City fails to stop developer from work on 31st Street Hotel in violation of contract
The developer of the 31st Street hotel project, who recently cited the city for numerous violations of the joint partnership contract and threatened action for damages, is operating illegally under terms of the Development Agreement with the city.
Despite the fact that the developer hasn't closed on the property, developer Bruce Thompson as of Friday was building the 1st floor of the 'Top Drawer Hotel' as he has called it. Yet he has indicated that unless the city takes immediate action, the project could be in jeopardy.
Vertical construction was not to be allowed until after the developer had posted a $2.6 MILLION letter of credit and the final agreement signed.
Asked where are the protections for taxpayers since unauthorized vertical construction has begun, assistant city attorney Carol Hahn, handling legalities of the project for the city, 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."
"It is obvious," said one source, "the city was caught asleep at the switch, yet I'm sure dozens of city employees and officials pass the site every week. Never once did it occur to them that the construction was illegal" (The developer does have a legal building permit, but under the agreement he is prohibited from vertical construction until the final agreement has been signed and the letter of credit posted.)
The city, after an Escrow Agreement dated July 24, 2003 was executed, cleared the developer to drive test piles, issued a foundation permit, but specifically prohibited vertical construction.
Now each side is accusing the other of delaying if not jeopardizing the entire project.
The reason for the letter of credit was to not allow partial construction that could be abandoned by the developer, leaving the city holding the bag for the unfinished project.
City Director of Public Works Dean Block was recently fired as project manager after a verbal clash during a meeting with Thompson in his office and replaced by Director of Public Utilities Clarence Warnstaff. In fact, Thompson even threatened to have Block arrested if he didn't leave the premises.
The issue that caused the verbal explosion was Thompson's allegation that he was moving ahead, but the city was failing to meet its development timelines causing him to be unable to get financing for the project.
Following that meeting, Thompson's lawyer sent the city a 6-page letter, with timeline attachments, building his case for damages because of the delays and cost increases he alleged the city had caused. Among other things, Thompson claimed the city had lied to him and his lender about the completion date of massive improvements to 31st Street converting it into a 'gateway' ending at the hotel, jeopardizing success of his project.
He wrote the city: "...All work to date...has been funded solely by the developer, the lender has yet to fund a construction draw. Before a construction draw can occur, the developer must finalize its contract with the general contractor and must provide the lender, for approval, a final project budget as well as plans and schedules for the city's portion of the project. The developer cannot accomplish either of these prerequisites to funding unless the city complies with the terms of the Development Agreement....If construction funding does not occur, or is delayed, the project will be delayed beyond the scheduled opening date.
"Unless the city takes immediate steps, the developer will continue to incur substantial additional costs and expenses, which could include those arising out of the developer's inability to complete the hotel (or complete the hotel in a timely manner."
City Atty. Les Lilley in a January 9 letter back to Thompson and his lawyer, emphatically denied the city was irresponsible in any way in meeting its commitments or caused any delays or increased costs to the developer.