MIDDLETOWN, Ohio — “Do you not think you got your money’s worth?”
That was David Rachie’s response to Middletown Mayor Nicole Condrey after she asked for the public release of a “predevelopment plan” that the city paid $250,000 to create. Rachie, one of three founding partners in Main Street Community Capital LLC, had just finished a three-hour presentation of the project at an Oct. 5 council meeting.
Rachie didn’t take kindly to the mayor’s suggestion that his dream team of consultants had fallen short of the “fully vetted and written” report he promised the city in a February contract proposal.
“This cost way more than $250,000,” Rachie said. “You'll get a follow-up written report. But I don't know where you're going with this."
Betsy Hanavan was shocked by Rachie’s response.
“I found it incredibly rude, incredibly disrespectful,” said Hanavan, a pharmaceutical sales rep and mother of three who has emerged as one of the project’s biggest critics. “As a citizen, I'm sitting here thinking, 'This is the guy we want to give seven and a half million dollars to?"
Hanavan wasn’t the only Middletown resident who rose to the mayor’s defense. In the weeks that followed that October meeting, Hanavan and another Middletown mom, Amy Chupka, joined an informal group of citizen activists that conducted extensive research on Rachie, his partners and the city officials who championed his $1.3 billion vision for Middletown’s riverfront.
Much of the group’s research was presented by its members in council meetings that were viewed more than 5,500 times on YouTube. The group also shared details with Condrey, on social media and in casual conversations all over town. One of the group’s members, Start Skydiving owner John Hart, said he shared his research with the U.S. Attorney’s office, hoping to spark a fraud investigation.
While it’s tough to gauge the impact of the group’s efforts, Middletown voters sent a clear message about the project by electing two political newcomers to council, both of whom promised to vote against Hollywoodland. One of those newcomers, former Middletown Police Chief Rodney Muterspaw, said the project is “dead in the water” due to public opposition.
Some of the activists, including Hart, were friends of the mayor before Hollywoodland. Others had never met her. Condrey said she talked to the group regularly but did her own research on the project before explaining her opposition to it in an Oct. 21 meeting.
“Not any one of these individuals that I have worked with has just gone off the word of another,” Condrey said. “That, to me, is just incredible and it shows that it’s not some like coercion that people are going after but it’s each of these individuals themselves are wanting to find their own line of truth in this matter.”
What follows is an account of their work, including only details that could be verified by the WCPO 9 I-Team, based on public records and interviews with Rachie and city officials. The I-Team also pursued its own research on projects announced but not yet built by Rachie and his partners in Racine, Wisconsin, and the Iowa towns of Dubuque and Mason City.
“The projects change. They’re delayed. The funding isn’t there. The financing isn’t there. I mean, it’s the same story over and over,” Hanavan said. “Maybe they suspect the citizens aren’t going to be smart enough to look into things. I don’t know. But it’s the same story time and time again in a new community. And it’s got to stop.”
Who owns Main Street?
David Elias Rachie is a serial entrepreneur who comes from a family of prominent lawyers in Minneapolis, including a grandfather who was a professor at William Mitchell College of Law in St. Paul.
“I’m the only non-attorney in my family,” Rachie joked in a two-hour phone conversation Oct. 19. “My brother retired early. I’m still slaving away.”
Rachie’s career has included a mixture of hotel, real estate and technology ventures, including one company that combines them all.
Adestinn LLC is a wellness program that encourages companies to establish vacation savings accounts that employers match. Adestinn boosts the value of those accounts by offering room discounts at participating hotels. Although he launched the company in 2009 and still owns a minority stake, Rachie said he is no longer involved in day-to-day management.
“Last I saw, we had more than 20,000 members,” he said. “I know that we’re one of the larger third-party distribution channels for our hotel partners.”
Rachie’s co-founder at Adestinn was Robert Furst, a former equities trader who is the Main Street Community Capital partner in charge of recruiting Hollywoodland investors. Rachie said startups and real estate companies require similar skill sets.
