Dominos have to fall for controversial 31st Street hotel project to move ahead
Right now it's a stalemate and only the taxpayers are @ risk

Construction continues on the controversial 31st Street hotel project in violation of the developer's contract with the city barring construction.  But the city is twiddling its thumb and doing nothing to stop the project as required by agreement and protect the taxpayers. In the meantime the city and the developer continue to squabble.

The developer was supposed to have posted a $2.6 MILLION letter of credit before starting 'vertical' construction.  The developer had a permit and authority to do foundation work, but under terms of the agreement no other construction was to begin until the development is finalized. But that didn't stop the developer from beginning construction.

As of late Tuesday, no letter of credit - designed to protect the city (aka taxpayers) from having a partially completed structure abandoned should problems develop - had been posted. And the city hasn't stopped the work. The developer told the city recently he does not have his financing in place because of city inaction.

Did developer lie to city council?

On March 23, 2003 Thompson told the council:  "It's a done deal.  It's 100% complete.  There's nothing left for us to do except start construction." 

He'd refused to discuss the project with the media & others to that point, he said,  '...because we wanted to have the financing, franchise, and contractor and all other details...' in place ' would be all done and ready to go.'

Assistant city attorney Carol Hahn, handling the project, said Tuesday , "Pursuant to escrow arrangement, the letter of credit is to be posted by the Developer upon the Authority's agreement to subordinate its interest in the land east of Atlantic Avenue to the deed of trust lien of a lender on the Developer's interest in the land lease. The Authority has not yet been asked to subordinate its interest in the property."  That doesn't explain why illegal work hasn't been stopped.

On Jan. 17, in response to a Virginia News Source query,  she said, "The parties are discussing the issue of the vertical construction and what protections (in addition to the existing indemnity agreement from the Developer in favor of the Virginia Beach Development Authority which covers any loss) may be put in place to address the City's concern."

Thus the stalemate.  In the meantime, work continues and no one is holding the developer financially responsible as required by the development agreement. One action (posting the $2.6 MILLION letter of credit), according to Hahn, can't occur until the other action (subordination by the development authority) occurs.  Under that scenario the developer can continue building without making good his  financial obligation to the city. "This is nothing short of total irresponsibility to the citizens of this city," said one source.

Councilwoman Reba McClanan said she has tried to find out what is being done about having the work stopped and the letter of credit posted and all she has been told is 'we're working on it.'

The project, forced on the public by city bureaucrats and council, despite a referendum in which it was overwhelmingly defeated by the voters, has had a history of controversy. On January 7, VNS reported that Bruce Thompson, one of the developers, had gotten the city's project manager, Public Works Director Dean Block fired from the job.  

Thompson and Block got into a shouting match and Thompson claimed Block had said something 'ugly' and used profanity in front of his staff on Dec. 18 during a meeting in which Thompson complained that the city was not keeping its commitments to the development agreement.  Thompson even threatened Block with arrest if he didn't leave Thompson's office.  Thompson then went to City Manager Jim Spore, a long time cheerleader for the project, and demanded he remove Block.

Spore  replaced Block with Director of Public Utilities Director Clarence Warnstaff, who almost immediately left town until Feb. 2.

In a Dec. 30 letter to Spore, Thompson complained bitterly about the city costing him time and money, being responsible for delaying the project,  and threatening to hold the city libel for his expenses and construction cost overruns. In a 6-page letter, he built his case for damages.

In a Jan. 7 email to the city manager and others, Thompson whined about city staffers talking on and off the record to VNS and other media sources.  He wanted Spore to 'gag' the employees.

The on Jan. 9, City Atty. Les Lilley rebutted Thompson's complaints and allegations point by point, noting specifically that Thompson was in violation of the agreement by beginning construction.

One source said, "It looks like the pressure is getting to everyone.  They're all so stressed they are about to 'pop'."

Another said, "It boils down to this.  The developers may be running short of money.  They can't get a construction draw until financing is in place.  Financing can't be obtained until a final cost is determined and the final contract with the city is signed. It's a domino effect. One has to fall before the others fall into place.

"Jim Spore is up to his ears in this mess.  Should the project go south or require a taxpayer bailout, Spore is the culprit.  He has been selling this deal from the beginning.  If it falls, Spore falls.  He's been entirely too close and connected to the developers and the project.  He's their (the 'developers') boy.  That's why they continue to lean on him," said one source.

"I'm not confident the council even understands the current situation.  The issue is when will council members stand up and force a decision on this project?" he said.

See following for all the sordid history of the project and its players: