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Wednesday, July 02, 2008
3CDC makes worst financial deal ever?
Posted by The Dean of Cincinnati
After trying for weeks to find some information about who paid to build the Via Vite restaurant on Fountain Square, the City Manager’s office has attempted to satisfy our requests without supplying a single supporting document. More on that in a minute. Let’s presume 3CDC really did pay $2.5 million to build that restaurant. Was it the worst business deal, ever?
3CDC entered into a ten year lease with Via Vite for as little as $60,000 per year. So let’s do some math.
In ten years, at the minimum rent, 3CDC will have collected $600,000. That’s still $1.9 million short of paying construction costs, not figuring anything for interest. At this rate, it would take over forty years to simply pay for the restaurant construction. Would 3CDC really enter into something so radically unprofitable?
Then again, the lease does stipulate that the amount will be whichever is higher, between $5,000 monthly or 5% of gross proceeds. Maybe 3CDC makes more each month. But how much more do they make?
As a private corporation, 3CDC is not subject to open records laws. And here we have another problem with the entire premise of what’s happened at Fountain Square. Many details are secret!
So is Via Vite making significantly more than $100,000 monthly in gross proceeds? By how much? What would be an educated guess? What does that make their monthly lease payment? Taken as an average over ten years, how much would be paid to 3CDC in that time? Is it even close to $2.5 million?
If not, why would 3CDC take this deal? Why would they pay to build a $2.5 million facility if it were not possible for them to make a profit? If it were not possible even to repay the costs?
Did 3CDC get something out of this deal when they assumed some portion of the responsibility from the City of Cincinnati through that ground lease with 5/3 Bank? If so, what did they get?
Wouldn’t it have to be pretty good, for them to take on this responsibility for the City?
Why won’t the City just provide a single document to substantiate any of these details? Where is the agreement between Cincinnati and Fountain Square, LLC regarding the Via Vite facility?
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02 Jul 2008 at 06:52 am | #
I still am not buying their explaination. I tried to see the lease again ( did not save a copy)but I cant get in the link. B
But as to your post, you can easily, based on the business I see when I am by there, that they are usually busy,
10,000 a day would be a lowball figure in sales per day. They have been busy both times I have been there( it was pretty good once, awful the second time.)
Using a low number, it would be reasonable that with dinner and a drink a per guest average, again lowball, lets say 28.00 per person. I think it would be reasonable to buget for 300 people average per day. lunch and dinner. Dinner average would be higher, but I am using a low PPA . Not counting the bar. That would be approx 3,000,000 per year in sales. I would imagine they average higher than 300 people a day, maybe not, as the reviews are very mixed.
That would kick in the 5% of sales ( 5,000 per month or 5 % of gross sales, which ever is greater) so that would be approx 151,000 to 3cdc .
again, this would be a low end buget for a restaurant of that type. Night, dinner, the PPA conservatively, would be closer to 35-38.
those would be would be an idea of good numbers for their prices. PPA at the Oceanaire I would estimate at 55.00 per person average. Jeff Ruby’s, or Mortons, a bit higher.
so, using those numbers, and again, those would be close enough for this purpose, that would be approx 3,600,000 per year in gross sales, would 180,000 per year to 3cdc, so 18 million dollars over the 10 years.
I still dont by the explaination by the city. The wording she used wasn’t right. I am only commenting on a reasonable number to your post.
remember, someone ‘Annon” posted that 100 million a year for upkeep of the square. Hardly so, but I will stop there. I have an idea. I want to see that lease again.
02 Jul 2008 at 07:03 am | #
Watch that decimal point, R!
$180,000 per year to 3CDC would equal $1.8 million in ten years, NOT $18 million.
So, even with your much higher estimates, it seems they would still be a long way from paying this thing off in a decade—and that’s figuring there is no kind of loan with interest on the matter.
02 Jul 2008 at 09:40 am | #
Are you assuming that after ten years there will no longer be a tenant paying rent? Why would you assume that the structure should be paid off in ten years? Why would you assume the rent could not be raised in ten years, either for the current tenant or a new one?
02 Jul 2008 at 09:55 am | #
Allegedly, Fountain Square, LLC will have no reason to exist in under four decades, since they are supposed to give everything back. In 1/4 of the organization’s existence, it will not be possible to pay off this debt.
So how long will it take? Half the organization’s existence to see anything besides debt? Three-fourths? The whole thing? Will it even get paid off?
Or, is this a way to extend the colonization of the garage revenue, by extending how long debt will need to be repaid?
Or, what is more likely—if it’s even true to begin with that Fountain Square took over this portion of the City’s contracted responsibility with 5/3—is that 3CDC got something out of it.
