USOC deal was in trouble early

It took nearly a year for the U.S. Olympic Committee to decide to keep its longtime headquarters in Colorado Springs, but the organization eventually inked a $53 million agreement and incentives package with city officials and local developer LandCo Equity Partners to stay here.

It took only three months for the deal to start to unravel.

In June, shortly after the March 31 agreement was finalized and community leaders exchanged celebratory handshakes, the USOC said LandCo failed to provide a detailed description of $16 million in improvements the company had promised to make at the Olympic Training Center in the Springs, according to documents examined by The Gazette and interviews with players in the deal.

Those upgrades were key incentives offered by LandCo and the city, along with new downtown offices for the USOC and a remodeling of a Colorado Springs Utilities building for Olympic-themed amateur sports groups, to persuade the USOC to stay in the Springs, where it had been since 1978.

By late November, city and USOC officials were sweating LandCo's failure to provide the $16 million for the OTC work.

As a result, the USOC balked at signing a lease for its new downtown offices, which city officials said jeopardized their ability to issue bonds to pay for construction of the USOC space.

"We are all screwed unless the 16 million dollar issue is resolved!" Assistant City Manager Mike Anderson wrote to LandCo Chairman Ray Marshall in a Nov. 25, 2008, e-mail, whose subject line was, "URGENT - NEED TO MEET."

They did meet - many times over the next several months, as closing the $16 million gap became paramount.

On Feb. 17, the USOC's top consultant on the deal warned Marshall that if the OTC funding wasn't forthcoming in the next 90 days, the USOC would "consider all options available to it in finding new headquarters space and funding for its desired OTC improvements."

Not only does the OTC problem remain unresolved, but a raft of other issues has turned what once was a celebrated, feel-good story for Colorado Springs into one of its biggest embarrassments in recent memory.

HOW DID THE CITY GET INTO THIS MESS?

The deal had been hailed by community leaders because it kept the prestigious USOC, along with hundreds of employees and millions of dollars in economic impact, from leaving town and demonstrated what city, business and community leaders could accomplish in a spirit of cooperation.

But today, the USOC and city have withdrawn from the agreement; LandCo has sued them both; an ethics investigation and District Attorney's investigation are under way against some key players; and a local contractor constructing the downtown headquarters building hasn't been paid in three months.

The public, community leaders and businesspeople have responded with a simple question: How did the city get in this mess?

"I am disappointed beyond my ability to articulate," said longtime developer Steve Schuck. "I'm distressed by the prospect of losing our crown jewel. Its importance to the community is measured in both substantive and symbolic terms.

"Every indication is that our best players (city officials and developers) were not on the field and that all available talent and resources were not deployed."

By mid-June, if not sooner, it could become clear where the USOC deal is headed. A federal judge gave the city and the USOC until June 11 to respond to LandCo's lawsuit.

The company sued the city and the USOC in March, alleging those parties, not LandCo, failed to live up to the requirements in last year's agreement.

LandCo's Marshall said in an e-mail his attorney advised him not to comment because of the lawsuit.

As further evidence of how the deal and relationships among the participants have broken down, a LandCo attorney sent a testy letter to City Attorney Patricia Kelly on Saturday, responding to the city's decision last week to terminate the original deal with the company.

The letter denied LandCo was to blame for problems - and took several shots at the city.

"LandCo urges the city to stop its irresponsible behavior," the letter said. "If the citizens of Colorado Springs were all aware of your actions, they would be ashamed."

Meanwhile, 4th Judicial District Attorney Dan May said his office is investigating Marshall but has declined to say why.

Anderson and Mayor Lionel Rivera declined to comment for this story. The mayor said he's been advised by Kelly to remain mum because of LandCo's lawsuit.

Other council members, however, defended the city's work on the deal, and at least one developer said the nation's economic nosedive and collapse of global financial markets made it nearly impossible for LandCo to fulfill the original USOC agreement.

"I'm a big enough boy to know, and I'm thick-skinned enough to know, that if you want to blame us for some of it, that's fine,"

Councilman Scott Hente said of himself and his colleagues. "But I think there's a lot of factors that went into where we are now."

In August 2007, LandCo was one of four developers or partnerships that responded to a city invitation to submit proposals for an economic development prospect that wanted 90,000 square feet of office space and 200 housing units. The prospect turned out to be the USOC.

The other respondents, all local, were developer Ray O'Sullivan, who had built housing and shopping centers; Griffis/Blessing, a real estate company and the city's largest apartment landlord; and a partnership of Classic Cos. and Nor'wood Development Group, the

Springs' two biggest real estate companies, whose projects include office buildings, shopping centers and residential developments and which had purchased large portions of southwest downtown in recent years.

Given the problems involving LandCo and the feeling by Schuck and others in the community that the company wasn't necessarily first-string, many people have questioned who chose LandCo and how the decision was made.

Like much of the rest of the USOC deal, answers to those questions are muddled.

Jim Scherr, the USOC's former chief executive officer, who stepped down in March, said the city chose LandCo.

"The city and the City Council selected LandCo from among a number of other developers, not the USOC," he said.

Added USOC spokesman Darryl Seibel: "We accepted the proposal that was brought forward by the city."

Jim Didion, the real estate consultant who spearheaded the search for new USOC facilities, couldn't be reached for comment.

Hente, however, said the USOC liked LandCo's proposal of an office building at Colorado Avenue and Tejon Street in the heart of downtown and new housing on the OTC campus.

Vice Mayor Larry Small was more emphatic. The city reviewed the developers' proposals and presented them to the USOC, and "they made the decision on which one ... they wanted to pursue," he said.

