Smart Fights Developer’s “Insider Deal”

Thomas MacMillan File PhotosTen years after buying a vacant city property in Wooster Square and then failing to follow through on a promise to renovate it, a developer wants to sell it and make some money. Not so fast, says Alderman Mike Smart.

Smart, who represents Wooster Square, has come out against a proposed deal submitted to the Board of Aldermen by politically-connected zoning lawyer Tony Avallone.

Avallone is representing developer Peter Chapman, who got a bargain-basement deal on a vacant, city-owned warehouse in 2002 with a pledge to turn it into apartments and commercial space. Chapman fixed up the first-floor commercial space of the property, which sits at 433 Chapel St., but never followed through with the rest.

Melissa Bailey PhotoNow Chapman wants to sell the 30,278-square-foot property (pictured) to a New York owner named Jacob Feldman. He can’t do that without city permission because he broke the terms of his original deal.

So Avallone is asking aldermen to revise a 2002 agreement in order to let Chapman sell the building to Feldman, and pass the responsibility for fixing it up to the new owner.

Smart said Avallone first tried to sneak the proposal through the board using a process that required only Smart’s signature. When Smart refused, Avallone tried to slip the deal through under a fast-tracked “suspension” agenda. That also failed. Then Avallone sent a proposal directly to the full Board of Aldermen.

Now the proposal, which Avallone submitted to aldermen on Sept. 16, will be the subject of much public debate as it moves to the City Plan Commission and the aldermanic Community Development Committee for public hearings.

Meanwhile, the proposal is raising questions not just about this deal, but about how the city handles developers who break promises.

“This raises serious ethical concerns for me,” said Smart. “As the alderman, I don’t support this.”

“Here’s a building that was here for 12 years,” he said. “The things that were supposed to be done, they weren’t done. ... And now they can make a profit?”

Smart called for the city to demand compensation from the developer for failing to comply with the terms of the deal.

The city does plan to charge the landlord a penalty for breaking the 2002 agreement, according to Erik Johnson, head of the Livable City Initiative (LCI), the city’s anti-blight agency. He said the terms of that penalty have not been decided.

Avallone argued the deal is in the city’s interest: “The end result is that the city will get the property developed.”

Melissa Bailey File PhotoThe story begins in 2000, when the city acquired the property through tax liens. The six-story brick warehouse, built in 1870, used to be an upholstery factory. The city cut a deal with Chapman to buy it for cheap—with a promise to convert it into 14 apartments with commercial space on the street level.

The city sold the property to Chapman (pictured) on Jan. 4, 2002 for $152,000. That’s $5 per square foot.

In return, Chapman agreed to fix it up within 18 months. The March 2003 deadline to complete construction is laid out in a land disposition agreement approved by aldermen in 2001 and attached to the deed.

Chapman also agreed not to sell the property to anyone until he had completed renovations.

The deal empowers the city to take back the property or charge Chapman a penalty if he breaks the terms of the agreement.

Chapman did make some renovations. He converted the first floor into a home for the Devil’s Gear Bike Shop and a personal training studio. But he failed to follow through on converting the upper stories into apartments.

At one point, around 2007, Chapman rented out apartments to tenants even though he had no certificate of occupancy. LCI visited the site and kicked out the tenants.

Meanwhile, Chapman sought a way to reconfigure his apartment conversion plan. He got city zoning approval in 2007 to increase the number of apartments from 14 to 18. He also got approval from aldermen to change the terms of the deal at that point, according to Johnson.

Last year, Chapman returned to the zoning board with a prospective buyer. They got permission to expand the number of apartments from 18 to 22. This time, Johnson said, “there was a disconnect” between city entities. Chapman didn’t seek approval from aldermen to change the terms of his land disposition agreement (LDA). And LCI didn’t point it out.

Chapman broke the terms of his 2002 agreement in two ways, Johnson said. First, he neglected to tell the city when he changed ownership of the property from his name into a limited liability corporation he owns, LA SARAGHINA, LLC, in 2004. Johnson said Chapman was legally allowed to change ownership in that way, but he was required to let the city know.

Chapman also broke the agreement by failing to renovate the upper stories into apartments within the required timeline, Johnson noted.

New Deal

Because Chapman broke the agreement, the title isn’t free and clear. In order to sell the property, Chapman has to make amends with the city.

Avallone proposed amending the 2002 land disposition agreement in three ways: To forgive Chapman for changing the building’s ownership to his LLC without telling the city; to change the number of apartments from 18 to 22; and to allow the sale of the property to Feldman.

