The city of St. Paul is on the verge of losing a downtown property after a parking ramp on the site failed to make enough money to pay the debt used to build it.
A Hennepin County judge recently issued an order clearing the way for the sale of the Capital City Plaza Parking Ramp to a company headed by Chicago-based real estate developer John Thomas, who spent time in federal prison after pleading guilty in 2014 to defrauding an Illinois town.
The St. Paul Port Authority issued bonds to build the parking ramp in 2000 and defaulted on the debt in 2009. St. Paul taxpayers are shielded from the loss — it’s the bondholders who will lose out.
Meanwhile, the Port Authority is paying $2.5 million a year to bondholders caught up in earlier failed real estate speculation. Those payments, authorized by a 2011 court settlement and funded by the authority’s lease revenue from other real estate, will continue until 2032.
Port Authority President Lee Krueger, who joined the agency in 2012, said the decision to build the Capital City Plaza Parking Ramp was based on “the best information we had at the time” and is now in the hands of the bondholders and Wells Fargo, the trustee representing them.
“It’s so out of our control,” he said, “and it has been for at least a decade.”
The project has already changed the way the Port Authority does business. The agency has not issued revenue bonds since, opting instead to finance projects guaranteed by outside parties, said Krueger and Bruce Kessel, the agency’s controller.
A failed project
Established by the state Legislature in 1929, the Port Authority played an aggressive role in financing downtown redevelopment efforts beginning in the 1970s, only to see many of those projects, such as Galtier Plaza, default on their loans in the 1980s.
In 2000, the Port Authority issued three bond series totaling $23.8 million and loaned the proceeds to its nonprofit arm, Capital City Properties, to finance land acquisition and ramp construction at 50 E. 4th St. in downtown St. Paul.
When the Port Authority was planning the ramp project, projections showed it would help fill a need for downtown parking, said former authority executive Patrick Dean, who managed the project. Ramp revenue was supposed to pay off the bond debt.
“It all looked good on paper at the time,” said Dean, who was ousted from the Port Authority in 2006 after alleging that the agency had diverted money to its nonprofit arm instead of repaying investors. “What happened is, as you continued to see businesses move out, the daily parking was not needed in St. Paul four to five years later.”
The 954-space ramp opened in 2001, and financial records show it lost money from the start. In 2009, after years of failing to make payments, the Port Authority defaulted on the bond debt. At the beginning of 2018, court records show, nearly $38.7 million was owed in combined principal and interest.
Sale is pending
Wells Fargo, the trustee representing the bondholders, put the ramp up for sale. Thomas’ company, Jet Park LLC, submitted a $14.2 million offer in late 2017, but has since negotiated the price down to $12 million, citing the ramp’s “unexpectedly poor financial performance” and need for structural repairs, according to an Oct. 5 notice from Wells Fargo to bondholders.
Parking ramps are risky investments, with a bond default rate comparable to privatized jails and senior living facilities. Thomas’ offer, though a fraction of what is owed, would provide bondholders with a small recovery, said Matt Fabian, a partner at Municipal Market Analytics, an independent research firm that tracks the bond market.
“At this point, nine years into it, bondholders just want to get their money back and move on,” Fabian said.
It’s not clear when the sale will be finalized. John Rupp, who previously owned the land where the parking ramp was built, had an option to purchase and right of first refusal agreement with the Port Authority. Wells Fargo, acting on the bondholders’ behalf, is seeking to bypass that agreement.
Rupp, who owns St. Paul landmarks including the University Club, the St. Paul Athletic Club and W.A. Frost & Co., is fighting back in court. He declined to comment.
Wells Fargo told bondholders in the Oct. 5 notice that, as part of the sale agreement, Thomas can lease the ramp from Capital City Properties for $66,000 a month. Eric Larson, the Port Authority’s general counsel, said the authority has made it clear that they only want to rent the ramp to Thomas if he ultimately buys it.
The details of the sale, including the selection of Thomas as the buyer, are out of the Port Authority’s control, Krueger said.
“I don’t know anything about John Thomas except what I read in the paper,” he said. “Wells Fargo is driving the bus. We’re not even changing the tires.”
Buyer has criminal past
Thomas is new to the St. Paul real estate market but has a long history in Chicago and New York.
Formerly known as Bernard Barton, he pleaded guilty in 2004 to fraud charges in New York related to his operation of a billboard business but avoided prison time by working with the government on corruption cases. He spent more than 10 years cooperating with the FBI, and his work played a key role in the indictments of Chicago developer Antoin “Tony” Rezko, former Chicago Alderman Isaac “Ike” Carothers and former Illinois Gov. Rod Blagojevich, according to court documents and local news reports.
In 2011, Thomas bought an 11-acre property in Riverdale, Ill., and entered into an agreement with the town to develop the site, known as the Riverdale Marina. Riverdale paid Thomas a total of $900,000, more than $370,000 of which he used for personal expenses, such as paying debts and rent, rather than construction costs, according to the indictment.
An Illinois federal grand jury indicted Thomas in 2013, and in 2015 he was sentenced to five years in prison and ordered to pay $374,182 in restitution. In 2017, Thomas said, he was released to a halfway house after serving part of his sentence in Duluth and completing a drug and alcohol rehabilitation program. He’s now back in Chicago, and he said in an interview Friday that he plans to make his final restitution payment next month.
Riverdale Mayor Lawrence Jackson did not respond to multiple requests for comment, but he provided the Star Tribune with a statement in September saying the marina remains closed and the city is “still dealing with John Thomas’ mess.”
Thomas said “the issues around Riverdale have nothing to do with St. Paul.”
“I’m not looking for any government subsidies. I’m acquiring property as a private investor with my partners, and we’re going to do a very good job,” he said. “We feel we have a good plan for how to make the garage a much more productive asset for ourselves and the city of St. Paul.”
Thomas is also buying the former Ecolab University Center, and he said he’s looking into other properties.
“I think we’ll be ensconced in that market for some time,” he said.