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The art of the bad deal

How the former Charleston Naval Hospital redevelopment plan went awry

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How the former Charleston Naval Hospital redevelopment plan went awry

Behind barbed wire and 900 empty parking spaces, inside the tower of reinforced concrete that is North Charleston’s tallest building, most of the former Charleston Naval Hospital looks like the set of a horror movie.

Duct work, wiring and peeling paint hang from ceilings on most floors of the former 175-bed hospital. The heat and air-conditioning system doesn't fully work. Running water and elevator service are also spotty.  

This is the $33 million fixer-upper Charleston County bought to settle a lawsuit over its decision to pull out of a redevelopment plan in North Charleston. It's an investment without a clear plan for the future; one that threatens to saddle taxpayers with millions of dollars in renovation and repair costs.

A group of developers including Donald Trump Jr., President Trump’s eldest son, painted a vision in late 2012 of reviving the vacant hospital as a medical services hub. North Charleston sold the 24-acre property at Rivers and McMillan avenues to them, for $5 million.

More than five years later, the Chicora Life Center development group and its lenders have been enriched, but the property is back in government hands, still vacant.

To figure out how we got to this point, The Post and Courier reviewed hundreds of pages of county and court records, and thousands of emails obtained through the Freedom of Information Act. The investigation found:

  • The county let the developers off the hook when they failed to finish renovations within six months, as promised. Then-County Council Chairman Teddie Pryor signed a document that eliminated project deadlines, leaving no way for the county to hold the developers accountable.
  • The county was on shaky legal ground when it pulled out of the project, despite assurances to the contrary from its highly paid team of lawyers.
  • Plans to pay for the hospital lease hinged on a $17 million sale of two county-owned buildings to the Medical University of South Carolina. But county officials never got the deal in writing — a fact some council members remained unaware of until this year.
  • County and city leaders were wowed by Trump Jr.'s involvement, not realizing that he actually had very little to do with the project. 
  • The developers walked away with a cool $2.6 million from the county's settlement, and some made much more through ties to companies that worked on the project. 

It will now be up to the county to finish the project in the wake of grinding delays, soaring costs, and complaints of shoddy workmanship. The developers blame the county, elected officials blame the developers — and each other — and taxpayers bear the costs, which continue to rise.

Pryor, the most outspoken supporter of the project then and now, doesn't see much point in debating what went wrong. He said such questions amount to “a witch hunt." 

“I’m past the negative,” Pryor said. “Why make a mountain out of a molehill?”

Councilman Joe Qualey doesn't see it that way. He was the lone opponent to approving the hospital lease and the related sale of county buildings in 2014. Now, with so many questions lingering about the project, he said it's impossible to put a positive spin on what is likely the largest unbudgeted expense in the county's history.

“This has turned out to be a financial disaster," he said, "and it’s going to continue to be such, basically, for decades.”

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Insulation hangs from the ceiling on the gutted fourth floor of the former Charleston Naval Hospital on Thursday, Feb. 8, 2018. File/Wade Spees/Staff

A Trumped-up plan

Built in 1973 to serve the nearby Navy base, the Charleston Naval Hospital is an enormous space, occupying some 400,000 square feet. If it were a single-story building, it would cover 9 acres.

The building has been largely dormant since shutting down in 2010, but city leaders have long seen the property as a potential cornerstone for revitalizing North Charleston's impoverished southern end, an area dotted with vacant storefronts, check-cashing businesses and title-loan shops. The city has struggled for years simply to attract a grocery store to the area, located just 6 miles or so from Charleston's vibrant, bustling downtown.

A year after the hospital closed down, Pryor asked the federal government to give the property to the county, for use as a homeless shelter and to provide social services. Instead, the government auctioned it off in 2012. The city of North Charleston — Pryor’s employer — submitted the winning bid of $2 million.

Two months later, North Charleston Mayor Keith Summey announced a massive redevelopment plan. The former hospital would become a world-class medical complex with tenants such as the Mayo Clinic, and a vacant shopping center across the street would be redeveloped. And there would be a grocery store.