Johnson said he does not know the proposed sale price. Avallone declined to state the price. He referred comment to Chapman, who could not be reached for comment.

Avallone said he doesn’t know why Chapman failed to fix up the property over the years. He said the situation isn’t unique—developers often take on properties and are unable to make a project work.

Avallone justified his proposed deal in this way: Because of the way the land disposition agreement is written, the city “would have trouble claiming the title” back from Chapman, according to his legal opinion. If the city tried it, that may lead to lawsuits, he said. It’s in the city’s interest to settle the matter by agreement instead of getting tied up in lawsuits, he argued.

Instead, he said, the city should get the property moving by letting Chapman sell it, so it can be renovated according to the original vision.

“At the end of the day, the property will be developed in accordance with what the city wants,” Avallone said.

“What Is LCI Doing?”

Smart, meanwhile, said the proposal smells of an “insider deal.”

If the city goes forward with it, he said, it will set a precedent that developers can “get away with” breaking promises. “It’s not a fair process for people who do the right thing.”

Smart blasted LCI for failing to uphold its duties.

For a decade, LCI never issued written demands addressing the way Chapman violated the land disposition agreement.

Only recently, after Chapman started trying to sell the property, did LCI issue a notice saying the landlord was in default, according to Johnson.

“For LCI to run around and harass property owners” with its residential licensing program, yet fail to hold a developer to a promise he made after a sweetheart deal, doesn’t sit well, Smart said.

“How did this go on for 12 years and no enforcement?” Smart asked. “What is LCI doing?”

Johnson conceded that LCI “could have been more aggressive.”

“But for a while there was some development activity that was going on,” he said. Devil’s Gear provided a hub of activity on the site until three years ago, when it moved to a new location downtown.

Smart said he has been left in the dark about the terms of the deal.

“LCI did not give me a presentation. I heard there was some kind of compensation. I haven’t seen it,” he said.

Smart stopped short of urging the city to take back the title to the property. He urged the city to cite the landlord for violating its agreement with the city.

Thomas MacMillan File PhotoJohnson (pictured) said the city has already done so.

“They’ve already been notified that they are in default,” Johnson said. “Their means to cure the default is to transfer ownership to a new person.”

Johnson said Chapman has agreed to pay a penalty for his “inaction” on fixing up the property. He said before aldermen take up Avallone’s proposal at a public hearing, LCI will sit down with Chapman and agree on a penalty. Johnson said he would announce the amount of the penalty as part of a package of information presented at public hearings.

Johnson said he first aims to “work with the board to see if there is a resolution with the potential purchaser.” If not, LCI will take steps to reacquire the property through its default position, Johnson said.

Meanwhile, neighbor Harry David urged both sides to come up with some solution to revive the vacant building.

“As a property owner next door, I’d like to see the place developed,” David said. “It’s in everybody’s interest to have the property not lie fallow. They should find a way to move forward.”

Tags: , ,

Post a Comment

Commenting has closed for this entry

Comments

posted by: Thomas Alfred Paine on October 4, 2013  3:48pm

Mike Smart should remain in the Board of Aldermen where he can fight against abuses like this. Why in the world he would want to be the City Town clerk and shuffle public records and documents is beyond me. The job seems so routine and mundane. Smart appears to be more of a fighter than a record keeper.

posted by: Atticus Shrugged on October 4, 2013  3:56pm

I’m glad to see Mr. Smart didn’t do the easy thing and let the developer get off free. This is a great piece.  It also makes me wonder how many other deals fell through the cracks under LCI’s watch.

To be fair, this is not Mr. Johnson’s failure as he was not the director of LCI in 2002 or 2003.  And he should not be forced to take ownership of deals that weren’t per se on his watch.  With that said, I still believe that LCI should get out of the development business!

posted by: Dwightstreeter on October 4, 2013  4:00pm

A settlement by the parties is always better than an expensive and time-consuming litigation.

How about the developer returns to the City all the profits on the proposed sale, less the cost of any improvements and taxes paid?

LCI is charged with both building inspections and redevelopment duties.

How many fingers are in the redevelopment pie?

Since LCI admits it is unable to inspect the number of rental units it proposed to get itself established, why not reform it right now and eliminate its redevelopment duties.

It’s ok to do one thing really, really well.

