Rescue for MSA site fell short

A high-profile local firm that quietly negotiated last fall to salvage the stalled redevelopment of the Market Square Arena
site abandoned its plans when the city decided instead to solicit new proposals early this year.

The firm, Flaherty & Collins Properties, has experience in just the kind of high-rise development Mayor Bart Peterson's
office has sought for the four-acre site. Among its current projects is a 50-story condo tower in downtown Charlotte, N.C.

City officials last year asked for input from a handful of local developers, including Flaherty, after they grew frustrated
by a lack of progress on Market Square and began looking for ways to revive the project.

Flaherty, an unsuccessful bidder for the MSA site in February 2003, has shown the wherewithal to develop high-rise projects
without presale requirements–a financing hang-up that ultimately sunk the winning bidder's proposal for a 31-story residential
tower.

All of Flaherty & Collins' discussions with the city and the original development team, Market Square Partners LP,
were behind the scenes, so it isn't clear why negotiations fizzled.

Prominent local developers familiar with the discussions said Flaherty had secured financing and was ready to roll before
it learned of the city's decision. The developers, who spoke to IBJ on condition of anonymity fearing a backlash
from the city or Flaherty, said the company felt snubbed after investing time and resources to put its plan together.

With Flaherty on the sidelines, only two development teams submitted bids last month.

Flaherty officials declined to comment for this story. A spokesman for Mayor Peterson, Justin Ohlemiller, confirmed the discussions
with Flaherty took place, but he would not elaborate.

"There was progress made," he acknowledged. "But ultimately, it didn't yield a project."

Ohlemiller said Flaherty had sought city incentives–a perk the original developers had not received. He said the introduction
of incentives, along with other factors, played into the eventual decision to reopen bidding. The two bidders now vying for
the project–development teams known as Market Centre Partners and Market-Ability Partners–also want incentives.

Said Ohlemiller: "It was a negotiation. It didn't work out. Our focus is on moving forward."

Seeking help for Smoot

In August 2006, the city announced it was working on a "restructured development plan" for MSA with new developers.
At the time, the city said the new developers, which it did not name, would work in partnership with Market Square Partners,
a team led by Columbus, Ohio-based Smoot Construction. Smoot officials did not return phone messages seeking comment.

The city gave Smoot multiple chances to remain involved, realizing the substantial investment the company had sunk in the
project, including a $1 million nonrefundable deposit and its purchase of a parking garage and a vacant bank building. The
city also had hoped to ink a deal that wouldn't require public subsidies.

"Our goal was to try and make it work with Smoot," said Jim Garrard, the city's economic development director.
"We wanted to give them every opportunity to make it happen."

But because Smoot never closed on the MSA site, the city retained ownership, along with the authority to iron out a new development
plan and bring other developers on board if necessary, Ohlemiller said.

At least two local developers, Flaherty & Collins and Kosene & Kosene Residential Inc., were asked for ideas on how
to salvage the project. City officials confirmed they called on other developers but would not say whom.

Kosene & Kosene Managing Partner Gerry Kosene said his firm's meeting in the mayor's offices lasted about 45
minutes.

"They were trying to make it happen, which I thought was smart of them to do," Kosene said. "They were hitting
a headwall, apparently."

During the meeting, Kosene shared his stance that the project wouldn't work without a city subsidy. His sense was the
city was on a "fishing expedition" to find "a marriage that worked for Smoot." After the meeting, Kosene
didn't hear another word.

He said he doubts conversations between the city and Flaherty went as far as other developers characterized.

"Why would the city turn that down?" Kosene asked. "I firmly believe that if Flaherty & Collins had the
project financed, the city would have found a way to do a deal."

Experience avoiding presales

Flaherty typically lines up private investors to get around presales requirements on its projects, including the Charlotte
condo tower that's under construction. In that project, the developer got help from longtime backers, including House
Investments, an Indianapolis firm that lines up investors for real estate projects.

"We're big on being able to start construction and then start sales," principal David Flaherty told IBJ
in December. He did not return phone messages for this story.

A director at House Investments, Patrick O'Connor, said Flaherty had been in contact with the firm about financing to
revive the MSA project. O'Connor called the company "pretty bankable."

"They told us they were in talks, but never sent a package," he said.

The company's original 2003 proposal called for two identical six-story buildings north and south of Market Street. The
$43 million project called for 292 luxury multifamily units, along with ground-floor retail and open space for public gatherings.

In all, six development teams submitted proposals. The winner, chosen in February 2004, was a $140 million project with a
22-story residential tower. It was proposed by Smoot and locally based Shrewsberry & Associates LLC.

The team struggled from the start. The developers eventually retooled the plan, bringing in a Chicago developer and pushing
the proposed tower taller. But liens from unpaid bills piled up, and they failed to presell enough units to secure financing.

Both of the current bidders say city incentives are essential to make their projects viable. Neither has revealed how much
it's seeking.

Market Centre Partners, which consists of Kosene, locally based Pedcor Cos. and Smoot, is proposing a $130 million project
with a 21-story tower and a 15-story tower.

The other bidder, Market-Ability Partners, includes Mansur Real Estate Services Inc., Lauth, Hearthview Residential Inc.
and Venture Real Estate Services. That group's $150 million plan calls for a 14-story tower and a Target.

Shortly before the latest deadline for bids, Flaherty Vice President for Development Jim Crossin told IBJ the company
had no plans to bid again. He said the company didn't want to compete with potential future partners.