Summey didn't name the developers, but the group included Trump Jr., local businessman Jeremy Blackburn's family, and Doug Durbano, a Utah lawyer. The trio had huddled earlier with City Council members to make their pitch, meeting privately in a windowless room in the North Charleston Police Department.

Trump Jr., wearing a coat but no tie, hung back from the discussion, speaking little unless questioned. Still, he drew the room's attention. When the presentation ended, some council members pulled out their phones to have their pictures taken with him. 

“I think the only reason they brought him in was the name, and the flash," said former Councilman Ed Astle, who attended the meeting. “It was a pretty good dog and pony show."

The redevelopment was to span 40 acres, giving the South End an infusion of jobs and economic activity. The plan called for parks, a rooftop garden, and housing for seniors. The centerpiece would be "a 5-star service hospital" and an adjoining hotel on the site.

The Chicora group described Trump Jr. as an active player in the plan who possessed a "successful history of developing buildings and operating world class 5-star properties." 

The developers ultimately plunked down $5 million to buy the hospital property, but not the shopping center site, and city leaders eagerly awaited the area's transformation.

There were lots of dreams,” Summey said. “Anything, honestly, would have been better than what was there — nothing.”

Around this time, Summey gave a new job to Pryor, the County Council chairman. Instead of overseeing North Charleston's tourism efforts, Pryor would coordinate economic development in the South End, where the hospital property was to play a pivotal role. 

The deal depended upon the county leasing more than a quarter of the building's available space for $1.8 million annually. That promise of rent cleared the way for the developers to get a loan for the project. Pryor signed the 25-year lease agreement in mid-2014 after County Council approved it.

By that time, visions of a world-class medical facility had been replaced by plans for a county-anchored social services hub, with inpatient drug treatment and a methadone clinic for opioid addicts.

Trump Jr.'s involvement in the project faded along with destination hospital concept, the Chicora group said. He remained a shareholder but had no active role in the redevelopment after 2013, the group said.

But that’s not what Charleston County Council members were told.

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Duct work and wiring hang from the ceiling of the third-floor chapel in the former Charleston Naval Hospital. Wade Spees/Staff

Who’s in charge?

Trump Jr. did not participate in the lease negotiations with County Administrator Kurt Taylor and County Attorney Joe Dawson in 2013, but his name and reputation continued to loom large over the project. 

When the deal went to County Council a year later, the paperwork prepared by Dawson stated that Chicora’s principals were Durbano, the Utah lawyer, and Trump Jr.

Durbano had ties to a North Charleston construction materials company, Titan Atlas Global, that Dawson said had been hired to recondition the former hospital building. Blackburn, then living in Mount Pleasant, ran Titan Atlas and would oversee the hospital work.

The Chicora development group declined to answer questions about the naval hospital project. Instead they sent this press release.

Some might have seen that as a red flag.

Just a year earlier, Blackburn tried to sell the Titan property to the county, for the site of a recycling center. Emails obtained by The Post and Courier show the county knew the property was scheduled for foreclosure at the time.

Also, the newspaper had published a profile of Blackburn that detailed his history of failed businesses, litigation, and a 2013 bankruptcy that allowed him to escape more than $6.4 million in debts.

Blackburn had been sued for fraud and securities violations in 2004 for his role in a South Carolina insurance business, and he agreed to a settlement. A Georgetown development project in which he was a partner defaulted on a $2.5 million loan. A Utah bank established by him, and Durbano, was shut by state regulators in 2009 — a decision that remains in litigation. And, the first version of Titan Atlas, called Titan Atlas Manufacturing, shut down after just three years and was sued by its own lawyers for not paying their bills.

Nonetheless, Blackburn still had influential supporters, including North Charleston's mayor. One of Blackburn’s companies had built a rental property for the Summey family, and another sold Keith Summey on the idea of putting wind turbines on the roof of North Charleston City Hall, a project that never quite lived up to its promise. 

In a 2014 email to county administrator Taylor, with the subject line “false newspaper report,” Durbano sought to assuage concerns.

“Please find out the truth for yourself and don’t rely on the uniformed (sic) newspaper reporter who is trying to create controversy in hopes of selling papers and scuttling deals,” Durbano wrote.

