Financial problems plague a development in the downtown Bowling Green Tax Increment Financing district even as city officials negotiate with another organization to potentially take over management of that development.
Mills Family Realty Inc. owes the contractor and subcontractors that built Hitcents Park Plaza nearly $2 million for work done on the project, according to a letter obtained by the Daily News. Hitcents Park Plaza is a commercial wrap on the parking garage in Block 6 of the TIF district and includes restaurants and office space.
Bowling Green city government is investigating how money to finance the project has been spent.
A letter dated Feb. 11 from attorney Michael Shull III of Frost Brown Todd LLC, representing Alliance Corp., said $1,974,463.05, as well as accruing interest, is past due to Alliance for work done on the project.
“As you know, Mills Realty is severely behind in payments to Alliance for its work on the project,” the letter said. “This has, in turn, caused the inability for Alliance to forward said payment to the subcontractors who also performed work on the project.”
Mills Family Realty has yet to “adequately explain” how money for the construction of the wrap has been spent, according to the letter.
Clinton Mills of Mills Family Realty said in a text message Saturday that Mills Family Realty is “engaged in discussions to explore options to provide for the payment of any amount owed to Alliance Corporation.”
He said in the text message that the company declines to comment further on the matter at this time.
Alliance attended a meeting Nov. 24 with some of the larger subcontractors on the project, representatives of the city of Bowling Green and Warren County, the Warren County Downtown Economic Development Authority and others, according to the letter.
“Subsequent to that meeting, we have heard nothing from Mills Realty as to why payment has not been forthcoming, or where funds which should have been used to make payment to Alliance were spent or directed,” the letter said.
Bowling Green Mayor Bruce Wilkerson said bonds should have been sufficient to cover construction costs of the wrap.
The project is financed through a temporary bond anticipation note, which covers the entire amount of bonds prior to those bonds being sold, he said.
Attorney James Parsons of Taft Stettinius & Hollister LLP has been investigating how bond proceeds have been used, Wilkerson said. He was initially hired by the city in January to handle negotiations between the city and Bowling Green Hot Rods owner Jerry Katzoff about taking over management of the parking garage wrap.
“We have certain questions about the spending practices with regard to the wrap,” Wilkerson said.
He said he doesn’t believe the city would be liable for unpaid money for construction of the wrap, but that is also part of what Parsons has been retained to determine. The city is serving as a backstop to cover bond payments if they aren’t covered by other revenues, including TIF revenues from some blocks of the TIF district.
Contractors and subcontractors are seeking a resolution to the situation, and Wilkerson said he has been involved in those negotiations, though he isn’t aware of any direct contact between city officials and the Mills family. That contact would occur through the Warren County Downtown Economic Development Authority.
“I will say negotiations have intensified of late, and I’m optimistic that we’ll have a positive resolution,” he said.
Doug Gorman, chairman of the Warren County Downtown Economic Development Authority, said the authority has been working with all involved parties to come to a resolution.
Those negotiations have been ongoing for four or five months, he said.
“Most importantly we are working with the city and the county in assisting with negotiations with Mr. Katzoff,” Gorman said.
He said he expects that Katzoff could be a “giant” part of a resolution with his extensive restaurant and commercial development experience.
The Bowling Green City Commission in 2012 approved a number of agreements to finance the garage wrap.
The city leased the parking garage, with payments for the garage set to be equal to bond payments for the wrap.
Agreements at the time also set aside money to help cover the cost of the parking garage lease, including lease revenues from the wrap, TIF revenues generated by one of the tenants of the wrap and TIF revenues generated in blocks 4A, 5, 8 and 10. Any revenue beyond the lease payment would go to the city and could be used to pay off other bonds.
The city is responsible for covering whatever portion of the bond payment isn’t covered by specified revenues. The subdeveloper has to pay the city back for any payments it makes, but only if the company wants to buy the wrap after bonds are repaid.
In 2013, the City Commission approved issuing $5 million more in bonds for a project in which $22 million had previously been approved so that Mills Family Realty could further develop the wrap.
Five restaurants – Tres Molinos, Brick & Basil Pizzeria, 6-4-3 Sports Bar, Pagoda Asian Cafe and Mariah’s – opened at Hitcents Park Plaza in the spring of 2014. MR Group, which is owned by Clinton, Chris and Ed Mills, bought Mariah’s restaurant in February. Rick Kelley, former owner of the restaurant, was hired as a consultant to help with the new development.
The Mariah’s property had been part of ongoing litigation dating back to 2011, when Citizens First Bank went to court to attempt to collect repayment of loans extended to Bowman-Kelley Total Office Systems.
To secure the loans, Kelley put up Mariah Moore House and another downtown property, the Pushin Building, as collateral. Citizens First took legal action after Kelley defaulted on the loans.
Tres Molinos, Pagoda and Brick & Basil closed suddenly Sept. 27.
Clinton Mills, co-founder of Hitcents and president of MR Group, said at the time that the three restaurants didn’t fit in with the “downtown destination” atmosphere Mills and Hitcents co-founders Ed and Chris Mills want to create.
The letter from Shull serves as a pre-lien notice. It states that if the outstanding amount is not paid within five days of the date of the letter, Alliance will begin to exercise its lien rights on “any right, interests, or assets of Mills Realty or any other available or attachable asset, interest, or right of any entity on the project.”
“Alliance reserves any and all rights and causes of action in relation to any misuse or mishandling of fund due Alliance by Mills Realty,” the letter said.
However, it said Alliance will participate in mediation proceedings to find a settlement arrangement as a “gesture of good faith and cooperation with the city and county leaders who are working pro-actively with Alliance.”
Shull on Friday afternoon said no liens have been filed against Mills Family Realty.
“We want to work with the parties involved here to find a solution for this outside of any liens or litigation, if possible,” he said.
However, Alliance filed a notice and statement of materials and labor to be supplied with the Warren County clerk on Dec. 23.
The document said Alliance originally executed a construction contract with Mills Family Realty on Aug. 8, 2012, with a guaranteed maximum price of $19,325,000. That amount was modified.
Alliance anticipates it will supply in excess of $21.6 million to the project, according to the document. It notes that the amount is subject to amendment.
“This statement does not constitute a claim of lien, but rather a notice to any prospective purchasers of any interest concerning the project of Alliance’s work on the project and its reservation of all rights, including its rights under KRS 376.010 et seq.”
That portion of the Kentucky Revised Statutes deals with mechanics’ and materialman’s liens.
Warren County Attorney Amy Milliken said placing a lien on the Hitcents Park Plaza structure might be complicated because it was created through a partnership between government and private entities.
“This is a very difficult situation because it is a public-private partnership, and so I don’t know that the statutes adequately cover how liens can be placed on that type of building,” she said.
Milliken said the companies owed money need to be paid, and she is hopeful that ongoing negotiations will yield a positive result.
“It’s very important that that area succeed, just because it’s really transformed downtown in my opinion,” she said.
Warren Judge-Executive Mike Buchanon said county officials have also been involved in negotiations, but that the county ultimately doesn’t have any fiscal responsibility for the project.
He said county officials want the Hitcents Park Plaza development to succeed. At the same time, contractors have put a lot of work and product into the building.
“Obviously we’re concerned because it is in the heart of the TIF district,” Buchanon said.
Clarification: Mills Realty is not related to Mills Real Estate and Auction Co. in Scottsville, which is a separate business owned by Russell and Sandy Mills.
— Follow government beat writer Katie Brandenburg on Twitter at twitter.com/BGDNgovtbeat