Good job, Mike Smart!

posted by: Razzie on October 4, 2013  4:33pm

Another sizeable snafu by LCI, just like the 99 Edgewood debacle. Correct me if I am wrong, but I have never heard of sitting down and negotiating a penalty with an offender. Its not much of a penalty if it doesn’t hurt ... a little. Let’s get real and start putting teeth in our LCI agreements.

posted by: plannerman on October 4, 2013  4:53pm

While I’m sympathetic to the point holding the past developer accountable, in the end it’s more important to see this vacant property get redeveloped—so nail the guy for breaking the contract, but don’t lose the new developer in the pinch.

One thing I find really curious is that Ald. Smart is railing against a key figure in his co-ticket Harp’s economic development team. Well which one is it? Clever tricks and insider gambits, or standing up for accountability and neighborhoods? From what I’ve read of Smart’s platform (modernizing the clerks office functions, City 2.0 essentially) there’s a lot to like about him. Maybe he’ll see the light and switch to working with Elicker? They seem like more natural allies…

posted by: THREEFIFTHS on October 4, 2013  5:35pm

posted by: Razzie on October 4, 2013 4:33pm

Another sizeable snafu by LCI, just like the 99 Edgewood debacle. Correct me if I am wrong, but I have never heard of sitting down and negotiating a penalty with an offender. Its not much of a penalty if it doesn’t hurt ... a little. Let’s get real and start putting teeth in our LCI agreements.

But is this not the same Anthony Avallone who is help Harp unveil a 10-point economic development plan for the city.Was he not a former state senator who left office in 1992 after years of scandals involving his conflicting roles as zoning attorney, legislator, development commissioner, and developer. He developed a lucrative, go-to zoning practice during the DiLieto ‘80s, regularly appearing before the zoning board to win clients relief at the same time he served as both a state senator and city development commissioner. The administration gave him and a team of fellow politically connected developers a tax break on a development project in the Hill that Avallone simultaneously had to vote on as a development commissioner. He represented developers in disputes with his state senate constituents; he also was hired by banks to evict tenants who happened to be his constituents.

posted by: Fairhavener on October 4, 2013  6:42pm

Reposted (mostly b/c this is so crazy it deserves it), so let’s get this straight:

Mike Smart, a Harpie through and through who flew on the wings of her special interest campaign and defeated Sergio Rodriguez for City Clerk in the primary, is now fighting Tony Avallone because he’s crooked (according to Smart, not me) but he just happens to be same Tony Avallone who Harp has nominated as a member of her stale back to the 80’s cabinet…really?

Are these people serious? These are the people that we want to lead? Is this some type of joke where you get people to submit to you but acting so insane that they have no choice but to?

posted by: FrontStreet on October 4, 2013  6:49pm

Good to know Avsllaone will be a trusted Harp advisor.  Why not just invite Nemerson’s buddy Sal Brancatti to the party as well?

posted by: HenryCT on October 4, 2013  7:48pm

Given that the developer broke his contract with New Haven, it would be rewarding to see the city negotiate a good deal for the city in this case. Certainly the developer should not get away with significant profits on the sale of the property and the city should not give away its requirement for whoever buys the property to develop it. And any new contract should have teeth with penalties if timely benchmarked improvements are not made.

posted by: webblog on October 4, 2013  9:20pm

“The city sold the property to Chapman (pictured) on Jan. 4, 2002 for $152,000. That’s $16.20 per square foot.

In return, Chapman agreed to fix it up within 18 months. The March 2003 deadline to complete construction is laid out in a land disposition agreement approved by aldermen in 2001 and attached to the deed”.

If in fact these are the exact limitations contained in the LDA, then Chapman was in violation of the agreement as of March 2003, however, the city did not take any action   between 2003 to 2013 to enforce the violation. 
It would seem the Ct. State statute of limitations against retroactive punitive action has also expired.
If so, Avalon’s threat of a law suit should be taken serious. Judging by the city’s losing record in law suits it might be best to settle and allow the sale and save face.

posted by: Noteworthy on October 4, 2013  10:48pm

It is ironic that a connected crony of Toni Harp and the whole DTC is at the heart of this deal. This is an economic development deal you can believe in, can’t you? Make promises, break promises, make lots of money. Hmmmm, where have I heard that formula before?

posted by: downtown dweller on October 5, 2013  4:46am

@webblog:

As far as I know, statutes of limitations usually don’t run against States and their subdivisions, such as the city, so Chapman should still be on the hook.  If anyone has knowledge of this area of Connecticut law, I’d be grateful for clarification.