As the crucial vote on the lease agreement approached, Durbano assured County Council members that he had the development chops to get the job done. He also invoked Trump's name in an email to council members, though Trump no longer had an active role in the project at that point, according to the Chicora group. 

“The Trump reputation is well known and needs little if any further publicity,” Durbano wrote.

County Council went along with the plan and approved the lease agreement in June 2014

The Chicora group would renovate three floors of the former hospital for the county's use. The county would sell two downtown Charleston properties to the Medical University of South Carolina, for $17 million, then relocate staff and patients to the former hospital. Money from the sale to MUSC would pay the lease for years.

The Chicora group estimated it would take six months or less to renovate three floors of the old hospital for the county's use, at a cost of $1.2 million.

The project, however, soon fell behind schedule.

Problems arise

As the developers' six-month deadline approached, county staff and drug treatment patients were told they would soon be relocated to the old hospital. Problems had emerged, however, including the failure of the 10-story building’s air-conditioning system.

Something had to be done. But Dawson, the county attorney, had cautioned against making any changes or amendments to the lease without formal notice and approval from council.

In stepped Pryor, in his final days as council chairman. On Dec. 30, 2014, Pyor signed an amendment to the lease that eliminated the Jan. 1 deadline for the renovations to be completed. What's more, the amendment failed to include a new deadline, leaving the developers with no firm benchmark to hit. 

It's unclear if Dawson, who is paid about $350,000 a year to provide legal advice, reviewed the amendment before it was signed.

“Talk to the legal department," said Pryor, referring questions to Dawson. But county spokesman Shawn Smetana said Dawson, a contract employee of County Council, “does not respond to media requests.”

Council members said they didn't learn of the change until months later, when there was little they could do about it.

The redevelopment soon ran into other significant challenges.

The project's architect died in early 2015, and the firm hired to replace him, Byers Design Group, severed the relationship after just eight months. They cited concerns about the quality of work done by Double D Construction, a firm registered to Durbano. In a deposition, a Byers Design Group official described Double D’s work as “substandard.”

The same year, Titan Atlas, the company tasked with reconditioning the hospital, closed down, leaving another gap to fill. 

Waning trust

By late summer of 2015 divisions were growing among council members, and trust between the county and the Chicora group was in tatters.

The county had expected to move into the hospital eight months earlier. The Chicora group insisted the building was now ready for occupancy and raised the threat of litigation when the county disagreed.

By August, multiple contractors on the project had complained that their bills had not been paid — claims that added up to $1.4 million by the end of that month.

“Why should we trust you to get anything done, at this point, when we literally don’t have sinks working when we go to inspect?” County Councilwoman Colleen Condon asked Durbano at a meeting that month.

“We’ll take the blame for the things we’ve done wrong, and we’ll apologize," Durbano replied, "but I don’t know of a renovation of this nature that hasn’t had some stumbles."

Pryor, along with Councilman Henry Darby, defended the project and its goals. Darby said other county projects had gone late, or over budget, including the courthouse and jail.

“The bottom line is, what are we going to do for the citizens of this county, specifically one of the most blighted areas of North Charleston?” he said.

Pryor sought to assure fellow council members the county faced no risk.

“If the building is not completed, we don’t have to move in,” he said. “We hold all the trump cards.”

“Pardon the pun,” quipped Councilman Elliott Summey, the son of North Charleston's mayor.

Pulling the plug

In March 2016 — 15 months past the original deadline — the council’s patience ran out.

Charleston County’s leased space still was not finished. The Chicora group said final “punch list” items could be done in days or weeks. The county estimated it would take up to six months. Meanwhile, the rest of the building remained largely untouched. 

The council voted 5-3 to terminate the lease. In favor were Summey, Dickie Schweers, Herb Sass, Condon and Qualey. Voting no were Pryor, Darby and Anna Johnson. Vic Rawl was absent.

Condon blamed Pryor for the county's predicament, chiding him for signing the lease amendment that absolved the developers of deadlines. Pryor defended his actions, saying council members were well aware that the contract needed to be extended for the project to move forward. He said he was very comfortable with his actions.

