No-bid contract lets local firm suggest sales or sale-leasebacks of city property

The Mayor’s Office has quietly agreed to consider selling some of the city’s more than 1,100 properties, including police stations, maintenance buildings and parks, in a bid to raise cash to help balance the budget.

The city awarded the potentially lucrative no-bid contract to Venture Real Estate Services, a politically connected real estate firm led by John Bales.

The local firm has the responsibility of scouring the city’s real estate holdings for cost-saving opportunities that could result in sales or sale-leasebacks of everything from Bush Stadium to the former state museum. Even the City-County Building is on the table.

City officials say the idea is to make sure taxpayers are getting the best value out of properties they own. The move sets the stage for a potentially aggressive drive toward privatization of city assets.

"Nothing is off the table," said Michael Huber, director of enterprise development for Mayor Greg Ballard. "If your costs of owning an asset are much higher than your cost of leasing that asset, then the taxpayers are paying too much."

Every property is different, and any disposition of property would require public input and local government approval, Huber said.

Several of the city’s top real estate professionals say a city review of its property holdings is a good move, but they question the two-year exclusive deal with Venture. The agreement provides a strong incentive for the firm to find potential buyers for city properties: It won’t be paid a dime unless deals are made or savings are realized.

A ‘sweetheart deal’

Julia Vaughn, policy director for the watchdog group Common Cause Indiana, called it a "sweetheart deal" that screams conflict of interest and raises questions about who is looking out for the public’s interest.

"This administration has talked a lot about increasing ethics and the need for transparency and to ensure citizens decisions are being made on their merit, but they really have been glaringly inconsistent in walking the walk," Vaughn said. "This is one of those cases. From start to finish, it doesn’t pass the smell test."

Venture’s president is Bales, a Republican donor known to play up his ties to Gov. Mitch Daniels and other political heavyweights. His attorney is Bob Grand, managing partner at law firm Barnes & Thornburg. Grand is president of the Capital Improvement Board and the mayor’s right-hand man.

Records show Bales gave Daniels $10,000 on July 28. In 2004, he gave Daniels $10,000 and another $5,000 to a political-action committee called Mitch for a Majority.

Bales’ mission is to evaluate the city’s entire roster of real estate holdings to find millions in savings. In 2005, he landed a similar contract with the state, where he has found new ways to generate revenue, including the sale of agricultural land that surrounds prisons.

"We feel our experience with government service organizations makes us uniquely qualified to provide this preliminary comprehensive inventory," Bales said in a statement e-mailed to IBJ. "Despite the significant costs associated with this exercise we have agreed to perform this function at no cost to the tax payers."

Gus Miller, a principal with locally based NAI Olympia Partners, sees the deal as a good chance to bring a fresh perspective to the city’s real estate holdings, which include golf courses, pole barns, Major Taylor Velodrome and small right-of-way properties the Department of Public Works acquired but never used.

And while he would have bid on the contract if the opportunity arose, Miller doesn’t have a problem with no-bid deals on services like real estate brokerage.

"There’s always this presumption of impropriety–of a smoke-filled clandestine room where people go to make the real deal," Miller said. "I don’t know that it’s always so evil and awful. John spent a long time building relationships with these people and getting to know them."

His own interests

Other observers say the selection of Venture could shut out other brokers and may result in good deals for Bales, not the city.

"If you call on a piece of property, will he return your call, will he tell you what the status is and for what price? That’s the test," said one top developer who spoke on condition of anonymity. "I will tell you, any broker will tell you, that’s not the way it happens. What happens is, he goes out and finds somebody to buy it that he wants to do business with."

Bales has a reputation for landing deals that benefit him as much as his clients, in some cases buying properties his clients are considering leasing. And he’s equally known for political connections; he represented his friend Carl Brizzi, the Marion County prosecutor, a few years ago in the lease of 72,000 square feet at 251 E. Ohio St.

"John is very good at leveraging his political contacts into work with his firm, but that doesn’t necessarily mean Venture has the resources to competently do the work," another broker said. "That’s where this decision lacks logic."

A better approach would be to pay a reasonable fee for a firm to do the review, argues Gary Welsh, a local attorney and author of the conservative blog Advance Indiana who championed Ballard’s election as mayor.

Venture officials have "every interest in identifying as much property to sell off as they can because that’s how they get paid," he said. "It’s a foregone conclusion you’re going to come up with some property to sell."

Welsh supports the sale of some small parks that he says are little more than vacant lots turned into parks as political favors or vehicles to honor prominent citizens. But he takes issue with the city’s awarding the contract to Venture.

Welsh said the mayor’s advisers are weaving a tangled web of conflicts of interest. He points to a $30 million real estate investment fund launched recently by Venture that has Bales, Barnes & Thornburg partner Ben Pecar and Marion County Prosecutor Carl Brizzi on its board of directors. The stated mission of the fund: Capitalize on real estate opportunities in Florida and value opportunities in Indiana.

"I don’t think Ballard realizes how much they’re manipulating him on this stuff," Welsh said.

Let the commissions flow

The agreement gives Venture the right to a commission of 2 percent to 3 percent of sale price for disposition of every property the city deems surplus, and for every lease or sale-leaseback deal.

The deal also gives Venture a percentage of "savings realized or revenue generated" by the firm’s efforts to negotiate better deals on real-estate-related expenses of city government. Bales would pocket 10 percent of savings up to $100,000, 5 percent of savings up to $5 million, and 3 percent of savings above $5 million.

In another twist, the agreement appoints Venture the city’s representative for any development or redevelopment project–a clause that would appear to give Venture a leg up on the potential development of the former home of Market Square Arena at Alabama and Market streets.

When Mayor Bart Peterson was in charge, the company had partnered with Hearthview Residential Inc. and Mansur Real Estate Services Inc. on a $150 million proposal for the site calling for a Target store and a 14-story tower with condos, office and retail space.

Huber, though, says the MSA property will be run as an economic development deal outside the Venture agreement.

Mayoral spokesman Marcus Barlow described the contract with Venture as "pretty standard" for government consulting work. The mayor plans to use Venture’s research to determine a course of action, including a decision on whether small parks are better suited for neighborhood-level management.

"We can’t tell from sitting in our office how important a 0.2-acre piece of land is," Barlow said. "It might be the cornerstone of their neighborhood."