profile,” he writes in an e-mail to Orlando Weekly. “The disputes I am involved with are all a part of the development business. Sometimes people I deal with feel it is necessary to take a grievance public as a strategy to get some action. Scrutiny by the media and the public comes with the territory. It is not something I particularly enjoy, but I do not feel like it is unfair.”

Kuhn’s lawyer, Griff Winthrop, says his client had to sue Vennes to protect his name.

“This is not a good market right now for real estate,” Winthrop says. “The last thing he needs is somebody besmirching his reputation.”

That’s exactly what the Improv is trying to do, and why Kuhn plans on filing a countersuit in that case, Winthrop adds. “The Improv is trying to give the impression that they entered [into the lease agreement] as babes in the woods, [like] they did not know what the evil Mr. Kuhn was doing.”

He says the Improv’s lawyer negotiated the lease agreement and knew that although the Improv had asked Kuhn to buy the liquor license – which costs somewhere between $300,000 and $450,000 – he had declined.

Winthrop believes that the Improv’s closing had little to do with the liquor license and everything to do with skipping out on the rent. Since July, Kuhn had allowed the Improv to stay in its space rent-free, he says. In November, the new five-year lease kicked in, and the Improv would have to start paying rent.

“They left and breached the lease,” Winthrop says.

As for The Plaza itself, Kuhn tells the Weekly it will be done soon.

“I am 90 days away from finishing the last touches of the building,” he writes in an e-mail. “Our contractor is 60 days away from finishing their contract. Signage, security and remaining corridors all will be completed this month. The theater will be finished in December.”

Whatever problems there are, Kuhn says they’re temporary. By his calculations the building is three months behind schedule, which was inevitable because of its complexity. Construction began in October 2004 (under the city’s preliminary agreement, construction was supposed to start by March 2004), and he estimated a three-year build-out. By that gauge he’s not far off.

He says his dust up with NeJame’s has been resolved. “Simply put, Mr. NeJame out negotiated me,” he writes. (“If so, that’s the first I’ve heard of it,” NeJame says. “I don’t think so.” Because of the lost time and incurred expenses, he says he’s still planning legal action.)

Kuhn also expresses empathy with the dissatisfied office condo buyers. He, after all, is one of them. He owns about 45 percent of The Plaza’s office space. “I am aware of the meetings, and I want the same things all the other owners want,” he says. “Construction of The Plaza was an enormous task and had a lot of moving parts. I am truly sorry we are three months off of the projected completion date. Currently there are tenants who are building out their respective suites and tenants moving in on a daily basis. The continued activity is an inconvenience for everybody.”

He currently controls The Plaza’s condo association board – one of the complaints – but says he plans to turn it over to a board of directors by the end of the year. (By state law, he has to turn over at least part of it, and perhaps already should have. According to the Florida Statute 718.301, a developer has to turn over one-third of the control of an association to the buyers once 15 percent of the property has been sold. He also has to turn over majority control to the buyers within three years of selling 50 percent of the units and within three months of selling 90 percent.)

Problems notwithstanding, Kuhn characterizes The Plaza as a labor of love.

“In my mind, I find satisfaction in what the actual work says about my love for the City Beautiful. These projects will be standing long after I am dead, and public opinion will change again. I ask myself everyday things like, ‘Have I made a significant contribution to the landscape of our Downtown, and is Orlando a better place to live, work and play?’ In my opinion the answer is, ‘Yes!’”

FORESIGHT

It’s hard to imagine that The Plaza, spectacular building that it is, won’t ultimately flourish. (Last year Kuhn sold off the retail space to Unicorp National Developments Inc. for $20 million.) If nothing else, its existence is a model of downtown’s renovation efforts.

But what separates this development from others is the city’s involvement. The city made this happen, giving Kuhn advantages it doesn’t give other developers. And it did so despite Kuhn’s financial background.

In the city’s file on The Plaza is a 12-page packet on Kuhn’s financial history from Dun & Bradstreet, a firm that collects such information. The D&B report on Kuhn Management Inc. wasn’t flattering. It declared that, based on Kuhn’s past, there was a “failure rate higher than the national average,” and “probability of severely delinquent payment is higher than the national average.”

D&B assessed Kuhn Management’s financial stress in the second percentile, meaning 98 percent of developers are better off in that measure. They put “financial stress class” as four on a five-point scale, five being the least desirable number. D&B labeled Kuhn’s “credit score class” a five out of five, meaning the firm thought he had a “high risk of severe payment delinquency over the next 12 months.” His credit score percentile was one out of 100; the higher the number, the better your credit.

Not only was this information in the city’s due diligence packet, but activist David van Gelder made sure the council members knew it, even displaying the D&B reports on the city’s projector screen for all to see. The council passed the incentive package with only one dissent, from commissioner Phil Diamond.

But that’s yesterday. The deal is done and if Kuhn’s right, The Plaza will soon be complete and will help shape downtown Orlando for years to come. If things don’t work out as planned, it’s worth remembering that the city gambled a lot of your tax dollars helping a friend of the mayor’s with a sketchy financial record and no experience with a project as big as The Plaza.

The equation: $28 to $40 million in profit, little risk.

“From your mouth to God’s ears.”

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