“They’re all about raising capital. They’re all about executing plans,” he said. “I’ve been blessed. I’ve done both.”
After leaving Adestinn, Rachie pursued hotel deals in Wisconsin and Iowa, where he met another Main Street Community Capital partner, Bob Johnson. The developer of Dubuque’s Novelty Iron Works building announced a hotel deal with Rachie last October.
‘It really is an opportunity’
Rachie didn’t arrive in Middletown by accident. He was invited by City Manager Jim Palenick, who signed a development deal with Rachie in Racine a few months before Palenick moved to Middletown in July 2020.
“We had a plan here in Middletown that had a riverfront concept for a hotel and convention center,” Palenick explained in an Oct. 14 interview with the I-Team. Because “that was a business they were in,” Palenick called Rachie within a few weeks of starting in Middletown “to say, ‘Hey, do you want to take a look? Does this make any sense? Do we have a chance to put something together here?’”
Palenick said Rachie impressed him when Racine was pursuing an arena project in 2017. Rachie told city officials it was the wrong approach. The arena project later failed, leading to a hotel and convention center deal that was approved by Racine’s Common Council in February 2020.
“There was a certain, obviously, level of integrity,” Palenick said. “Rather than telling us whatever we wanted to hear in order to get this job and get this deal, they basically said, ‘No, that’s not the way to go.’”
Over time, Middletown got the same response from Rachie and his team of consultants, including Aimbridge Hospitality, the architectural firm DLR Group, the Gilbane construction company and The Producers Group, which designs destination attractions. Working with city consultants Bricker & Eckler and Bradley Payne Advisors on financing solutions, Rachie and his partners transformed the initial hotel/convention center idea into a colossal project that would cost up to $1.85 billion and attract 3.5 million visitors annually to a 50-acre site on Middletown’s riverfront.
But the deal they ultimately struck with Middletown had something in common with the “Purchase, Sale and Development Contract” Rachie negotiated with Racine in 2019. Both had a pre-construction funding clause that allows Rachie to use public money for his pre-development planning.
The two clauses are similar in their structure and language but differ in the amount and timing of the funds provided. Racine delivered $1.875 million over 16 weeks, while Middletown’s proposed contract calls for $6 million in federal stimulus funding to be given to the developer within 24 weeks, with another $1.5 million paid when city-owned land is transferred to the developer.
“It means that we will spend $7.5 million of American Rescue Plan Act funds doing pre-construction activities regardless,” Palenick told the I-Team last month. “Moving the project forward … so that in turn they can go out to the market and see if the financing will work.”
Rachie said “this type of pre-construction financing happens one way or another” in many of the small towns where he operates.
“They don’t have the staff,” he said. “They don’t have the capability of doing what needs to be done for this type of project. No town the size of Middletown would. So, they’re paying basically for us to manage that process for them.”
Mason City Manager Eric Hanson said he isn't aware of any other city that has such an arrangement.
"I've heard of it," he said. "Never have I experienced it."
The city of Hamilton loaned the developer of the Spooky Nook sports complex $10 million for pre-construction expenses in 2018, said Hamilton City Manager Joshua Smith.
But the developer signed a "non-recourse repayment guaranty" that gave the city a chance to recover the funds if the development failed and it wasn't the city's fault.
Middletown's arrangement is not a loan. Palenick said the city could reclaim any work product funded by the pre-construction clause but it couldn't force the developer to pay the money back.
Several Middletown residents mentioned the $7.5 million clause as one of their objections to the Hollywoodland proposal, but Rachie notes it is less than 1 percent of the $1.3 billion project he plans to build.
“I wish we could get more,” Rachie said. “We had a lot of internal discussions about whether we should take this project because of how little that is. If it were not the first Hollywoodland to be announced, it would be more. I promise you that. It’s an opportunity. It really is an opportunity for the city.”
