CINCINNATI - Why did Kenwood Towne Place fail?
"People are stupid," Kenwood Towne Place developer Matt Daniels said during a pivotal moment of his bank fraud trial downtown Wednesday.
The comment was stricken from the record by US District Judge Michael Barrett but not before Daniels broke down on the witness stand. He turned away from the jury box and walked off the stand to regain his composure.
"I mad so I'm sorry, " Daniels said. "Been a long five years"
The emotional outburst came as Daniels was discussing attempts to revive the project in July 2010. He said nursing home developer Hank Schneider, a Kenwood Towne Place partner, refused to sign the proposed settlement unless the Bank of America released a payment guaranty that Daniels, Schneider and two other partners had signed years earlier.
Wednesday was the second day of testimony for Daniels, who faces 23 counts of fraud, conspiracy and money laundering related to the failure of the Kenwood Towne Place project.
The defense rested its case at about 2:30 p.m. Wednesday. Judge Barrett told jurors that they could start deliberating as early as 12:30 p.m. Thursday.
That means Daniels could learn his fate almost five years to the day after the $175 million mixed-use project went dormant. Trial testimony indicates Daniels first disclosed cost overruns in his partners and the bank just after Thanksgiving in 2008. The bank refused to fund a December loan draw and contractors walked off the job in December and January. By May, the project was in foreclosure, leading to its purchase by developer Phillips Edison & Co. It was rebranded The Kenwood Collection this year. Saks Fifth Avenue was signed as an anchor tenant in November.
Federal investigators have accused Daniels of diverting loan proceeds from the Kenwood project for his personal use, including a $500,000 down payment on a yacht, and lying to the bank to secure loan draws.
Daniels testified Wednesday about deteriorating relationships among Kenwood Towne Place partners who hired their own consultants to review the project's finances after cost overruns emerged in December 2008. Daniels said his long-time partner Tim Baird hired his own accountant and started asking questions that "felt like a witch hunt." He said Schneider called him to a meeting in a local park, accusing Daniels of stealing $5 million from the project and threatening to turn him into a friend at the Ohio Attorney General's office unless Daniels signed over assets to Schneider.
Asked point blank whether he intended to defraud Bank of America, Daniels turned emotional again.
"In no way ever," he said, pausing between words to fight back tears.
During cross examination Wednesday afternoon, U.S. Attorney Anthony Springer reminded the jury of earlier testimony by Schmidt and two of her former accounting assistants that contradicted Daniels' assertions that he was not involved in detailed communications with the bank. That's significant because prosecutors do not have emails or other documentation showing Daniels directly made false statements to the bank, attorney David Kern told WCPO this week . That makes the testimony former Kenwood Towne Place Chief Financial Officer Tina Schmidt a crucial part of the government's case.
"The jury is going to have to believe her to convict him," Kern said.
But Daniels didn't wither under Springer's questioning.
Springer: "You'd have this jury believe that you were not involved in the draw process."
Daniels: "Yes, I'd ask them to believe that."
Springer: "That Tina Schmidt never met with you to discuss issues with the draw process."
Daniels: "She met with me to discuss issues with (Construction Manager Audie Tarpley's) paper work and his ... mathematics not adding up. She did not meet with me to discuss problems with the draw process."
Springer: "Did you know anything about the hot list?" (Schmidt testified that she and Daniels kept a list of contractors to be paid first because they were threatening to file liens or stop working.)
Daniels: "No, I did not.
Springer: 'When Melissa Sasser and Rebecca Coleman (Daniels' former employees) testified about held checks, your testimony today is that you know nothing about that."
Daniels: "I have never heard of held checks."
During his first three hours of testimony Tuesday Daniels denied any knowledge of loan proceeds being used improperly by his development company, Bear Creek Capital.
“Absolutely not,” Daniels said. “To take loan proceeds that are meant for an outside source, outside of fees or reimbursement of a job cost or that type of thing, my understanding is, you don’t do that.”
Daniels testified Tuesday Schmidt, who was also Bear Creek's CFO, often transferred funds from “single purpose” legal entities that were established every time Bear Creek built a new retail project. But he said he understood the transfers to include development fees, rent revenue, profit distributions and capital reimbursements, not loan proceeds.
“She never, ever told me that,” Daniels said. “I don’t know if
The finger pointing is not a surprise given that Schmidt testified against Daniels last week after reaching a plea agreement with prosecutors. Schmidt said Daniels sometimes used loan proceeds to pay for personal expenses.
Daniels was visibly nervous at times during his testimony, his voice quivering as he stated his name for the record. He related the history of his real estate career, starting as a residential developer who benefited from mentoring from “older gentlemen” like developer Joe Rippe and Herb Weiss, a partner at the Keating Muething & Klekamp law firm.
“He would introduce me to certain bankers, certain business people who could help us grow our company,” Daniels said of Weiss.
One such introduction was to Baird, who joined with Daniels to form Bear Creek Capital LLC in the late 1990s. Another was Schneider, who partnered Baird, Daniels and Tom Neyer Jr. in 2004 to plan the Kenwood Towne Place project.
Daniels said his original goal was to build a retail-only development at the former Safeco Insurance property at I-71 and Montgomery Road. He thought the site had “unbelievable” potential.
“If you could fix one large issue (the lack of access to Kenwood Towne Centre) it was probably the best retail property this side of the Mississippi,” he said.
Daniels said Sycamore Township “basically forced us to add office” to the project by threatening to withhold zoning approvals. That led to the need for a 2,600-car parking garage and a tax-increment financing deal to pay for the parking structure. “It was two office towers and one time, then an office and a hotel,” he said. As the project grew, he got “concerned” about managing the massive project.
“I wanted some backup because I had never built anything like that,” he said.
So, he hired construction industry veteran Aubrey “Audie” Tarpley to the job, first as a project consultant, later as construction manager. Tarpley has been indicted on 21 counts of fraud and other charges. His trial is set for next May.
Daniels refuted statements by Assistant U.S. Attorney Jessica Knight, who told jurors on Dec. 5 Daniels employed a “silo approach” at Bear Creek. She said Daniels held one on one meetings with employees and “expected them to carry out his decisions.”
Daniels confirmed his practice of meeting behind closed doors with employees, but said they weren’t for the purpose of issuing orders.
“If (former Bear Creek development partner) Steve Kelly had an issue with zoning,” Daniels said, “we would meet and talk about it and then he would go and make his decision.”
Daniels said he kept his office door closed because he battled with a learning disability that makes it hard for him to concentrate when distracted.
“I kept the door shut so I could focus,” he said.
Daniels said he rarely used email because he is a bad speller and can’t use the Excel software program, so he relied on an assistant to flag important emails and CFO Tina Schmidt to develop project pro formas.
Daniels said he didn’t attend the loan closing on the Kenwood project and didn’t review loan documents before signing them. Instead, he relied on advice from Weiss.
“'Herb, is this OK to sign?'” Daniels testified. “If he said, ‘Yes,’ I signed it.”