City of Cincinnati is owed $2.3M in overdue commercial loan payments from developers, citizens

Posted at 5:00 AM, Aug 20, 2018
and last updated 2018-08-21 00:57:53-04

Developers, nonprofits and ordinary citizens owe the city of Cincinnati nearly $2.3 million in overdue payments from commercial loans it has made over the past two decades.

In the aftermath of a June budget debate in which city leaders raised parking rates, permit fees and storm water rates and passed a new tax on billboards in order to plug a $32 million deficit, WCPO decided to investigate how much the city is shouldering in unpaid loans.

The results were staggering.

Nearly 25 percent of the 131 commercial loans the city carries on its books are not current – meaning the city is shouldering $11 million in loans that are either being written off, restructured or in collections for nonpayment, according to data WCPO collected from the city.

Many of these loans are more than 20 years old, with the oldest dating back to 1988.

“The city isn’t exactly advertising that they’re in the private loan industry because they don’t want citizens to know that,” said Jeff Capell, an anti-tax watchdog, economist and founder of No More Stadium Taxes.

“When citizens look at this, they’re being told they need to pay more in taxes and they need to pay higher parking rates, while they’re … making millions of dollars in loans to well-connected individuals that they’ll never get back,” Capell said. “They have a right to be angry about that. Their money is not being well spent.”

Jeff Capell, an economist and government watchdog, questions why the city Cincinnati is making so many loans. Photo by WCPO.

One of the largest, and most controversial, of the city’s unpaid commercial loans was made was to Liz Rogers, owner of the failed Mahogany’s restaurant at The Banks.

In 2012 the city lent Rogers $300,000 and gave her a $684,000 grant to help bring a minority-owned business to The Banks. When the soul food restaurant struggled, former City Manager Harry Black made a deal in 2015 to forgive almost all of the city money she received, only asking Rogers to repay $100,000.

To date, Rogers has repaid $3,200, and nothing since February 2016.

Mahogany's restaurant closed at The Banks, and the owner still owes the city $96,800 for an unpaid loan. Photo by WCPO.

Rogers declined an interview, but when reached through her former attorney Rob Croskery, said, “she is working to repay all her financial obligations.”

But Rogers is just one name on a long list of people who owe the city money for loans they never repaid.

In 1999, Cincinnati City Council voted to spend $480,000 to build a street and make public improvements for a new subdivision in Westwood. As part of the deal, Pine Grove Properties, Ltd agreed to build at least 18 new single-family homes.

“This ordinance is hereby declared to be an emergency measure necessary for the preservation of the public peace, health and welfare … the reason for said emergency is to allow this project to continue without interruption thus providing needed housing at the earliest possible time,” according to the ordinance city council approved unanimously on June 16, 1999.

Now, more than 19 years later, seven lots in the subdivision are still vacant and for sale. And the city was never repaid that $480,000 loan.

The city loaned Pine Grove Properties, Ltd. $480,000 to create a new Westwood subdivision in 1999. Seven vacant lots are still for sale. Photo by WCPO.

WCPO could not locate anyone from Pine Grove Properties for comment. A new developer bought Pine Grove’s interest in the project.

The city is now restructuring the loan with the new developer who is trying to get financing to finish the project, according to a city spokesman.

This leads former Cincinnati City Councilman Kevin Flynn to question whether the city is making loans to qualified borrowers.

“The old saying is, ‘You can’t get blood from a turnip,’” Flynn said. “It really goes back to the underwriting. Why did you make these loans in the first place?”

The city’s Department of Economic Development declined an interview with WCPO. But a spokesman said the city began reviewing its lending policies last year and has tightened its oversight.

“DCED already was conducting a review of outstanding loans and reviewing the options for collecting them,” spokesman Kevin Osborne wrote in an email. “DCED’s due diligence on the loans began before WCPO’s various requests and will continue afterward.”

Councilman Kevin Flynn speaks during a Cincinnati City Council meeting Oct. 18, 2017. Photo by Leigh Taylor

Why certain loans are given out by the city is a question Flynn never really got an answer to during his tenure on city council from 2013 to 2017.

“I always worry about that, in the world of politics, that these loans aren’t being made based on the creditworthiness of the borrower," Flynn said. "They’re not based on the inherent soundness of the project. Sometimes we’re doing this for a social purpose, and I get that … so why call it a loan? Call it a grant that you’re really never expecting to get paid back for, and look at it that way.”


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No foreclosure on Mahogany’s

In February 2015, Flynn made a motion to use “all action necessary,” including default and foreclosure, to collect the $300,000 the city had loaned Liz Rogers for Mahogany’s.

