If the Numbers Are So Good, Why So Much Help?
YOUNGSTOWN, Ohio – The Stambaugh DoubleTree Hotel development under construction in downtown Youngstown – a project directed, co-owned and managed by indicted businessman Dominic Marchionda, CEO of NYO Property Group – could realize net operating income of more than $1.6 million during its first year in operation and as much as $2.35 million in its fifth year of business.
That’s according to a financial forecast prepared for the project by the Cleveland office of Novogradac & Company LLP, one of several documents The Business Journal obtained related to the hotel project.
The $32.1 million, 120-room hotel development has drawn criticism from those who ask why a venture with such optimistic financial projections needs so much money from the city of Youngstown – including a $750,000 forgivable loan that is part of a $2.75 million development agreement signed by the city with Marchionda and NYO in December 2016.
“Based on our review of the documents and the representation of the economic benefits over the next 20 years, we don’t support or agree that $750,000 of taxpayer money should be given to this developer when it’s not needed,” says Joseph Guarino III, a Cleveland attorney for the Western Reserve Building and Construction Trades Council.
The council represents 16 union locals whose members work in the building trades.
Marchionda, 58, of Poland, and his affiliated companies were indicted Oct. 2 on 101 criminal counts related to three development projects in or near downtown – The Flats at Wick, Erie Terminal Place and Wick Tower. The state alleges that Marchionda laundered $600,000 of city grant money to “support his lavish lifestsyle” and has charged the developer with theft, money laundering, telecommunications fraud, tampering with records, and engaging in a pattern of corrupt activity.
The indictment also implicates at least one city official widely believed to be Finance Director David Bozanich. Bozanich has not been indicted and maintains he has done nothing wrong. Marchionda has pleaded not guilty to all charges.
The hotel project in the Stambaugh Building lies outside the scope of the indictment.
However, the project owner, Youngstown Stambaugh Holdings LLC, is mentioned in the indictment as a beneficiary of at least $105,000 of city money initially intended for the Wick Tower project and allegedly diverted by Marchionda.
The financial analysis prepared by the accounting firm for the hotel project anticipates revenues the first year of $4.432 million – $4.086 million of that figure derived from room revenue. By 2022, total revenues are expected to jump to $6.288 million, and by 2049, annual revenues could reach $10.788 million, the documents project.
Despite these rosy financial figures, Guarino says, some workers at the site are not being paid prevailing wages because the city did not require the developer to pay that rate for the entire project – just the portions paid for with loans from the city.
Under the development agreement with Youngstown, prevailing wages on the project would be paid to workers engaged in “all water and wastewater improvements on the job paid for with loan proceeds.”
This, Guarino says, is inconsistent with other multi-million dollar initiatives the city has financed over the past three years for major economic development projects.
A review of four development agreements over the last several years shows that in each case the city inserted a prevailing wage mandate for the entire project, not just the work its loans or grants covered.
“We think it’s absurd that others paid the prevailing wage, but there’s a carve-out for Dominic [Marchionda] in the Stambaugh project,” Guarino says.
One example: A development agreement between Youngstown and the M.J. Joseph Development Corp. signed in October 2016 stipulates that all “wages paid to laborers and mechanics employed on the project shall be paid no less than the prevailing rates of wages” for each class of work on the entire project.
Joseph Co. International Inc. is building the $20 million chill-can manufacturing and technology campus on the East Side. As part of the development, the McNally administration authorized up to $1.5 million in grant money for site demolition work, but no amendments limit the scope of paying prevailing wages.
Other projects, such as the YMCA of Youngstown’s $5 million renovation at its Central Branch received a $500,000 sanitary sewer and water infrastructure grant from the city. That development agreement requires that all workers on the project be paid no less than prevailing wage, documents show.
A grant for the same amount was awarded to the Youngstown Business Incubator in August 2016 for its $5.1 million renovation of the former Vindicator building. All workers per that development agreement were to be paid prevailing wages.
And, in November 2014, the city provided help in the form of a $520,000 wastewater infrastructure grant and another $100,000 performance grant toward the $4 million renovation of the Wells Building. The agreement stipulates all workers on that project be paid no less than prevailing wage.
Mayor John McNally says that the Stambaugh project is different because of its scope, that it’s not in the city’s best interests to turn down a development of this magnitude. “We were not going to require the entire project, since we were only in it for $2.7 million” out of a $32 million development. “We wanted the project done,” he says. “So we limited prevailing wage to where our money was tied.”
But building trades business agents suspect that Marchionda and NYO Property Group are receiving special treatment from the city on the Stambaugh project. “It seems peculiar to us that those requirements were made on other buildings where the wastewater grants were used,” and not the Stambaugh project, says Tony DiTommaso, senior representative for Local 171 of the Carpenters & Joiners Union.
Past projects with Marchionda included the prevailing wage provisions, such as his first housing project – The Flats At Wick. “That was an all-union job,” DiTommaso points out. Prevailing wage clauses were also included in the Wick Tower and Erie Terminal agreements when the city Board of Control approved them, the Carpenters union representative says.
The issue with the Stambaugh Building is that there is no way to monitor whether workers are receiving prevailing wage for the rest of the project, DiTommaso says. “How do we know those tax dollars are being paid?”