Classic Cos. Chairman Jeff Smith, who is Marshall's uncle, said Didion told him last year the USOC believed LandCo was further along in obtaining regulatory approvals and financing and could get started on its office building a year to 18 months sooner than Classic and Nor'wood.

Those two companies had proposed a USOC office building, among other amenities, on land they're developing in southwest downtown, a few blocks from Tejon Street.

MAYOR'S TIES QUESTIONED

LandCo's selection also gnaws at some in the community because of Marshall's alleged ties to Rivera.

Ron Johnson, president and chief executive officer of Central Bancorp Inc., contends Rivera, in his role as a vice president of UBS

Financial Services in Colorado Springs, had managed accounts controlled by LandCo and Marshall.

Johnson said he's seen documents that support his claim. Last week, he took his complaint to the City Council-appointed Independent Ethics Commission, which delayed action and asked Johnson to provide more specifics and evidence.

Smith, a minority stockholder in some of Johnson's businesses, also wonders about Rivera's role in the USOC decision, despite what he was told by Didion on why LandCo was chosen for the deal.

In 2004, Classic and Nor'wood sought to bring the USOC's offices downtown as part of a convention center they wanted to build to anchor their southwest downtown redevelopment project.

When the convention center fizzled, Smith said he talked with the USOC about relocating to InterQuest Marketplace, a shopping center being developed by Nor'wood on the city's far north side, east of Interstate 25 and InterQuest Parkway.

In early 2007, Smith said Didion toured InterQuest Marketplace and seemed interested. Rivera, however, apparently thought the developers were doing an end-run around him, and the mayor "got his feelings hurt," Smith said.

"That's when he kind of steered the project toward LandCo," Smith said. "Maybe I shouldn't have said that, but that's how it ended up."

In a Gazette story last year, Rivera disputed Smith's version of those events and said the InterQuest Marketplace idea for the USOC would have been too costly for city taxpayers.

Some community leaders and businesspeople believe LandCo's experience paled when compared with that of the other developers.

LandCo's track record in the Springs included co-developing the CityWalk residential tower on downtown's east edge and the Spring

Creek residential project on the south side, and it was seeking to redevelop the downtown Mining Exchange Building, among other projects.

Small and Hente said a combination of the city and the USOC vetted LandCo's proposal, which called for four special taxing districts Marshall formed in 2008 to issue bonds and use those proceeds to pay for the $16 million in OTC work.

"We did not think it was a bad proposal," Hente said.

USOC officials declined to discuss their role in scrutinizing the proposals of LandCo or any of the other developers.

The USOC, city or both should have established criteria upon which to judge the proposals, and a ranking system should have been used to determine which one best suited the USOC, said Les Gruen, who heads Springs consulting firm Urban Strategies and is a longtime commercial real estate expert in the Springs.

And with so much at stake in the USOC, Gruen said, it was critical for the parties to thoroughly review the proposals, consider worst-case scenarios and develop an agreement with numerous safeguards for all parties - especially the city.

"In any complicated arrangement or contract of this nature, there are invariably unanticipated issues that come up that add complications to a deal's objectives," Gruen said. "So the best contract, or the best agreement, are those that would anticipate or work around those unanticipated issues and figure how to get to the finish line."

Something else Schuck and Gruen questioned: If the USOC brought in Didion, who was considered one of the top commercial real estate experts in the country, why didn't the city have its own real estate expert?

Hente said the city's team, which included numerous attorneys along the way, was qualified.

MONEY PROBLEMS HAUNT DEAL

Aside from questions about LandCo's experience and the city's oversight, the issuance of a form of borrowing, called certificates of participation, to fund construction of the USOC's headquarters building has been one of the deal's biggest problems.

As part of the original deal with LandCo and the USOC, the city agreed to issue certificates of participation, a form of borrowing, and use the proceeds to buy five floors of the new headquarters building from LandCo. The city then would lease the space to the USOC for a nominal fee.

Finding buyers for the certificates, which haven't been issued, has been chaotic.

The city was supposed to have issued the certificates by Nov. 14, and the buyer was to have been United Western Bank of Denver, also LandCo's lender. After the bank had a poor third quarter in 2008, it pulled out of the certificate purchase.

But as the city geared up to issue the certificates in December, LandCo's "inability or unwillingness" to fund the OTC improvements, as Scherr said in a Nov. 24 e-mail to Marshall and the city's Anderson, created a major stumbling block, according to the documents The Gazette examined.

The city said it couldn't find buyers for the certificates because the USOC wouldn't sign a lease on the headquarters. But the USOC said it wouldn't sign the lease because LandCo hadn't fulfilled its commitment on the $16 million in training center upgrades.

And buyers weren't interested in the bonds without the USOC's signature confirmed as the building's major tenant.
O'Sullivan, a developer who had responded to the city's request for bids, defended Marshall's inability to fund the OTC work.

"At one point in time, people were lining up to do those bond financings," O'Sullivan said. "It started to erode, and then it fell off the cliff."

In spite of all the problems, however, city officials such as Hente are optimistic a deal will be struck to keep the USOC and provide the improvements discussed in last year's agreement.

Classic Cos.' Smith agrees. But as he looks at what's happened in the past year and how the economic downturns have ravaged developers, Smith doesn't mind that he's on the sidelines.

"Sitting here in May of '09," Smith said, "I couldn't be more relieved that we don't have to deal with it."
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Gazette writers Daniel Chacon, Wayne Heilman and Brian Gomez contributed to this report.