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Vargo gets it



A year ago, the Orlando city council fell in love with Lou Pearlman's plan to renovate Church Street Station by relocating the headquarters of his Trans Continental empire to the long-dead tourist mecca. For outgoing Mayor Glenda Hood, it was one last chance to seize some sort of downtown revitalization legacy, and the city's Community Redevelopment Agency offered Pearlman and Robert Kling $3 million in incentives. Commissioner Daisy Lynum said of the deal, "This is a real good real-estate investment and economic-development investment."

The only doubter was Vicki Vargo, who fretted that the city was giving away too much money to an ethically challenged pair. "`R`evitalizing downtown is not just about filling buildings with people, but with the right people," Vargo told the Orlando Sentinel.

At the time, Pearlman was being investigated by the state attorney general's office for running an Internet "scouting agency" that had no trouble taking wannabe models' money, but a much more difficult time finding them work. Kling, meanwhile, was accused by a former partner, Michael Rubin, of breaching contracts and exploiting Rubin's credit for profit.

Vargo's fears proved right. Not only did Pearlman's project not finish on schedule -- as this newspaper predicted -- and not only does he not have enough workers to hold up his end of the contract -- also predicted -- but Pearlman and Kling owe $500,000 in back property taxes, which the city never bothered to check in Hood's haste to save Church Street before she vacated City Hall.

Now the city wants out of the Church Street agreement. Both sides predict the issue will end up in court. Vargo, a real-estate attorney by trade, saw the deal for exactly what it was -- an ill-considered squandering of tax dollars -- and voted against it. If the rest of the city council had listened to her then, the city would have saved itself some trouble.

Now Vargo is raising a red flag over the proposed $22 million incentive package the CRA wants to lavish on Cameron Kuhn for his redevelopment of the Jaymont block. In December, she and the rest of the city council approved a memorandum of understanding -- an agreement to agree, if you will. The final developer's package is due this spring.

But after looking into the deal, Vargo has a problem with the $3.5 million the CRA wants to give Kuhn as an up-front, no-strings-attached advance. As the deal is structured, if the city gives Kuhn the money, he can legally walk away from the project and leave the city (which, technically, is loaning the CRA the money to seal the deal) with nothing.

"If we approve the deal with the MOU," she told commissioners Betty Wyman, Ernest Page and Phil Diamond at a recent commissioners' luncheon, "what we're doing is basically buying him the land." And that, she said at the meeting, is what Kuhn wanted the city to do all along.

Vargo, at the luncheon, said city staffers told her Kuhn wanted the city to buy a portion of the Jaymont block property and give it to him. City staff, however, reminded Kuhn that the city can't legally do that without opening the deal to outside bidders, which Kuhn did not want. So the CRA did the next best thing, and gave him the $3.5 million to buy the land.

"He's a straw man," Vargo continued at the meeting, which was recorded. "He's not going to be the developer, he's selling off pieces `of the development`. It's my understanding that he's selling off residential condos, he's selling off the retail, he's actually selling off floors. ...It's my understanding that he doesn't have any money in it."

There is some cause for concern. Kuhn's corporate vehicle in the deal is Downtown Land Holdings LLC, which he incorporated on Oct. 28, 2003. Using a limited liability corporation shields Kuhn's other properties and assets from forfeiture should the project go south. And banks would tend to shy away from investing in a $140 million development without some sort of guarantee. That lends credence to the idea that Kuhn would act as, in Vargo's words, a "straw man, the man who buys land for somebody else to develop. It's not unusual. We just have to understand what our expectations are. What compensation should a straw man be paid? Should we pay for the land for a straw man?"

"You think that's what he's doing?" Commissioner Page asked Vargo.


If Kuhn is out of the picture, Vargo worried, many of the stipulations in the developer's agreement -- including those spelling out opportunities for minority subcontractors -- could be invalid, since the deal is between Kuhn and the city, not the city and whoever actually develops the land.

As of Jan. 2, Kuhn was still shopping for an investor to help secure the residential portion of his megadevelopment, which, if all goes to plan, will include condos, retail space, office space and restaurants. (Kuhn did not return phone calls or e-mail seeking an update on the deal.) On that day, CRA director Frank Billingsley sent Kuhn an e-mail referring him to Triarc International. "They were involved in the Ritz/Marriot deal but have done a lot of residential tower developments all over," Billingsley wrote.

Moreover, Vargo told her colleagues that she'd heard Kuhn was offering office space at below-market rates. "What I'm hearing is because of our incentives, he is now offering less than market rate for tenants." If true, that would undercut other, un-incentived property owners downtown. As Vargo notes, there is already some 800,000 square feet of vacant office space in downtown.

Vargo's concerns are dead-on -- again -- and probably should have been raised earlier in the process. While it's reassuring to know that at least one commissioner doesn't want to hand Kuhn a blank check, Page and Wyman (Diamond showed up later, and was very quiet) didn't seem so quick on the draw, and spent most of the meeting pointing out that they hadn't seen a developer's agreement. As Page said, "Now it's up to staff."

Which can also be problematic, noted Vargo. "Staff, to me, are the mayor's lobbyists," she said. "I don't have confidence in the mayor's lobbyists. This is a huge deal. It's Main and Main, the No. 1 priority of the Downtown Strategic Transition Team. This is huge. If `Mayor Buddy Dyer` doesn't get anything else done in his administration, and he gets this done, he looks huge. ... I want to be shown both sides, that's all."

Hopefully, this time, the rest of the council will follow her cautious lead.


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