No exit: Has Hunter Craig created more unsellable land?
Last week's news about the overhaul of the old Martha Jefferson campus shines a spotlight on another piece of the hospital's portfolio, a property on a prominent downtown corner that recalls some of the big names in local history including Forrest Marshall and Hunter Craig.
How the land came into the arms of Martha Jefferson and why it may stay there– and potentially drain its parent company's coffers– is a tale of charity, timing, and quashed expectations.
The Hospital announced in February that it was selling its leftovers, 26 parcels surrounding the old campus. Among them: "High and Tenth," a 1.23-acre tract with more than 50 parking spaces and three buildings holding more than 10,000 square feet under roof. Asking price: $1.4 million.
The listing agent confirms that it didn't sell during the offering period, but she declines to confirm what a reliable source asserts, that one of the two offers came in $1,399,999 lower, at a single dollar.
The answer is simple. The place is encumbered by a lease that won't end until the 22nd Century and which requires any buyer to assume monthly lease payments of about $10,000 a month and climbing.
How that lease came into the hands of a non-profit medical center is a topic that raises questions about the true nature of charity and whether master deal-maker Hunter Craig earned another taxpayer-funded bail-out.
But let's go back to Forrest Marshall. In the late 1990s, Marshall was an Albemarle County Supervisor as well as the pharmacist who owned and operated the Medical Arts Pharmacy at 916 E. High Street. Having seen how Barnes & Noble wiped out small local bookstores, Marshall wanted to gird himself for competition from national drug chains such as Rite Aid and CVS. So he asked the City for permission to expand from 6,000 to 10,000 square feet, but the neighbors, and eventually the City government, said no to his bigger business.
As he was deciding to retire to his Scottsville-area farm, Marshall says, he was approached by Albemarle financier Hunter Craig with an offer to buy the old pharmacy building. Craig, who snapped up an adjacent medical building that same year, may have figured that controlling the corner across from the City's #1 private employer made a lot of sense.
The first trouble was Forrest Marshall didn't want to sell.
"If I'd have sold," Marshall explains today, "I'd have had to pay taxes on it."
So Craig adjusted his offer. He and his father-in-law, Wick McNeely, via their East High LLC, would begin paying Marshall about $9,000 a month on a 99-year lease beginning in 1999.
What Craig might not have realized was that the City's #1 private employer was making plans to flee. Hemmed in by historic houses and by an increasingly vocal Locust Avenue Neighborhood Association, Martha Jefferson stunned Charlottesville in July 2001 by announcing that it would leap to an office park on Pantops Mountain.
If Craig was surprised, he may have donned a poker face when he unloaded the property on the Hospital six years later.
In the past two years, the name Hunter Craig has become synonymous with a system that rewards the rich with lifebuoys unavailable to all but the most well-connected of ailing property owners. In what may go down in history as his most audacious move, Craig convinced the outgoing governor in late 2009 to buy his behind-on-its-mortgage Biscuit Run housing development and turn it into a state park.
Biscuit Run raised eyebrows not only as Virginia's most spectacular flopped subdivision (3,100 houses planned and not a single one built) but also for the questionable appraisal that triggered millions of dollars in taxpayer-funded credits for the pockets of Craig, Dave Matthews Band manager Coran Capshaw, and other well-heeled investors who claimed they were making a charitable gift.
What happened between Craig and Martha Jefferson would also involve a "charitable gift."
Even though the prospects for developing the High and Tenth parcels were beginning to dim and even though escalation clauses would raise the monthly rent, Craig convinced the Hospital in late 2007– over six years after announcing its departure– that it needed the place so badly that it would pay more rent than he paid, that it would pay more cash for the adjacent medical building than he paid, and that Craig's largesse was so large that he'd get credit for giving a "charitable gift."
The 2007 deed transferred the property to the Hospital for $749,000 plus the assumption of a fresh 99-year lease.
"Things are not the same as they once were," says the Hospital's top planner, Ron Cottrell, denying that he was duped by Craig. "We had some grand visions for the transformation of this part of town."
Indeed, when Martha Jefferson might have been downsizing, the Hospital board approved Craig's deal, Cottrell says, in the hopes of scoring a bookable donation for its $52 million capital campaign and creating an attractive land package for a national developer. A brochure drawn up as part of that effort shows a 75,000 square-foot condo/apartment block replacing all three existing buildings.
But no national developer ever arrived. On the eve of the announcement last fall that Sentara was acquiring the hospital, Martha Jefferson sold its eight-acre campus for just $6.5 million and waited until this year to sell the outparcels.
Cottrell says that Craig was offering a "good deal" because both sides of the transaction obtained appraisals that arrived in the same ballpark: about $2.8 million.
With only three quarters of a million changing hands, did Craig and his father-in-law attempt to gain a $2 million tax deduction? Craig declined to return phone messages, and Cottrell declines to speculate.
"What they ended up putting on their tax return is their business," says Cottrell.
Despite a five-plus-year vacancy on the corner building and despite the lease placing all responsibility for property taxes, insurance and maintenance– what commercial brokers call a "triple-net" lease– on the Hospital, Cottrell believes the combination of office rents and imputed rents for parking spaces probably makes the place "cash-flow positive but not a windfall."
A source who has viewed the lease says the only exits come in 2018 or with the death of Marshall, each event triggering an option to buy. Such a binding agreement makes financial analyst David Marotta wary.
"A 99-year-lease that you can't break," says Marotta, "is just a bad idea."
"I think the hospital's going to come out fine on it," says Chuck Rotgin, a developer unconnected to the project and a frequent user of 99-year leases.
The Hospital's Cottrell contends that if the parcel develops in the massive way now permitted by virtue of its prime location and an updated zoning code, any quibbles about the cost of the land will evaporate.
Any criticism is "Monday-morning quarterbacking," says Cottrell. "It's the old cliché: timing is everything."