What was it? Who paid for it?
02 Jul 2008 at 11:24 am | #
Here is how they afford it.
As JFD points out, they have more than 10 years I am sure to pay back any loans on the business.
You and Michael have been so busy on Via Vite deal that it seems you both missed that last week council approved a measure to contract 3CDC to help develop 5th and Race. Thought you would be all over that.
02 Jul 2008 at 11:32 am | #
What you cite outlines financial circumstances from prior to facility construction.
I have talked to MEP about this. Our theory is now simple: we think we have found a body. Rather than run around looking for more bodies, we will just investigate this one. Once we have proven that it is, in fact, a body, then we should not have to do anything else. I mean, we found a body for crying out loud!
02 Jul 2008 at 12:48 pm | #
Actually no. Meant to include this link as well. It shows that in the initial stages of planning, 3CDC was planning a restaurant on that space. Knowing that going in, their financial plan would remain the same.
Also you will be happy to know that the state court recently did an about face when it came to private non profits opening their books for scrutiny if they are getting a substantial amount of public funds. Have to find the link later.
02 Jul 2008 at 01:49 pm | #
How does this place even pay its lease? Everytime I see it the joint is empty…
Is there anyone that can say differently?
02 Jul 2008 at 02:53 pm | #
Thanks, it was early
JFD. There is a 5 year option
Bearman.. Been saying for a month the 39 % tax credit. Thats a nice return.
You know, looking at the lease again today, what’s to stop them from walking away from the loans? What are they going to do? Take the square and garage back? If MEP is right about the OTR thing, all of the LLC’s , which I have always said were key to this, there wont be anything in them except for Obligations, which the city is the one responsible , and none of them will exist. Michael, isnt one of them gone already, or been removed of their assets? OTR ?
As with the 5/3 lease, the city is responsible. as far as 5/3 is concerned, it is just one of a ton of bad loans on their books right now. Is their a copy of the garage lease around? Is the city ultimately responsible for that loan too?
Think about it, they will have ultimately achieved their goal. OTR is cleared out. It has basically , or on the road to being gentrified ( 3cdc wont buy a building with anyone that has tennents) it will be 250,000 condo’s and all done through city assets and the remaining enitity , the one Michael and I were talking about, is already a private entity is the only one that will have any assets
3cdc will have done what the city could not do politically. They are responsible for the loans, they pay them off. And the “investors walk away with a bunch of buildings sold to them by the non profit for whatever on the dollar , in the mean time, the gift, is the 39 % tax break. It would then be worth it to the city to pay off the loans. They got what they wanted.
Michael - The Bodies are in the OTR I will e-mail you.
thanks for catching the . D
02 Jul 2008 at 04:04 pm | #
Bearman,
Herein lies the problem. When you talk about the cost to renovate the Square, what are they? The December, 2006 draw requests show the $42 million that everyone was originally talking about. That did NOT include the restaurant. Even the designation for those original funds did not include the restaurant.
That came later, in 2007, when the City signed a lease with 5/3.
02 Jul 2008 at 04:54 pm | #
Look at the lease where they gave the right for Fountain Square management the ability to seek a loan of up to 90 % of the building cost With the city being responsible to pay it back if Fountain Square management didnt. Nicola said with a laugh when asked how much of an investment he made “ 500k more than he thought he had to”.
Remember the answer from the lady at they city Meg I think. “ Council assigned that over to them with the passing of the ordinance. “ They also assigned the right for them to seek a loan of 90% of the value of the building. You think they got a loan from the Landlord? Being that the revenues go to Fountain square management to do as they please I would be looking for documents for a loan for them , which if that is the case, it is probably impossible to get the documents out of 3cdc, or 5/3 , or ones from the city, which a meg said “ there are no responsive documents “ With the assignment of the lease to Fountain square mangement, they also assigned the right to seek a loan of 90% of the cost of the building.
But if they got the loan, there was lengthy section on who was responsible for payments should they get a loan and not make them..... the city
as I said earlier, maybe this is one of the 1,000’s of whacky loans 5/3 has on its books now. who knows what the terms were. No payments until 2018?
The city paid for the restaurant, just maybe not yet.
02 Jul 2008 at 09:34 pm | #
How can anyone claim it is such a bad loan when neither the Beacon nor this “R” guy understands it. That I don’t understand.
03 Jul 2008 at 06:33 am | #
R: “OTR is cleared out. It has basically , or on the road to being gentrified ( 3cdc wont buy a building with anyone that has tennents) it will be 250,000 condo’s and all done through city assets and the remaining enitity , the one Michael and I were talking about, is already a private entity is the only one that will have any assets”
What OTR assets are you referring to?