Vetting the developer’s track record
For Amy Chupka, the amount of pre-construction funding Rachie obtained in prior deals is not as important as what got built with that funding.
“These projects that the developer keeps quoting as his experience are not real,” she said. “It’s simply just a bunch of words and renderings of things that don’t exist.”
Chupka started researching Rachie’s past development projects because she is worried that Main Street Community Capital will purchase the Forest Hills Country Club and eliminate an important summertime gathering spot for her family.
“The kids are on the swim team, so they have practice every morning,” she said. “My husband’s a fire fighter, so he’s off two out of every three days. And that’s where they go. It’s a huge part of our summer activity.”
Chupka said she learned from city officials in Dubuque that a 103-room hotel project announced last October in Dubuque, Iowa, has yet to start construction, even though it was projected to open by the end of this year. Dubuque Economic Development Director Jill Connor confirmed Rachie’s partner, Bob Johnson, has a development agreement for the Novelty Ironworks building, where the hotel was announced.
Although the contract does not preclude a hotel, “no construction permits for a hotel have been pulled to date,” Connor told the I-Team.
In Mason City, Iowa, Rachie made headlines last month when the Globe Gazette newspaper reported the developer had yet to obtain financing on a hotel and convention center at Southbridge Mall. Rachie had been discussing the project with city officials since 2017 and told council in August that financing would be finalized by the end of September, according to the report.
In Racine, Rachie’s hotel plans have shifted for the third time since 2019. The website for Main Street Community Capital LLC displays as its main art a 9-story Marriott hotel on the Racine waterfront.
“That’s what we’re building,” Rachie said.
But it’s not what his contract says.
The deal negotiated by Palenick calls for “a ‘first-class,’ full-service hotel with a major brand franchise designation” that has approximately 170 rooms and “no fewer than five levels.” Renderings attached to the contract show a five-story, unbranded hotel on the northwest corner of Racine’s convention hall.
The Marriott rendering depicts a building four stories taller and closer to Lake Michigan than the contract rendering. It’s also more expensive.
Rachie said he is talking to the city about a $120 million project that includes a 288-room Marriott and a larger convention center.
“It started as a Sheraton and as the cost to develop the project, because it was moved on us, escalated,” he said, "we looked at the market and realized we can do a Marriott there.”
Racine’s council records show no indication of a change in plans for the project, which was originally announced as a $48 million Sheraton Hotel in June 2019 with an estimated start of construction in Spring 2020. City officials did not return several calls and emails about the project.
The I-Team asked Palenick how Rachie can complete a $1.3 billion project if he was unable to complete the $48 million project announced two years ago.
“Saying he wasn’t able to is not the case,” Palenick said. “That’s just a project that’s continuing to move forward. So, I don’t think that’s accurate.”
Chupka is not convinced.
“It’s life-changing for our entire town,” she said. “This could be devastating for our town if this developer decides to start something and never finish it or finishes it and it never takes off.”
Middletown has options
While Chupka focused on other cities, Hanavan zeroed in on the actions of Middletown officials who worked with developers to assemble the Hollywoodland site.
For the first time in her life, Hanavan tried her hand at public record requests. She received a batch of eight contracts in which the city agreed to pay $95,500 for the right to purchase nine properties for a combined $12.8 million.
“One of the signed option agreements is for a building that I don’t think citizens knew was part of this project,” Hanavan said. “There are buildings downtown that have sat vacant for years with absolutely no development, even though we’ve been promised year after year that this is coming to fruition. It hasn’t. And now those buildings are part of the signed option agreements.”
Hanavan provided copies of the agreements and canceled checks tied to each deal. It turns out two of them were signed on Feb. 22, which was seven months before city council voted to authorize the use of options to secure land for the project and eight days before council took its first formal action on Hollywoodland by approving a predevelopment plan contract with developers.
The city says the February option agreements violated no rules.