According to Youngstown Stambaugh Holding’s application summary submitted to the Ohio Water Development Authority dated Sept. 9, 2015, the project is projected to employ 55 part-time employees and 15 full-time. Salary and wages for full-time employees range between $45,000 and $96,000 per year, the summary says.
The project also secured an Ohio Water Development Authority loan of $4,567,372. It has drawn down all but $307,998.71. The last disbursement, $112,360.96, was recorded Sept. 27, five days before Marchionda was indicted as part of an ongoing investigation by the Ohio auditor’s office.
Other sources of funding are an $11.5 million conventional construction loan, $4 million in federal historic preservation tax credits and another $5 million in Ohio historic preservation tax credits.
Marchionda’s first development project took root in the mid-1990s with Tuscany Estates, a high-end residential development off Dobbins Road in Poland Township. “There are between 107 and 110 homes back there,” says zoning inspector Bob Monus. The first phase of that development began in late fall 1995, he says, and there might be a handful of lots left. “They have a home owners association there and I think they do a good job,” he adds.
During the housing crisis of 2008-2009, Marchionda turned his sights to commercial developments, this time a foray into student housing where he saw a need and an emerging market. In 2009, his newly formed company, US Campus Suites LLC, purchased a block of dilapidated buildings along Elm Street in Youngstown with the intent of building The Flats At Wick – a housing complex for students who attend Youngstown State University.
To enable completion, the city awarded Marchionda a wastewater development grant of $1.2 million. The state contends that another Marchionda entity, DJM Rental Properties, instead used the $1 million to buy the fire station at the corner of Madison Avenue and Elm Street from the city, a building that it originally offered to DJM for $10. Under Bozanich’s direction, the $1 million was placed into the general fund “in violation of state law,” the indictment says. The indictment alleges a $25,000 bribe was made to a city official that would ensure that the project is finished and to “take care of Dave.”
Bozanich began his career with the city as assistant finance director during the administration of Mayor Pat Ungaro. He became finance director when Gary Kubic left to become Mahoning County administrator.
Ungaro, today the administrator for Liberty Township, says that he never encountered any issues with Bozanich. He praises him as an important factor in negotiating development and finance deals that his administration accomplished during the 1990s.
“We developed the Salt Springs Road Park,” Ungaro recalls. “We got U.S. Steel to give us their properties,” which he says paved the way for the development of the Ohio Works Business Park. “We made millions on income tax as a result of those projects.”
In each instance, Ungaro says, his administration was given legal opinions from the city law director to ensure that the deals were done correctly. “We put a lot of effort and energy into a lot of creative projects,” he says, crediting Bozanich’s skill in finance and development matters.
As work on The Flats at Wick proceeded, Marchionda directed his interests toward downtown Youngstown where Cleveland developer Lou Frangos, president of USA Parking Inc., had acquired several buildings – among them Realty Tower, Stambaugh, the Erie Terminal, Plaza Parking, the Harshman Building, First National Tower and 16 Wick, which was the former National City Bank building.
In 2010, Marchionda signed a deal with Frangos to acquire the Erie Terminal. NYO has since converted it into apartments and ground floor space that includes a pub and a cookie parlor.
The Erie Terminal project received $570,000 in the form of a wastewater grant from the city. According to the indictment, Marchionda submitted false invoices in the winter of 2012 to the city, asserting that 90% of plumbing work had been completed so it could secure city water funds and a float loan.
However, the indictment claims, the correct billing record was sent to First National Bank and the architect. It showed that just 59% of the work had been completed. The city, based on false information, then authorized the payment of $350,000 toward the work, according to the indictment.
In 2012, Marchionda and NYO started negotiations with Frangos to buy Wick Tower and convert that landmark building into apartments. That project in 2014 secured a $500,000 water grant.
By that time, Frangos had sold his interests in most of his buildings downtown to his partners, Wick Ohio One LLC, a subsidiary of Pan Brothers Associates of New York City, after settling a legal dispute between the two entities. The sales included Realty Tower, First National Tower, the Stambaugh Building, the Harshman Building, and the vacant St. Vincent dePaul building along Wick Ave.
NYO Property Group lists all of these buildings except for the Harshman Building on its web site. The Western Reserve Port Authority is considering purchasing that building for its offices. NYO’s web site also includes the 16 Wick building, now closed, as well as the Legal Arts Building, which also remains vacant.
John McCaffrey of Cleveland, attorney for Marchionda, issued a statement Oct. 3 in which he emphasized his client’s investments in downtown Youngstown: “He has taken dilapidated, abandoned buildings and breathed new life into them, and will defend his years of development work with evidence in a court of law.”
The indictment alleges Marchionda concealed his interest and relationship with companies he either owned or managed, including Rubino Construction Inc. The state charges that Marchionda used Rubino Construction as “the conduit to funnel stolen proceeds/government funds to Dominic Marchionda for personal use” and to “maintain and continue the Ponzi scheme” so that he could “continue to live his lavish life style and enrich himself.”
Marchionda was booked on Oct. 6 and released on a $50,000 recognizance bond. He awaits trial.
Copyright 2017 The Business Journal, Youngstown, Ohio.
Published by The Business Journal, Youngstown, Ohio.
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