“I’m not necessarily saying we should file a lawsuit, but we have to do the assessment,” Flynn said at that Budget and Finance Committee meeting. “We should be doing this on each and every item where the city is owed an obligation.”

But other council members who felt Flynn was picking on Rogers quickly shot that idea down.

Liz Rogers, owner of failed Mahogany's restaurant, has only repaid $3,200 of the $100,000 she owes the city of Cincinnati.

Flynn was the lone vote in favor of his motion, with six others voting against it – current city council members Wendell Young, Chris Seelbach, PG Sittenfeld and David Mann, along with former members Charlie Winburn and Yvette Simpson. Council members Amy Murray and Christopher Smitherman were absent from the meeting.

“I feel that if we are going to foreclose on individuals who have not paid their debts to the city, then I want them all up here,” Winburn said. “I want everybody to be foreclosed on, if we are going to do it.”

Seelbach and Mann agreed, both speaking against Flynn’s motion.

“If anyone owes the city money, it is the job of the city administration to go after the money that’s owed to us,” Seelbach said. “But it feels incredibly unfair that we’re singling out one business owner who, I think may admit has made some mistakes, but has been under intense scrutiny that no other business or company, that in my history, has ever come under.”

“So I’m not going to vote (for) that,” Seelbach said. “But the city administration should be doing their job, which is collecting debts that are owed to us.”

The city filed a lawsuit against Rogers and got a certified judgment in Butler County in September 2016 for $108,000, making it a valid lien on any property Rogers owns. But the city never recouped any money from that judgment. It is uncertain whether it ever will.

“There are a number of large liens against Ms. Rogers’ property that are senior to the city’s mortgage, thus foreclosure is not a viable option at this time,” city spokesman Casey Weldon said. “At such time that we can determine an employer (not self-employment) for Ms. Rogers, we can attempt to garnish her wages. Otherwise, we will continue to monitor the judgment lien.”

Loans to holistic center, hair salon

Most of city’s nonperforming commercial loans were made prior to 2009.

Some are emergency business loans ranging from $15,000 to $51,000, made in 2002 to small businesses such as a holistic center, hair and nail salon, and a restaurant.

Others are empowerment zone loans made to businesses in impoverished neighborhoods. From 2004 to 2009, the city gave out $606,000 in loans to a barber shop, childcare center, electrical contractor, pizzeria, hair salon, and an unspecified LLC, that are all now in collections for nonpayment.

In 1998, the city loaned $65,000 to the owner of a bar on West Court Street near City Hall. The roof collapsed on the building in 2003, according to court documents, and the city was never repaid.

“It really makes you wonder how many loans is the city giving out, and why are they doing this,” said Capell, the anti-tax watchdog. “Why do they have, what seems like, no system in place to actually collect on the loans once they have been given?”

When the city makes commercial loans, they are meant to stimulate the economy and boost development, especially in neighborhoods that need revitalization, Flynn said.

“Assuming they perform it ends up being a good thing because then the city gets their money back and can lend it in other areas,” Flynn said.

But Flynn believes the city needs to scrutinize its loans and stop loaning money to limited liability companies, which are very difficult to collect from.

The city of Cincinnati loaned $60,000 to Pendleton Rhine LLC in 1999 for a parking lot for apartment residents. The loan was never repaid. Photo by WCPO.

In February 1999, Cincinnati City Council passed an ordinance giving a $60,000 loan to Pendleton Rhine Company LLC to develop property on Vine Street in Clifton Heights as a parking lot for several apartment units. The loan was never repaid and is now in collections for nonpayment.

There is no listing for a Pendleton Rhine LLC on the Ohio Secretary of State’s website for businesses, so WCPO was unable to locate anyone for comment.

Pendleton Rhine sold the property in 2002, according to the Hamilton County auditor. But the city was never repaid, and is now owed $66,295, with overdue interest.

What is the city doing to recoup its money?

“The law department has initiated contact with attorneys for the current owner of the property to resolve this loan without litigation,” according to an emailed response from the city’s department of economic development.

In 2013, the city gave a $205,000 loan to Acoustitherm LLC, a small heating and air conditioning company on Beekman Street in Millvale. A year later, the majority owner, James Livingston, who signed the promissory note, filed for bankruptcy. The city of Cincinnati was never repaid and is listed as one of his creditors in court documents.

WCPO was unable to reach Livingston for comment. His business phone number had been forwarded to a new company.

The city of Cincinnati loaned Acoustitherm, a small HVAC company, $205,000 in 2013, but was never repaid. Photo by WCPO.

Court documents from his bankruptcy case reveal that in 2013 – when the city made the loan -- Livingston already owed $27,000 in delinquent state and federal taxes from years prior.