“In the Fiscal Year 2021 operating budget, approved by City Council in November 2020, there was money allocated for general land acquisition purposes,” said Middletown spokeswoman Shelby Quinlivan. “No separate appropriation was necessary to complete these option agreements.”
Mayor Condrey said city staffers should have sought council’s approval before putting Hollywoodland properties under contract.
“If you want trust and buy-in from council and the citizens, why wouldn’t you?” she said.
Beyond the timing issues, Hanavan is concerned about one option deal with the owner of Goetz Tower, a long-delayed apartment project in a historic downtown building that appears to be outside the boundaries of Hollywoodland.
The Hollywoodland development contract includes a “Map of Subject Property,” which shows the entire project site to be west of Main Street. Goetz Tower is on the northeast corner of Main and Central. The development contract also includes several lists of properties to be transferred to the developer, none of which name Goetz Tower, its address or parcel number.
In the Sept. 30 option agreement, the city agreed to pay $20,000 to Historic Goetz Tower LLC and Historic Rose Furniture LLC in exchange for an option to purchase both buildings for $825,000.
That purchase price, which would be paid by developers, is 3.6 times the appraised value of those properties, according to the Butler County Auditor.
The option expires Nov. 15, which means the city is paying $434 per day for the right to buy those buildings. That’s the highest price per day of any option contract signed for the project thus far.
The city has been trying to encourage the renovation of the 91-year-old building since 2013. Developer Steve Coon has been working on a $3.5 million renovation since 2019.
“Coon has been promising high end apartments since he got it,” Hanavan said. “It’s still vacant and dilapidated all these years later. Now, we’re paying him to do what he’s done for years – nothing.”
‘We’re paying attention’
Five of Middletown’s option agreements expire by Jan. 1, so the city will have gotten nothing of value for its $90,000 in option payments if a development contract isn’t signed by year end.
No council vote is currently scheduled. Only two of the five members of council have signaled their support for the project.
One of those supporters is Councilwoman Ami Vitori, who declined to vote in October because she was awaiting guidance from the Ohio Ethics Commission. She received that guidance last week, which indicates she is “not prohibited from participating” in council actions on the project.
Vitori said public opposition is driven by “a fairly small group of affected individuals” who live close to the project. She thinks the city could have done a better job of demonstrating its value to the rest of Middletown residents and defending the team of consultants behind the project.
“They’re at the top of their field,” Vitori said. “Why would they get involved in something that’s a scam?”
Rachie is mystified by the lack of support on city council, after it authorized $250,000 for predevelopment planning in March and $135,000 for option agreements in September. He asked council to delay a vote on the project until Dec. 7 to allow for more public discussions. But he hasn’t made a public appearance in Middletown and hasn’t returned the I-Team’s calls since then.
“The city council has been working with us very closely, very diligently in very, very, very long executive sessions, now for 10 months,” Rachie said on Oct. 19. “This has been looked at to the Nth degree. You have third-party financial experts and legal experts that have been working on the city’s behalf and in their interest all along the way. And we’ve been listening to the council all along the way. Council has had input for 10 months. There’s nothing surprising, shocking or new to anybody on council. Period. You can quote that. They have been a part of this process.”
Middletown’s citizen researchers don’t see it that way.
“I’m frustrated,” Hanavan said. “I feel like the citizens have taken on the responsibility of the city manager, our economic developer, our city law department, our city council. They are all paid positions. And I can’t fathom, with the research that you can find in a 5-minute Google search, I can’t fathom how we have gotten to this point.”
Chupka chalks it up as a win for civic vigilance.
“They released all the information late at night on a Friday night, with the meeting on Tuesday, and I think that they were hoping that nobody caught it,” Chupka said. “I think they were hoping it was just going to fly under the radar and they were going to be able to get that vote in within two weeks and nobody, hopefully, nobody was paying attention. And we’re paying attention. We care about what’s going on in this city.”