Sept. 28, 2003 – Within a week of the Public Finance Authority board's ratification of an offer to buy the King's Alley Walk commercial complex, the former leaseholder has filed suit in Territorial Court against the PFA, alleging that the authority violated an "implied covenant" when it rejected his plans to refinance the property.
At its Sept. 19 meeting, the PFA board authorized Kenneth Mapp, its director of finance and administration, "to proceed with negotiations for the acquisition of King's Alley Walk" and ratified an offer to purchase the property for $2.7 million from the Ingvoldstad Family Trust. (See "PFA looking to buy King's Alley Walk for $2.7 million".)
On Wednesday, the St. Croix firm Development Consultants Inc. and its president, Peter Ross, sued the PFA citing "breach of the implied covenant of good faith and fair dealing." The lawsuit states that "as part of a court-approved settlement," the PFA "promised to consider any reasonable proposal made by DCI for refinancing the King's Alley shopping arcade. But PFA broke that promise."
As a result, the suit states, DCI and Ross "have suffered over $8 million in damages."
The PFA owns the 33-room King's Alley Hotels and holds the lease on the adjacent commercial complex, now called King's Alley Walk but described in the suit as the King's Alley arcade. The authority acquired the hotel in 2001 after Development Consultants defaulted on the only loan given from 1994 PFA bond issue proceeds set aside for ventures with the private sector.
According to the Development Consultants suit, the company and Ross in 1995 obtained a $2.7 million loan secured by a mortgage "to develop a shopping arcade in King's Alley. The property was rebuilt and renovated; shops and stores were leased to tenants. DCI eventually defaulted on the loan and the PFA purchased the hotel and the lease at an auction."
However, the suit alleges, "in January 2001 DCI and the PFA reached a settlement in the foreclosure action. DCI agreed to the entry of a $4.5 [million] stipulated judgment. In exchange, the PFA agreed to stay enforcement of the judgment for five months to give DCI time to refinance the King's Alley project. PFA agreed to consider all reasonable refinancing proposals that DCI made before the expiration of the five-month period."
Ross alleges that the PFA refused to consider DCI's subsequent proposals. The suit states that Ross and an investor met that January with Amadeo Francis, Mapp's predecessor, and James Hindels, PFA attorney, to present a proposal but that Francis and Hindels "refused to hear the specifics."
Two months later, the suit states, the investor met with a Property and Procurement Department official to talk about leasing parking space, but the official said the PFA had "told him that it would not agree to any DCI refinancing proposal as long as [Ross] was involved."
In June 2001, according to the lawsuit, Ross and an investor met with Gov. Charles W. Turnbull, who as chief executive chairs the PFA board, and PFA adviser Rudolph Krigger Sr., and Ross "presented a $40 million refinancing plan that included the construction of a hotel-casino adjacent to King's Alley." Ross alleges that the governor said he would "get back to him" but never did.
The suit charges that since the authority's takeover of King's Alley in July 2001, "major tenants have left, hotel occupancy has plummeted and the entire King's Alley has fallen into disrepair."
The PFA's involvement in the development of both the hotel and the commercial complex has raised concern among St. Croix business owners. The PFA was created as an instrumentality to borrow money on behalf of the V.I. government to fund public capital projects and services.
In testimony before the Senate Finance Committee on Aug. 5, Mapp said the PFA had invested $5.25 million in the hotel and was planning to spend another $2.5 million on renovations. "This investment is necessary not only to revitalize and reposition the King's Alley operation into a profitable position in the market but to give the authority the greatest opportunity to recover its investments, should we sell the property," he told the senators.
At that time, Mapp acknowledged concerns about the government getting into the hotel business, but he said a private firm would manage its operations and that selling the hotel at that point would result in a financial loss to the government
At the Sept. 19 meeting, the PFA board also voted to spend the $2.5 million to renovate the hotel.
Frank Fox, St. Croix Chamber of Commerce president, stated recently that he was "not certain that the government should be competing with other hotels and the other landlords in the area." He said he would like to see the PFA renovate the property and then sell it to a private entity. Now, Mapp contends that it would not make sense for the PFC to sell the property if it becomes a profitable operation.
The renovation plans call for refurbishing all guest rooms, eliminating the swimming pool, opening up the courtyard area and creating a new restaurant, a business center and a two-room VIP suite.
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