• Mac

Downtown Memphis Commission Board Meeting Comments - April 27, 2018, 9am

Comments from MacKenzie Stonis -

Let us discuss “Accountability.”

In granting 1 South Main LLC an Exterior Improvement Grant, the DMC has failed to do its due diligence and verify the accuracy of the disclosures.

The grant application, submitted on December 19, 2017 and signed by Michael Kitchen, clearly states that, “The applicant is not currently engaged in any civil or criminal proceedings…” This statement was, and continues to be, false. On July 25, 2017 (over four months before the application was submitted, and 7 months before the application was approved by the DMC) 1 S. Main LLC filed a “forcible entry and detainer” notice in the Court of General Sessions, Shelby County, Tennessee to Christopher Reyes and Vernice Kuglin - thus engaging in a civil litigation proceeding.

The DMC was made aware of this matter via phone calls to board members and DMC President Jennifer Oswalt before the grant was awarded. Additionally, Christopher Reyes and his family attended the board meeting on Feb. 21 2018 and made the board members present aware of the situation in person, again before, the application was approved. Ignorance of these circumstances not a viable spin.

By failing to rescind the EIG the DMC continues to publicly refuse to hold Michael Kitchen and 1 S. Main LLC accountable for knowingly providing false information on the Grant application. In doing so, the DMC is openly exposing the opportunity to review all EIGs, PILOTS, and other Downtown financial considerations currently in play.

This continued behavior deeply undermines the public’s faith in the abilities of the DMC to properly manage and oversee Grant applications and awards. Moreover, the lack of action or response to this issue, seriously jeopardizes future opportunities for investments in a vibrant Downtown Memphis. The DMC needs to take responsibility for this failure.

You have a problem. See it, own it, solve it.

Comments from Sarah Fleming -

According to the DMC’s website:

“The Downtown Property PILOT (Payment-in-lieu-of-tax) is a financial incentive used to encourage commercial property owners to develop their properties to a higher and better use.”

In the case of the properties located at 1, 3, and 5 S. Main St. not only did the Lease Holders FAIL to develop the properties, but they FAILED to even perform basic maintenance and repair (as is required in their lease agreements), and instead allowed the properties to fall into a continued state of disrepair and substandard conditions.

The leases I am specifically referring to are between the CCRFC (a DMC board affiliate) and Madison Hotel Memphis LLC AND between CCRFC and 1 South Main LLC.

Specifically, the Lease Agreements between the DMC’s affiliate board and ALL PILOT beneficial owners clearly state under Section 8:

“Lessee acknowledges it received the Project… in good order and condition, and agrees that, at its expense, it will keep and maintain the Demised Premises in good repair and appearance.”

The property commonly referred to as 1 S. Main currently has over 30 roof leaks - the roof has been allowed to fall into such disrepair as it is no longer maintainable and requires immediate replacement. The stairwell to the upper portion of the building has been allowed to rust and deteriorate to the point of requiring re-welding. The awning is falling apart and has been separated from the building for years. The alleyways surrounding the building have been severely neglected and are disgusting in appearance. Many of these things and more reflect not only a neglectful appearance, but potential safety hazards.

In transferring and signing various lease agreements, not only is the DMC warranting that said properties are in “good order and condition” with no actual proof, but these Lease Holders were continuously allowed to reap the benefits of the PILOT program while in clear violation of their lease agreements that required them to, at the very least, MAINTAIN the property. The DMC continuously warrants and claims that there are “no defaults” with no knowledge of what is actually happening to the properties; they make broad contractual strokes without knowing the results of how it affects any building tenants or sublease holders.

While this is just one instance, these facts call into question the ability of the DMC to effectively manage this program, to provide factual evidence, and to uphold basic standard of practice. As citizens we are subsidizing this program and the DMC needs to be held accountable.

Comments from Joann Selvidge -

The March 27th General Sessions Court ruling against the beneficiary owners of the 2nd Floor Condo at 1 S. Main sets a dangerous precedent for the future of the PILOT program. As this is a DMC incentive program, you should be concerned. Many of your board members were shocked by the outcome of this case.

We recognize that you have limitations on what you can do legally, regarding this case, but you work closely with the City, County, and State of Tennessee to implement these tax incentive programs. You are in a unique position to make changes about the future of this program.

Looking ahead, you have an opportunity to prevent this from happening with other PILOT properties. According to Henry Turley, there are many other beneficiary owners who have sub-lease agreements governed by master PILOT lease agreements. If the CCRFC holds property titles during a PILOT phase, they need to know which properties have sub-lease beneficiary owners with separate titles.

In future master PILOT lease agreements, the DMC could require that when a company claims its title at the end of a PILOT phase, that all sub-lease owners will be notified BY THE CCRFC, and that the company is required to automatically transfer property titles to all sub-lease owners, without waiting for them to exercise their option. This way, if a company refuses to notify or transfer titles to sub-lease owners (as Aparium has done in the 1 South Main case), you can legally push back against them using this new mandate in the PILOT agreement.

Otherwise, based on the outcome of this case, what incentive does a company have to transfer sub-lease titles? This sets a precedent that once a PILOT company is in possession of its title, they can create a false narrative that they are the landlord and the sub-lease owners are simply tenants that they can evict.

In closing, I urge the DMC to take responsibility and show its leadership by setting a NEW precedent, to ensure that ALL companies that are granted PILOTs are held to a higher standard of corporate responsibility.

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