The city sued Acoustitherm and secured a judgment and decree of foreclosure in November 2017, allowing the property to be sold at a sheriff’s sale. But nearly a year after that judgment, the property has still not been sold.

What is the city doing to recoup its money?

“Absent a response from Acoustitherm, the city’s next step is to request that a sheriff’s sale date be scheduled,” according to an emailed response from the department of economic development.

That doesn’t sit well with Capell.

“The most obvious red flag is when somebody owes a lot of money to the state or federal government through back taxes, and they’re still getting a loan,” Capell said. “It really doesn’t seem like there is a screening process.”

Who gets these loans?

The overwhelming majority of the city’s bad commercial loans were issued more than a decade ago.

In fact, only one of the 32 commercial loans made since 2015 -- the $100,000 loan to Rogers -- is in collections for nonpayment. However most of these new loans don't require payments to be made so soon.

But questions still linger about who gets recent city loans – and why.

In May 2016, city council voted to give a $315,000 acquisition loan to KB Partners LLC for a vacant and deteriorated 18-unit apartment complex in East Price Hill.

This property at 2911 Price Avenue as it looked May 16, 2018. The city loaned KB Partners LLC $315,000 in 2016 to acquire the building. Photo by WCPO.

“The emergency ordinance authorizes the city to provide financing to help pay for the acquisition costs of the property," according to the ordinance. "The borrower, KB Partners, LLC, and Price Hill Will, a nonprofit development corporation, plan to renovate and restore the property to its original use as six townhomes."

The city ordinance describes the $315,000 as an “acquisition loan.” But KB Partners already owned the property, according to Hamilton County auditor records.

KB Partners bought the property in February 2015 for $332,500, and paid cash, according to the auditor’s property conveyance form.

Tom Koopman, a partner at KB Partners, did not return WCPO’s repeated requests for comment. Price Hill Will, who is listed as a partner on the project, also did not respond to an interview request.

Scott Rosenthal of East Price Hill lives down the street from the Price Avenue project. Photo by WCPO.

Scott Rosenthal, who lives down the street from the project, is troubled by the loan and doesn’t understand why the developer got it.

“The problem with the contract was – there was no acquisition of property … because the people who received the loan -- a fully forgivable loan for $315,000 -- own this property,” Rosenthal said. “So it strikes me as odd.”

WCPO requested an interview with the city’s department of economic development to specifically discuss why this loan was made. The city declined.

KB Partners is not delinquent or behind on its loan.

“The loan to KB Partners, LLC, is a 5-year, 3-percent forgivable loan if developed to the satisfaction of DCED in accordance with the contract," according to an emailed response from a city spokesman. "The five years does not expire until July 2021; therefore, no payment has been made. Also, the project has not yet been completed so there is no forgiveness anticipated for this year.”

The property at 2911 Price Avenue as it looked on May 16, 2018. The city loaned KB Partners LLC $315,000 in 2016 to acquire and renovate the building. Photo by WCPO.

When WCPO visited the project in May 2018 – more than two years after the city approved the loan -- no crews were on site and little work had been done. A chain link fence surrounded the property, but the building’s back doors and windows were exposed.

After WCPO asked the city questions about the project, a department of economic development staffer visited the site, the city confirmed.

When WCPO visited the property on July 25 and August 2, crews were working on the land. When it returned on Aug. 14, the site was vacant.

“You may want to visit the site," Jay Kratz, director of real estate development at Price Hill Will, wrote in an email to WCPO on July 31. "There’s quite a bit of work going on. I live nearby so I see the project often."

Still, Rosenthal doesn’t understand why the city gave the loan to KB Partners in the first place.

“Calling it a loan is a little ambiguous. It’s really not. It’s a giveaway,” Rosenthal said. “The contract basically says as long as you have a renter show up in this building then you’ve achieved the completion of terms that entitle you to put this $315,000 in your pocket. And I don’t see the neighborhood accruing anything from that.”

Sheila Rosenthal, recording secretary of East Price Hill Improvement Association, lives down the street from the Price Avenue project.

Rosenthal’s wife, Sheila Rosenthal, who is recording secretary for East Price Hill Improvement Association, wants the city to put money into neighborhood projects, instead of giving loans to developers.

“Why are some people getting that and other people aren’t,” Sheila Rosenthal said. “I guarantee you if I went down there (to City Hall) and asked for a loan for exactly that kind of situation, they’re not going to loan money to me.”

“I want in on this,” Sheila Rosenthal said. “If the city is giving out $315,000 loans so I can go buy an apartment building and own it and do a little fixing up on it and now I’m free and clear and I don’t owe anybody anything – don’t we all want a part of that?”