By Walter P. Roche, The Tennessean
A group of politically connected businessmen earlier this year sold a
long-vacant Knoxville office building in need of millions of dollars in repairs
and upgrades to the state for $10 million, twice the price they paid for it
five years earlier.
The building, for Pellissippi
State Community College, will cost an additional $16.6 million to make it
suitable for a community college, according to a report commissioned by the college
to assess the property before the purchase.
A series of emails obtained by The Tennessean under open records laws shows
that the top aide to Gov. Bill Haslam stepped in late last year to try to make
the purchase a priority after being contacted by an intermediary for the
Knoxville developer selling the 220,000-square-foot building.
The developer, Samuel J. Furrow, has been a business partner with the
governor in the past and a friend of the governor's father, who loaned Furrow's
wife $1 million while Furrow was trying to sell the building to the state.
Furrow and his investment group bought the vacant property at 7201 Strawberry
Plains Pike for $5 million on June 28, 2007, from North American Philips and sold it to the state on March 9, 2012, for $10
million, according to public records.
"We stole it (from Philips) and sold it to the state," Furrow said in a
telephone interview, attributing the gain on the investment to a low purchase
price.
He said the deal did not produce a full$5 million profit because of expenses
such as interest and maintenance.
"We did everything right and for the right reasons," Furrow said, calling
the sale "clean as a whistle."
Needed repairs
The state bought the building by tapping $87 million that it
had previously budgeted for TennCare, the state's Medicaid program for the
poor. But that money was able to be shifted for other uses when the federal
government boosted its share of Medicaid funding
for Tennessee as part of the stimulus package. In addition to $8.5 million in
state funds, $1.5 million was contributed by the Pellissippi State Foundation
toward the purchase.
Tennessee officials set aside an extra $2 million for immediate repairs,
including a new roof. Estimates for total repair costs ranged from $3.1 million
to nearly $5 million, records show. And to make the entire building suitable
for use as a community college, a report dated Nov. 28, 2011, by Community Tectonics
to Pellissippi State concluded it would cost $16.6 million, or $75 a square
foot. Among that report's recommendations was replacement of the heating and
air conditioning system.
Despite the new roof and other recommendations for fixes, Furrow said he was
not aware of the need for any repairs and noted the terms of the sale called
for the building to be in usable condition. He did say that he spent $400,000
to eliminate a mold problem in the building before the state would complete the
purchase.
The college began using parts of the building in August and 262 students
currently attend classes there, said Monica Greppin-Watts, spokeswoman for the
Tennessee Board of Regents. Enrollment on the Strawberry Plains campus is
projected to climb to 600 full-time equivalent students by 2017. The college
plans to lease back to the state 85,000 square feet for offices unrelated to
the college, she added.
Eventually, Board of Regents officials say, the college hopes to occupy the
entire building and phase in the various needed repairs.
No other locations
were fully evaluated
Pellissippi officials have wanted to open another campus to reach potential
students in what they say were underserved sections of Knox County and wanted to use this building for nursing and future
allied health programs.
Community college officials cited an August 2010 study to the Board of
Regents that documented the need "to expand citizen access to post secondary
educational opportunities. This unique facility would meet all the college's
needs to fill this identified need."
The new campus is 26 miles from Pellissippi's main campus. Pellissippi has
two other locations in Knoxville and a campus in Blount County. The nearest
Pellissippi campus to Strawberry Plains is about 10 miles away on Magnolia
Avenue.
Greppin-Watts said college officials examined two vacant retail locations
but rejected them because they "didn't meet the college's short- or long-term
plans. The cost of renovating these types of properties would be much higher."
However, a cost analysis of the two retail locations was not documented, she
said.
"Pellissippi State determined that the cost of the building and any
identified improvements would be well below the cost to construct a new
facility, and this was the best suited to meet the campus's immediate and
future needs. It also allowed the college to begin offering classes in that
area more quickly," she said.
Former Pellissippi President Allen Edwards, who advocated
for Furrow's building before his retirement, said no other sites were fully
evaluated because the building in the eastern part of the county was the only
one suitable to their needs.
In fact, the state does not require its agencies or departments to evaluate
competing proposals for more than one piece of property when purchasing a
building, according to Kelly Smith, spokeswoman for the Department of General
Services. "Nor does it require the state agency to post public notice
requesting proposals when it is looking to make a purchase," she said. The
State Building Commission,
however, must approve property purchases.
Even before the purchase, Edwards committed the school to back-to-back
six-month leases totaling $28,800 ending in September of 2011. The money was
paid even though the building remained vacant and unusable. The school also
paid utilities on the property during the lease period.
Edwards said he did not remember the reason for the leases, which he signed
on behalf of the school.
Other college
expansions
Pellissippi is not the only community college that has expanded lately,
adding buildings in new locations to reach new students.
A review of recent community college expansions shows that Nashville State Community
College purchased for $3 million the former Dillard's in Hickory Hollow
Mall using the same pool of state money. Though its cost was considerably less,
at 200,000 square feet, it was only 20,000 square feet smaller than the
Knoxville building.
Chattanooga
State Community College also tapped the funds to purchase a
186,000-square-foot former warehouse and a 25,000-square-foot parking garage
across the street from its current campus.
In addition to the $9 million in state funds, the project was financed by $3
million from Wacker Industries, which has opened a training
program in part of the facility. The total project cost was $13.2 million, when
including cost of renovations.