03 Jul 2008 at 09:24 am | #
JFD
Exactly. When I first bought property down there , of course the King of section 8 was still busy, and alot of the long time OTR residents were worried that they were being gentrified. At the time, people like OTR Foundation and others were truthfully saying that it wasn’t the goal. And it wasn’t for alot of people. Yes, alot of issues with crime, car window repair business must have gone down 200 % since mainstreet died, and the the Police had have no cars to give tickets to any more. But, there was no police presence, and the city and Police were frightened to do anything. Righfully so. How many Police officers had, or almost been thrown under the bus for doing their job?
But when the riots hit, the powers that be were indeed focused on it gentrified. When a town like Cincinnati almosts loses one of the Multi-International companies, and other Fortune 100, and 500 by extension because of the riots , they had in their minds to do something.
So what better way for the Business community, and the City to do it then like they are now? You are right, it is done basically, and it will be set so that people are priced out. You think 3cdc, or their gang are going to take any section 8? No, or maybe a token. It is the one thing the City wanted, or the business communty wanted together, that neither could do openly.
Annon . I obviously understand more than you think. , but having been in certain part of the Financial Business for a long time, I know how, and where to look. It is difficult, for Instances to break into a locked bank vault, but people who work in the vault sometimes talk. reporters have relationships and sources. Sometimes people get so arrogant that they think they are above it all, and say stupid things. I can give you an example. I posted yesterday something about how the restaurant was paid for.
I am going to go on record right now and say the city did not pay for the restaurant.... With a side note later.
You can look at my post from yesterday, as I took you suggestion and read the lease again. . You posted this last night....
Annon How can anyone claim it is such a bad loan when neither the Beacon nor this “R” guy understands it. That I don’t understand.
You just proved me right . The city assigned you the right to take a 90% note out on the value of the building. You just admitted that you did. Opps !! “ Lose lips sink ships “
lets assume that you used Mr Landlord to get the loan. On May 18th 2008 someone looking into your structure bought 2 shares of FITB stock. 2 weeks ago, a Federal Class action lawsuit was filed against FIFTH THIRD BANKCORP in the United States District Court for the Southern District of Ohio,alleging that Fifth Third issued materially false and misleading statements concerning the quality and sufficiency of the Company’s “tier 1 capital” and its need to shore up capital in response to an expected increase in the Company’s loan charge-off levels and exposure to the poorly-performing real estate market in the Mid-West. This is a class action suit. It gives Fedral Regulators, SEC , and others to open up the books to look at all the loans or any information relating to there flase and misleading Statements . So, they are going to go thru every single loan. This person knows how and where to look. Anyone that reads this board that works for 5/3, and is in their pension plan should also join the suits as your pension plan was invested in it’s own stock ( Enron anybody) and you lost alot of money.
So, thank you for confirming the loan to build the restaurant. I think it is also correct that Nicolas statement that he paid 500,000 more than he thought he had to is where the other 250,000 came from. Sounds about right that it would cost him 250,000 to outfit the restaurant. It could be easily done for that. In return, he got a very low , way below market rate in rent. No, I dont know how you are paying it back, or what the loan agreement says. Yet.
The loan, by the way, is the cities responsibilty in the event of any non payment. So the landlord will make the missed paymens on the loan, and pay the landlord back.
You were right, All it took was reading the lease again.
03 Jul 2008 at 10:35 pm | #
R, you said a private entity would have assets in OTR.
I assume you are referring to 3cdc as the private entity. Please let me know if this is not correct. My question was, what assets would they have.
R; “You are right”
How does asking a question makes me right; I made no statement. Could you clear this up for me? Were you posing a rhetorical question as if I had asked it, so you could answer it as if we were in agreement on your answer?
04 Jul 2008 at 12:16 pm | #
JFD- That the purpose of all this is something that the City could never do it’s self. It is why there is no oversight between the city and 3cdc . Even having the Board that 3cdc has,it still gives the companies some measure of protection of Rev Al and Rev Jesse Boycotting them.
The main purpose of this was the gentrification of OTR and by extension CBD .
There is nothing wrong with wanting to make use of OTR. There is NO other collection of these type of buildings, in this kind of location in ANY city in the Untied States. Nowhere else. Only Cincinnati. What I am against is that it is the assumption that EVERYONE who lived there was part of the problem. No question there were alot of problems. At the same time, I knew many , many people that were good , hard workering, and cared about their neighborhood. If the needed some kind of assitance, so what? The original plan called for mixed income , and somewhere that went out the window. One only need to look at the infamous Techwood Homes in Atlanta which is a tremendous example of how this could of worked. One only need to look at Atlanta Station to see why the Banks wont work. It is just think this group went to far.
