Washington Square on 'life support' as city and developer battle in court

Tallahassee Democrat

The stalled Washington Square high-rise is on "life support" following a Tuesday emergency injunction hearing, said a lawyer for the troubled project.

A deal or no-deal scenario unfolded much of the day in Leon Circuit Court, where the city was accused of being "anti-business and anti-community" by developer Ken McDermott. He called the dispute between his company and the city over a parking garage easement "ridiculous" during his sworn testimony.

“This is my home, and I wanted to create something beautiful,” said McDermott, adding city commissioners were initially enthusiastic about a redevelopment project pitched to support an 18-hour downtown.

Attorneys for the city, however, said many attempts were made to resolve the issue before litigation. They said Fairmont was aware of the city's stance on a 2016 easement agreement before construction began last August, two years behind the developer's initial schedule.

City Attorney Cassandra Jackson vehemently disagreed with the city being labeled "anti-business."

“We are supportive of business,” she said. “They are getting $6.6 million in (tax) credits from the (Community Redevelopment Agency), from the government, for their project. What developer gets that?"

Following the day-long hearing, Circuit Judge John C. Cooper said he wasn't ready to rule on Fairmont's request for a declaratory judgment considering the short notice and the ambiguity of the case. He continued the hearing for Aug. 21.

McDermott's company, Fairmont Tallahassee, one of at least two entities backing the Loews Hotel mixed-use project, filed a motion on Aug. 5 in conjunction with its previously filed lawsuit against the city of Tallahassee over the interpretation of a perpetual easement agreement.

Michael Gay, a partner at Foley and Lardner law firm, said the project’s fate hinges on how Cooper rules.

Cooper, who clearly grappled with aspects of the unusual dispute, questioned whether a temporary injunction had any validity at all. He wasn’t convinced the stalled 19-story project on Calhoun Street could secure a construction loan needed to see the finish line. He urged both parties to seek mediation.

“If we don’t win, that property is abandoned,” Gay bluntly told the judge. “The work has stopped … What I am telling you is we are at that tipping point.”

Cooper replied: “So you’re telling me if I don’t rule in your favor, the project is going to sit there like a lump across from the Courthouse in perpetuity?”

Gay did not answer the question directly but said the developer would do all he could to make the property safe if the project stopped.

Back story:

Cooper said he struggled to understand basic tenets associated with the easement agreement for Washington Square’s loading and storage uses, including how a $150-million project could move forward without iron-clad clarity on what would happen if the garage was razed.

He also expressed serious doubts about whether a ruling in Fairmont’s favor would be enough to convince a bank to finance the project, which has approximately $8.8 million in liens against it from unpaid contractors.

Gay also made reference to upcoming testimony from at least one person who could vouch for and testify on Fairmont’s impending loan if Cooper ruled in the company’s favor.

One of them is Thomas DiVenere, a principal in Snell Development based in Los Cabos, Mexico, and Vail, Colorado, a development company that structures and finances hotel and hospitality projects.

DiVenere, an equity investor, said in his testimony that the conflict he saw in the courtroom gave him "great pause."

The dispute surrounds a perpetual easement located on land the city owns where the Eastside Garage sits. The lawsuit claims an initial agreement with the city gave Fairmont access to the first floor of the city's garage in perpetuity. The garage is located next door to the proposed mega-development behind the Leon County Courthouse on Calhoun Street.

The city granted Fairmont the right to use the 30,000 square-foot garage area for a loading dock and other permanent “back of house” building support services. The city, however, contends the term “perpetual” applies only to the existing garage, not the land where the garage sits.

In addition, due to an expiring lease in 2025, the garage could be torn down. If that happened, the city argues the easement agreement would be extinguished.

Cooper expressed concern about the consequences of a large-scale, incomplete project during hurricane season, which could cause major safety issues such as erosion and structural damage to the Washington Square site and surrounding properties.

"I’ve got testimony saying that if a hurricane comes in, it would be a disaster," Cooper said. "You know what season we’re in? It's hurricane season.”

City Attorney Jackson said the city didn’t have enough time to prepare for the emergency injunction hearing. During the Aug. 21 hearing, Jackson said Cooper is expected to make a ruling on whether the perpetual easement is tied to the city-owned Eastside Garage or the land it sits on.

“The public interest is at stake, and I think that’s lost on a lot of people,” Jackson said. “The city’s asset will be substantially burdened when it did not commit to that.”

According to Jackson and the city's attorneys in the hearing, Fairmont had a clause in early versions of the easement agreement tying access rights to the land. Jackson said the city didn’t agree, and took it out. With the hearing extended, those and other materials will be presented to Cooper.

"We allowed them to use a first floor (in the Eastside Garage), granted it was under-utilized, because we wanted to encourage economic development," she said. "And then, what we get for our willingness is sued.”

Contact TaMaryn Waters at tlwaters@tallahassee.com or follow @TaMarynWaters on Twitter.