One of the appraisals for the Strawberry Plains building in Knoxville
included comparable sales of other office buildings in
Knoxville, Nashville, Murfreesboro and near Memphis. That appraisal valued the
property at $10.85 million, and another set it at $11.6 million.
However, at the time of the state purchase, the property was assessed by
Knox County for tax purposes at $4.4 million, according to Jim Weaver, chief
deputy assessor for Knox County.
Weaver said the county's assessment was set at 100 percent of the market
value of the property. "That building had set vacant for years," he said.
The governor's press secretary, Alexia Poe, said the governor was aware of
the Knoxville building's purchase but noted the process began before he became
governor in January 2011. She said Haslam had never discussed the sale with
Furrow or any of the other investors.
"The department (General Services) did its job in looking out for the financial
interests of the state and Tennessee taxpayers," Poe said.
Some of Furrow's partners in the limited partnership, Furrow Realty Fund LP,
include Healthways Chairman Emeritus Thomas Cigarran; Barry Bradley, a
Knoxville area developer; and James Clayton, whose Clayton Bank provided
financing.
Board of Regents records show that the investors put up less than $5 million
and financed the purchase with a mortgage. Those records show that $4.8 million
was still owed on that loan when the state bought the property.
Cigarran said he was a passive investor. "Smart people got together and
bought low and sold it for a fair price," he said. He said the prior owners
couldn't sell it, and the price kept going lower.
Another one of the investors, Sharon Pryse, a Knoxville banker, said she was
pleased with the deal.
"It was a great property and a great return."
She attributed the success to Furrow's strategy of buying "distressed
properties that have been on the market for a while."
Asked if she knew how the sale to the state came about, she said, "My guess
is that Sam marketed it, because that's what he does."
Haslam father lends
$1M to developer's wife
Furrow and his wife have had financial dealings and relationships with the
Haslam family through the years.
Most recently, in June 2011, James Haslam II, the governor's father, lent $1
million to Furrow's wife on her Nantucket Island property in Massachusetts.
James Haslam II did not respond to a telephone message left at his home. Poe
said in the written response to questions that the governor was not aware of
the Nantucket loan.
The governor's father and Ann Furrow also served together on the board of
trustees for the University of Tennessee
for several years.
Furrow and the governor have been co-investors in a real estate venture,
Furrow-Holrob Development I. The partnership, SEC records show, at one time
leased property to the Ruby Tuesday restaurant chain, where the governor's
brother was a board member.
Furrow said he does not currently have any business partnership with the
Haslam family. Poe, in the written response, also said that the governor had no
business involvement with Furrow now or when the state was considering the
purchase.
Furrow said the loan to his wife was unrelated to his sale of the Strawberry
Plains property to the state. "Absolutely not," Furrow said. "I've known Jim
Haslam for 40 years."
Making deal a
priority
Records obtained by the Tennessean under the state public records law show
that a flurry of email activity began on Nov. 3, 2011, when Raja Jubran, acting
as an intermediary for Furrow, contacted the governor's chief of staff, Mark
Cate.
Furrow told The Tennessean he wanted to complete the sale before the end of
2011 for tax reasons and he was concerned that other community colleges were
competing for the same state funds.
Jubran, who has been involved in business dealings with the governor in the
past, urged in his email that the deal be closed by the end of the year. Though
the effort ultimately failed because promised repairs had yet to be completed
by Dec. 31, 2011, Jubran's email set off a chain of emails involving high-level
Haslam administration executives that outline their efforts to make the deal a
priority.
Jubran wrote to Cate that the sale had all the needed approvals and "all it needs
is a final signature, and I think the matter is in front of the Education
commissioner, and he just needs to sign. The only favor that Sam Furrow is
asking is, if everything is ok with the deal he would appreciate their
signature and closing prior to year end."
Cate forwarded the email at 8 a.m. to John Morgan, chancellor of the state
Board of Regents, and Morgan emailed back at 11:50 a.m.
"We think a year end closing is possible but will be pretty tight," Morgan
wrote. "We have asked them to move it along but it might help if you let the
commissioner (General Services Secretary Steve
Cates) know it is a priority."
Haslam's chief of staff then forwarded the email chain to the General
Services Secretary Cates, who forwarded it to his staff asking for information.
After hearing back the next morning that "the only thing that would keep us
from closing is there is a large list of items that Mr. Furrow needs to
repair," Cates forwarded that information to Haslam's chief of staff, Cate.
Cate then forwarded the email chain back to Jubran, who responded on Nov. 4,
2011, "Do you mind if I share with Sam (Furrow)," Jubran wrote.
"As long as he keeps it to himself," Haslam's chief of staff responded.
"I will just call and tell him, I think that is better anyway," wrote Jubran.
"That would be perfect," Cate wrote in reply.
Two weeks later, Cate sent an email to Cates, the general services secretary,
reminding him of the deal and giving him Furrow's phone number.
The next business day, on Nov. 21, 2011, General Services Secretary Cates
emailed Haslam's chief of staff back, saying, "We talked to Mr. Furrow. Great
call, but we should discuss."
Greppin-Watts, the Board of Regents spokeswoman, said the deal was not
pushed along unduly. "There was no pressure on our part to hurry the project,"
she said.
Asked if he thought he received favorable treatment, Furrow said, "God no, I
felt I was being abused."
He called the process "a bureaucratic mess."