Riverfront issue leads to a long night for council

Hoping to lay to rest concerns expressed by Phil Clark during numerous trips to the podium about the city's agreements with the riverfront developer, the Yuma City Council opened the floor to him during Wednesday's meeting.

Phil Clark, a resident of Somerton, elaborated for an hour on his concerns and questions he has about the city's agreements with developer Craig Clark, a private developer who built the Hilton Garden Inn and Pivot Conference Center under a 50-year lease with the city.

Another 1-1/2 hours were taken up as staff members and the attorney who wrote the development contracts responded to Phil Clark's questions.

As part of the agreement with the city, Craig Clark was to receive the revenue from a 1 percent surcharge on the hotel, to be used for the operation and maintenance of the conference center. After 10 years, the revenue is to be split 50-50 with the city. Craig Clark also was to receive $4.4 million to help pay construction costs for riverfront redevelopment projects.

But muddying the situation, his construction loan was foreclosed in 2011 by S2 Acquisition, a limited liability investment company based in New York. S2 had purchased a package of loans, including Clark's, from the FDIC after the bank that originally held the loans was taken over by federal regulators in 2009. S2 then acquired a sublease to the Yuma properties in a trustee sale in July 2011.

Phil Clark wanted to know where the 1 percent surcharge revenue is now going, why it appeared that the total was paid with one check just before the foreclosure and what guarantee that the money is being used for the intended purpose. He also wanted the city to document that the $4.4 million truly went to the hotel and conference center. In addition, he had questions about the city's relationship with S2.

Charles Flynn, head of the riverfront redevelopment effort, explained that the conference center was considered a major anchor to the effort to attract business to the community. But conference centers traditionally aren't self-supporting, so the 1 percent surcharge was instituted.

Flynn said he doesn't track the money, nor does he have the authority to do so. However, he walks the conference center monthly and can guarantee it is being well maintained.

To the question about the use of the $4.4 million, most of which Craig Clark has received in installments, the proof is the existence of the two properties, said Pat Wicks, city finance director.

“I believe the presence of the hotel and conference center is evidence that the money benefits the riverfront. They were created through the agreement.”

Since the trustee sale, Wicks said, all of the revenue from the 1 percent surcharge is being held in a separate fund.

As for S2, Flynn said it was viewed as an interim situation, with the company expected to sell its interest at a profit. That hasn't happened yet, in part because of the economy and it's likely S2 is focusing first on the larger projects in the loan portfolio it acquired.

“S2 was never the lender,” explained Bob Bates, an attorney who wrote the riverfront agreements. “The lender was in bankruptcy.”

S2's only tie to the projects is as a sublessee, Bates said, a situation he described as somewhat tenuous. “The city's position is still intact under the original agreement.”

The city retains ownership of the land and the developments, including the hotel and conference center. 

In answer to another concern that Craig Clark might have ties to S2, Bates said that as a Delaware LLC, the company isn't required to identify its members. However, after doing some research, he said, he knows of no link between S2 and Craig Clark.

“There were some great answers,” concluded Councilwoman Leslie McClendon, who had requested that Phil Clark's concerns be put on the agenda. “There were some ruffled feathers but we truly did our best to answer your questions. I hope we can move on and put this to rest.”

It's not to be.

After the meeting, Phil Clark said he still wasn't satisfied that his concerns had been addressed, saying that the city still doesn't have a mechanism for ensuring that incentive payments to Craig Clark for the development actually have benefited the development.