The really amazing stuff here: Avallone is named in Toni Harp’s development team the same day as threatening the city with a lawsuit.  Whose side is he on?

posted by: Bradley on October 5, 2013  7:21am

While I commend Smart for his current actions, it appears that he took no steps to seek enforcement of the LDA during his term of office as alder. It is not his job to enfocce such agreements, but this is a big, highly visible building whose development would substantially improve the neighborhood.

At this point, I think it is in the city’s interest to (1) see the building is redeveloped, (2) see that Chapman pays an appropriate penalty, and (3) develop a mechanism to minimize the likelihood of similar events happening in the future. For what it is worth, I think an appropriate penalty is the difference between what Chapman paid in taxes and what he would have paid had he followed through with his agreement.

Weblog, while I certainly do not have Titles 7 and 8 (the state laws governing municipalities and land use) memorized, I don’t think there is any provision limiting the city’s ability to enforce a contract.

posted by: Anderson Scooper on October 5, 2013  12:26pm

At a minimum, the City needs to re-coup the $40,000/yr in lost property tax revenue that resulted from Chapman’s failure to live up to the disposition agreement. Re-developed this building would be worth several millions. Right now it is being taxed at a valuation of only $241k.

Also, the NHI has this building’s square footage wrong, and by a considerable amount. The 9,380sf figure is the occupiable space on the first floor and in the basement. But there are four more floors to this building, bring the total square footage to somewhere around 25,000sf.

Fwiw. And I’m sure that Harp’s econ adviser Avallone will be able to fix this.

posted by: Atticus Shrugged on October 5, 2013  12:42pm

If anything, this proves that Senator Harp and Alderman Smart aren’t bought and sold by their campaign donors and supporters.  If the article read, “Smart Ushers Windfall for Avallone’s Client” then I’d agree with the feedback here.  But what I’m getting is people are upset that Smart is doing his job, Senator Harp is letting him, and a potential windfall is not going to a developer who didn’t complete his contract.  Really, I have to ask if anything makes you all happy? 

Moreover, Mr. Avallone is an attorney on this matter and not the developer.  Avallone wasn’t involved in governance at all when the development deal was made.  And he was representing his client the way a good attorney should.  So, where is the outrage coming from?  I think the anti-Harp crew needs to find real, significant issues to discuss and not attempt to spin every story against Senator Harp.

posted by: OccupyTheClassroom on October 5, 2013  6:24pm

Another New York developer. Just great.

posted by: swatty on October 5, 2013  6:59pm

Tony Avallone: great choice for Team Harp!

Eric Johnson: citizens of New Haven deserve respect. You can’t lose your job for doing your job!

posted by: webblog on October 5, 2013  9:36pm

@downtown dweller on October 5, 2013 4:46am

As far as I know, statutes of limitations usually don’t run against States and their subdivisions, such as the city, so Chapman should still be on the hook.

@Beadley: on October 5, 2013 7:21am

Lets start with 52-576,

Sec. 52-576. Actions for account or on simple or implied contracts. (a) No action for an account, or on any simple or implied contract, or on any contract in writing, shall be brought but within six years after the right of action accrues, except as provided in subsection (b) of this section.

    (b) Any person legally incapable of bringing any such action at the accruing of the right of action may sue at any time within three years after becoming legally capable of bringing the action.

More to follow if necessary.

posted by: Really? on October 6, 2013  11:51am

I would like to know if Chapman is current on his taxes for this building. If not the city should take back the building , as they did previously.  Kudos to Smart for taking a hard line on this issue.  It would be a travesty to see someone benefit from a shady deal.  It sets a terrible precedent. . This building was listed for over a million dollars recently and as high as 3 million before that. If this is how New Haven handles such properties, let me know when the next property is offered at such a price, so I can cash in.

posted by: downtown dweller on October 6, 2013  5:20pm

My last comment didn’t make it through, so I’m trying again:

@webblog: it’s not remotely as simple as you seem to think it is.

“This court has recognized the principle that a subdivision of the state, acting within its delegated governmental capacity, is not impliedly bound by the ordinary statute of limitations.” State v. Goldfarb, 278 A.2d 818, 822 (Conn. 1971).

