City says suit won't slow NASCAR hall

Friday, May. 15, 2009

A developer building an office tower adjacent to the NASCAR Hall of Fame has sued the city of Charlotte over the escalating cost of a shared parking deck.

The developer, Corporate Plaza Partners, an affiliate of Lauth Properties, says the city is overcharging for the cost of expanding the deck. The company says in a court filing that its lender could foreclose on the property if the city insists on collecting the money in dispute – approximately $3.4 million.

But city staff members said that Corporate Plaza Partners is reneging on an agreement that was part of the city's $195 million investment in the NASCAR project.

City staff emphasized Friday that the lawsuit will not harm the NASCAR project. Tenants are scheduled to move into the office building within 30 days, and the hall of fame is on track to open in May 2010, said Assistant City Manager Jim Schumacher.“This doesn't have any impact on the progress of the construction,” he said. Even if the situation came to foreclosure, he said, selling the building at Stonewall and Brevard streets would be easy.

“I think it would be a very attractive purchase for another developer,” he said.

Like most major commercial developers, Lauth has had to eliminate jobs and scale down operations in the real estate downturn. Last year, it laid off more than 80 people in its Indianapolis headquarters and closed its Orlando, Fla., office. This year, Lauth scaled back its operation in Charlotte and its southeast regional partner in Charlotte left to form his own company.

Another dispute last year over an uptown project showed how financial pressures are pushing cases that typically might have been settled by negotiations into the court system. In that case, two big developers, The Ghazi Co. of Charlotte and Indianapolis-based Flaherty & Collins Properties, filed lawsuits in federal court blaming each other for the problems that stalled a 50-story condo tower in the EpiCentre complex. The case hasn't gone to trial and no settlement has been announced.

While that project had some public funding, the NASCAR complex relies more heavily on city money. Through a hotel/motel tax, loans and sponsorships, the city is building the hall of fame and part of the parking deck.

Because it will be shared by tenants of the private office tower, the developer agreed to pay to expand it. Under the agreement, the city is to pay a fixed cost of $10.8 million, and the developer is to pay the rest, Schumacher said.

The developer's cost was initially estimated at $11 million, but has risen to $14.9 million, Schumacher said.

“They have the risk of cost escalation,” Schumacher said. Construction expenses have come in higher than expected throughout the NASCAR project – driven by the rising cost of materials and the demand for subcontractors in Charlotte, according to a city presentation last fall. The city staff in September asked the City Council to add $32 million to the project budget, a sum that included $12 million to replenish a construction contingency fund.

The developer is worried that the city is trying to pass on cost overruns that are not related to the parking lot, said Bryce Bennett, an attorney for Corporate Plaza Partners. He said the developer asked in March for an audit of the city's construction calculations. But the construction company working with the city didn't agree. Bennett said the city then went directly to the developer's lender seeking payment.

City Attorney Mac McCarley said the contract allows for an audit once the project is finished. He pointed out that the developer stopped paying its bills before it raised concerns about the construction costs.

Beginning in September 2008, Corporate Plaza Partners halted bill payments to the city for the parking lot, according to the court filing. Then, in December, the company paid a lump sum of $7.2million before again stopping payments.

“They didn't raise the issue of proper allocation or management of the project until they were several months in arrears on payment,” McCarley said.

On May 4, the city sent a letter to the developer's lender, seeking payment of the remaining $3.4 million due.

Staff Writer Doug Smith contributed.

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