Displaced Farish St. developer says project ‘basis’ gives him edge in JRA fight
by Ted Carter
Published: November 1,2013
» David Watkins alleges Jackson Redevelopment Authority secretly recruited Farish Group minor partners to persuade Yates Co. to take over project
The 2008 effort to rescue the bankrupt Farish Street redevelopment project led Jackson’s civic and government leaders to the doorstep of David Watkins, a local lawyer turned developer who was drawing acclaim for putting together an $89 million salvage of the long-abandoned King Edward hotel.
“They said take the goodwill you’ve built up with the King Edward and put it with Farish Street,” Watkins said in his first press interview since the Jackson Development Authority booted him from the project.
“Finally, I agreed to it.”
Today, Watkins risks arrest if he sets foot on Farish Street, the Jackson Redevelopment Authority warns.
After the JRA’s late September severing of its 2010 redevelopment lease with Watkins’ Farish Street Group, a big question is whether any developer will want to venture onto Farish Street in partnership with the City of Jackson and its urban redevelopment entity, the JRA.
Tallying up all of today’s circumstances leaves significant doubt that Jackson any time soon can fulfill its quarter-century-old desire to turn the former African-American business and social district into a dining, entertainment and shopping draw.
If a development company is not scared off by debts, liens, a possible foreclosure and the certainty of awaiting the outcome of a lengthy litigation between Watkins and the JRA and – possibly – the Mississippi Development Authority and the JRA, something else will.
It’s called “the basis.”
Or, in this instance, the lack of one.
The basis represents the investment the Farish Group has in the project and is used to calculate the accrued eligibility for historic tax credits and other development incentives. In official terms, the accrued credit eligibility for historic tax credits is the QRE, or Qualified Rehabilitation Expenses. The QRE goes to defray the developer’s costs and is calculated as a percentage of the developer’s investment in the total project costs.
Erase the stake Watkins and his partners have in the project so far, and the QRE applied to the percentage of costs is unlikely to be enough to make the project financially feasible for a new developer.
The Farish Street Group, of which Watkins is the managing partner, owns the current QRE. Without it, any new developer must start from a zero basis without any Qualified Rehabilitation Expenses on which to begin earning the coveted federal and state historic tax credits, according to Watkins’ lawyer, Lance Stevens of the Jackson firm Stevens & Ward.
“This project is violently radioactive now,” Stevens said in an interview. “There is absolutely no one who would take over this project now unless there is the QRE.”
How important are the historic tax credits and tourism tax rebate to a redevelopment effort such as the Farish Street project?
Consider that the QRE for federal tax credits is 20 percent of the private expenditures and the QRE for state historic tax credits is 25 percent.
Also subject to elimination is the Farish Street Group’s accumulated basis for calculating the generous tourism tax rebate administered by the Mississippi Development Authority. Paid as a rebate on sales tax collections, the tourism tax rebate represents 30 percent of a developer’s total costs and is paid out over a 15-year period, an amount Watkins estimates at $800,000 a year.
As with the historic tax credits, the Farish Street Group’s removal from the project wipes out the basis applied to the tourism tax rebate to this point, Watkins and his lawyer say.
What is lost, Watkins said, is a $10-million basis that translates to $9 million in credits from historic tax credits and the tourism tax rebate.
Watkins calculated the basis on what he said is his $4.5-million investment and the MDA’s investment of $5.5 million.
Getting a new deal
The JRA’s challenge today: Find a way to keep Watkins out of the project and keep the $10 million basis from the project.
Watkins and his lawyer say the JRA has already made one failed backdoor attempt at this. They allege the scheme involved the JRA’s recruitment of a trio of Farish Street Group minor partners to pitch Yates Construction on taking over the project.
Watkins said he had previously persuaded the $1-billion Philadelphia-based construction company to buy out the Farish Street Group in a deal that would have the Watkins partnership stay on to run the development. “This was in February 2013,” Watkins said. “They were doing this whole block and the second block. They said they would pay us $6.4 million” and let the Farish Street Group operate it.
“We ran it by our partners and the mayor (the up-for-reelection Harvey Johnson). It was not received very well.”
Watkins claimed that soon after, the JRA and the three minority partners – Leroy Walker, Socrates Garrett and Robert Gibbs — pitched a different deal to Yates, one that would preserve the basis but not include him.
“Then suddenly the deal with Yates dies,” Watkins said of the construction company’s initial plan.
Today, Watkins said he feels betrayed by the partners keeping the new plan from him.
He noted that after the minor partners made their proposal to Yates, the JRA ended all communications with him.
“It’s called conflict of interest,” said Stevens, Watkins’ lawyer, of the secret actions Watkins alleges his partners and the JRA took.
“You’ve got the JRA breaching their good faith duty under the contract and the minor members breaching their fiduciary duties within the Farish Street Group LLC,” Stevens said.
“I mean everybody is screwing everybody.”
With the public fuss over the Farish project growing, Yates has apparently dropped its interest, Watkins said, though he added he lately has had zero communications from the company.
Watkins’ claim of backdoor maneuverings by his partners brought a denial from Robert Gibbs, a Jackson lawyer; a “no comment” from Socrates Garrett, a Jackson construction company owner; and an acknowledgment that it, indeed, occurred from Leroy Walker, a Canton McDonald’s restaurant franchise owner.
Watkins said he would not have known about the meeting had details of it not “shown up in somebody’s email and I asked Robert Gibbs about it.”
The JRA is not giving its version of events, having notified the media in a press statement this week that it would not address any Farish Street issue outside of public meetings of the JRA board. JRA attorney Zach Taylor of Jones Walker has a longstanding policy of not discussing JRA business with the media.
For his part, Gibbs said Watkins initiated the only approach to Yates Construction of which he is aware.
Walker’s recollection is that he notified Watkins of the meeting after it occurred, and said those who joined him at the meeting were Taylor, Gibbs, Garrett and Dr. Claude D. Brunson, a University of Mississippi Medical Center anesthesiologist.
“The numbers just weren’t there,” Walker said of the look he, the other partners and Yates Construction gave a takeover of the project.
Some of the numbers difficulty could relate to having to pay Watkins off. Walker acknowledged Watkins must be paid before any new partnership without him can move forward and make use of the project’s basis.
“We’re going to have to negotiate in a way that satisfies David,” he said.
To sign up for Mississippi Business Daily Updates, click here.
One Response to “Displaced Farish St. developer says project ‘basis’ gives him edge in JRA fight”
Top Posts & Pages
- WILLOUGHBY: Bernie Reed cites hard work as key to success of Reed’s Metals
- Half century of memories — Christmas on Deer Creek to celebrate 50th anniversary
- Analyst: KiOR Columbus plant may end up sold as scrap
- (UPDATE) Gov. Bryant: $1.2 billion aluminum plant is a very exciting proposition for the state of Mississippi
- Ex-MDEQ leader Fisher joins Butler Snow
- Former MDEQ Executive Director Trudy Fisher joins Butler Snow
- Federal appeals court: State's abortion law is unconstitutional
- Can Metrocenter rise from the ashes? Again
- Gulf oil rig explosion kills one worker, injures three
- Court hits David Watkins with $600,000 order over Retro Metro issues