If the city is considered to be acting in its “delegated governmental capacity” in this transaction, then the statute of limitations does not apply. That is a question that the text of the Connecticut General Statutes will not answer.

posted by: Bradley on October 7, 2013  6:32am

@webblog

First, thanks for bringing up Sec. 52-576,  which I was unfamiliar with. But I don’t think it applies because, as far as I can tell, the city is not bringing an action at this point. In fact, it appears that the courts have not been involved at all so far and the city is trying to handle the situation administratively.

posted by: webblog on October 7, 2013  9:18am

@downtown dweller on October 6, 2013 5:20pm

Downtown, thanks for the reference to that section of case law, However, a complete reading of the section changes the outcome:

There is a long established common-law principle that, under certain
Circumstances, ordinary statutes of limitations will not apply to government claims. See
State v. Goldfarb, 160 Conn. 320, 323–26, 278 A.2d 818 (1971). Where, however, the
State commences an action well beyond a statute of limitations, such as the six-year
limitation contained in Conn. Gen. Stat. § 52-576 (2005), the State may be prohibited from
doing so. See State of Conn. v. Lombardo Bros. Mason Contractors, Inc. et al., 51 Conn.
Supp. 265, 302, 980 A.2d 983 (2009) (where the Court determined it was a major public
policy concern to allow the State to bring construction claims into perpetuity and granted defendants’ motion to strike the State’s claims brought six years after the statute of limitations expired).
The city took no action in 10 years; in 2007 the zoning board approved the increase in apartments from 18 to 22. There is no way the city can claim it was not aware of Chapman’s default and approve a new action.

In this case Chapman would be the defendant.
Also, as I said earlier, the city has a poor track record defending claims, and therefore should seek to settle this action by allowing the sale.

posted by: downtown dweller on October 7, 2013  4:03pm

@webblog:

You haven’t provided a citation, so I don’t know what your source is, and can’t really comment on it.  What I can say is this: This discussion shows I’m right that this is not a simple analysis that can be solved by merely quoting the phrase “statute of limitations” and citing a statute.  You’re now making a fact-specific argument that the city “was . . . aware” of the default and should have sued earlier.  This is very different from your previous argument, which was based simply on the passage of time.  Assuming your sources are relevant to this dispute, the city could go to court and give reasons why it didn’t act earlier; a judge would then have to decide whether to toll the statute of limitations or not.

The most recent case I can find indicates that the Connecticut Supreme Court takes a very pro-state line in waiving the statute of limitations against the state.  State v. Lombardi Bros. Contractors, Inc., 54 A.3d 1005 (Conn. 2012). 

As I said: this is not as simple as you have been saying.  I’m not a zoning lawyer.  I would welcome a comment from someone who is.  But there is one person in this thread and article who is a zoning lawyer, and a very good one, no matter what else you may think of him: Tony Avallone.  If the statute of limitations applied, Avallone would surely have mentioned it, because it would head off a lawsuit.  Instead, Avallone simply said there would be lawsuits based on the terms of the land disposition agreement.  Avallone clearly doesn’t think that the statute of limitations will protect his client. 

Nor, apparently, does Chapman.  If the statute of limitations protected him, why would he agree to pay a penalty for his inaction?

posted by: Bill Saunders on October 8, 2013  7:55am

I guess all of Henry Fernandez’s bluster about cleaning up LCI was just that…..until you get rid of the Destefano Virus, the cancer of corruption in New Haven will continue to replicate.

posted by: webblog on October 8, 2013  9:28am

@downtown dweller on October 7, 2013 4:03pm

Downtown, you obviously choose to read a very limited portion of the case law you originally cited in:State v. Lombardi Bros. Contractors, Inc., 54. I simply used the Lombardi Bros decision which includes the full text of that decision, and not the one sentence your argument relies upon.

The full text in my comment @webblog on October 7, 2013 9:18am.

In as much as Avallone actions are concerned, he said: “Avallone justified his proposed deal in this way: Because of the way the land disposition agreement is written, the city “would have trouble claiming the title” back from Chapman, according to his legal opinion. If the city tried it that may lead to lawsuits he said. It’s in the city’s interest to settle the matter by agreement instead of getting tied up in lawsuits, he argued”. 

Apparently, Avallone wishes to settle this matter out of court rather than go through a lengthy process. What Avollone does not revile is a possible court strategy. In such an event the statute of limitation would be one of the first of many claims he would have at his disposal.

Again, the city has a long string of losses in these types of cases where they have been negligent. 

I have decided that you and I are at an impasse over the citation you brought forth and now argue against.

OUT>>>>>>>>>>>>>

posted by: getyourfactstraight on October 8, 2013  9:18pm

Personally I like Tony A….. but truthfully, this is pretty awful. And to think that Harp has chosen him to be one of her economic development advisors. You just can’t make this stuff up! Sorry Tony A. but this is just plain wrong. Toni H. you have proven to me over and over again that Justin Elicker is and has been the right choice all along!