Dean said something some where the other day about the 40 years which I believe is the garage lease and Fountain square lease. I have with the help of someone been learning more about Ohio TIF’s laws . 40 years is an important number .
So is 10 years, and 15 years.
I stand by the statement that the restaurant was not paid for by the City… Yet.
I also stand by the fact there is a 90 % note taken out on the building , and where the remaing 10 % came from. I would think the garage and the square were done in the same fashion. So they city has not paid for them .. Yet.
Beerman was right about the 39 % Federal tax break regarding stakeholders . I thought it began after 7 years, but I could be mistaken. One or the other is true. That a pretty good return.
As for OTR Holdings, that is someone elses , but this is where the Private developement comes in.
Is some of stuff that is happening a good thing? No question. I just that without some oversight , it enabled things to go to far, and created “ oppotunities “ that are not what was intended, and there are those who will have taken advantage and benefited Finacially. Some good people were taken advantage of, and had no voice in what was happening in their lives. Thats wrong.
04 Jul 2008 at 03:49 pm | #
I disagree with the assessment. 5% of gross is pretty good, especially for a nonprofit development corporation that had, like, what other options—Graeters?
Via Vite’s is a pretty hoppin’ place and pretty expensive, too.
So, assuming conservatively that they do, oh, 60 tables over a three-hour lunch window with an average of, say, 2.5 heads per table (nobody goes there alone) at a pre-tip average per head of, say, $18, you come up with $2700 per day (a low estimate, I’m sure) times five lunch days (they might do six, I don’t know), or $13,500 a week in lunch.
Then, for dinner, you can easily assume 80 tables over four hours with, conservatiely, an average of 3 heads per table and an average pre-tip of $25 per head, and if you assume they do dinner six days a week (it might be seven, I don’t know), then it’s $36000 a week for dinner.
If you add dinner and lunch it’s 49,500 a week times 52 weeks is $257,400 divided by 5% and you’ve got DCI at $128,700 in revenues from Via Vite’s rent.
It’s a sweet deal for Via Vite’s and it’s a fair deal for 3CDC, which is, afterall, a business development nonprofit.
04 Jul 2008 at 08:16 pm | #
Is the resturant really that hopping? I have yet to see that kind of traffic flow this Anon Reader just mentioned… Maybe he works for 3cdc? Correct me if Im wrong… How Hopping has Via Vite really been????
04 Jul 2008 at 10:44 pm | #
Who is responsible for the utilities?(Im sure they aren’t cheap) Im sure their electric and water bill is pretty high… Do they have to pay any property taxes?
05 Jul 2008 at 03:06 am | #
Let me tell you, without any hestitaion, that rent, and % of sales is NO WHERE even CLOSE to MARKET rate. Certainly not for that spot. No If’s , ANDS, or Buts.
JE; your not wrong
no, it’s not hopping. If it were good.
And annon, if it were that hopping considering the hours are what??? They are open 5-9? It should be considerably higher. Or, to look at it another way, it tells you how many people are downtown. Not many.
Read the reviews. That paints a pretty picture. I thought it was awful the 4 times I gave it a chance. 18 .00 for lunch? Not even close. Your numbers do not work. It has 80 tables? It does not. Once again, read the reviews. you will see some common themes. LOOOOONG wait times . I have heard people say they wait 45 minutes for the apps.
It’s diry, mismanged. Read the reciews. Its a shame, it COULD be a great restaurant.
Try it this way. number of guests, you can seperate lunch and Dinner, how many guests, and what was their per person average. That would be the formula.
Besides, those are not the correct hours, and times of operations.
Regargless, those number tell you how good a job you are doing getting people down there. Not very good. I am sure though, when you mail the letters to the Dabblers ( at a cost of 1 million dollars) and REAL INCENTIVE ( parking in Fountain Square garage) those numbers in your mind will be 98 % of the Dabblers who got one , will take you up on the great deal. “I can see it in the papers now. Half of westchester comes to Fountain Square to eat at our wonderful restaurant. “ Million dolllars well worth it, says 3cdc..
I am convinced about you now. For the 10th time. You crack me up.
Still doesnt address the issue of how, or if you are paying the loan back. Your not.
You had many options besides greaters. Besides, Graters is not allowed under the lease. As you say, read the lease.
There was are some excellent chef’s in this city, One whom I can think of at that time looking for a space. But then again, maybe he wouldn’t have played the game as you guys wanted.
Try again with your numbers.