At Pryor’s urging, the council agreed to approach the Chicora group about purchasing the hospital property. The developers would later claim the county intended to “financially cripple” the project, then swoop in and buy the building at a depressed price.

Within weeks of the council votes, the Chicora group’s primary lender, Boston-based UC Funds, moved to foreclose on the hospital property to recoup a nearly $14 million loan.

The Chicora group sought bankruptcy protection. Chicora also sued the county and another would-be tenant for breach of contract.

It would soon become clear the county was not holding all the cards.

Release the lawyers

Councilman Rawl, a retired judge, described the project as "a long, slow train wreck" in which both sides share blame. But in the end, the developers triumphed by being quicker to act, he said. 

“You could say there was a race to the courthouse, and (Chicora) won by filing bankruptcy,” Rawl said.

By seeking bankruptcy protection, Chicora kept its primary lender at bay while suing the county in federal court.

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County officials felt confident that they were on solid legal ground. After all, their attorney, Dawson, had reviewed the decision to sever ties with Chicora.

A federal judge, however, had a much different take and delivered a crushing blow, ruling that the county lacked legal grounds to break the lease. That meant the county could be on the hook for the full cost of the 25-year lease — tens of millions of dollars — plus damages, if it lost at trial.  

Faced with a legal case that had tilted against them, thwarted in their desire to move services to the hospital, and fearing years of costly litigation the county could lose, council members decided settling and purchasing the property was the least-worst option.

The county’s $33 million offer was large enough to pay off all the creditors, with several million left over for the developers. It was an offer a judge would be hard-pressed to refuse, because creditors rarely recover everything they are owed in a bankruptcy.

Blackburn said it was the county's idea to buy the hospital property as part of the settlement, and the Chicora group had little choice but to accept the deal.

“It was not the outcome Chicora wanted; this was what the county demanded," he said. "The county had options (and) they chose the current result."

The settlement was approved in late 2017, six years after North Charleston bought the hospital at auction for $31 million less.

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The former Charleston Naval Hospital property, now owned by Charleston County, includes a vacant 3-story building at McMillan and Spruill avenues that once served as a barracks. Wade Spees/Staff

Now what?

Charleston County is still working to determine what needs to be done in order to occupy the three floors of the hospital it planned to lease.

Those floors are the only ones that have been renovated. But like most of the building, one floor still lacked running water or air conditioning during a February tour.

“They left a real mess,” said Phil Sabatino, the county’s facilities manager.

The air-conditioning contractor maintains that the units worked fine when they were installed more than a year ago. Blackburn said the same was true of the building's water service. 

“And yet this is still all Chicora and my fault?” he said.

Blackburn has rebounded handsomely since the project's collapse, amassing hundreds of homes in some of North Charleston's poorest neighborhoods.

His former company, Titan Atlas, is no more. But he recently bought back the property for $4.1 million from a company controlled by President Donald Trump, who had foreclosed on the site. Donald Trump Jr., an investor with Blackburn in the first Titan Atlas, signed over the deed in March.

Although Trump Jr. was involved in both the hospital redevelopment and Titan Atlas, a review of thousands of emails to and from Charleston County during those years found just one from his account — an automated out-of-office reply.  

“I remember being notified, from the get-go, that this was a Donald Trump Jr. project,” said Colleen Condon, who left County Council in 2016. “Certainly, I noticed that we weren’t getting communications from Don Jr.”

Trump Jr. could not be reached for comment by The Post and Courier. Durbano, the other partner, asked that questions be submitted in writing but then did not answer them.

The Chicora group has repeatedly stressed that Blackburn was not one of the developers, or a company owner, or an employee. In bankruptcy court it would be revealed that Blackburn’s family — his wife and father — held a larger stake in the Chicora group than Trump Jr.

Where did that money go?

After the county figures out what’s needed to move into its space, it will have to decide what to do about the other seven floors of the building. Some of them are gutted — empty space from window to window — and each is about the size of a football field.

In North Charleston, people are watching and hoping.

“At the end of the day, with all the treachery and stuff we’ve gone through, we still hope to see the redevelopment go forward,” said Keith Summey, the mayor.

The Chicora group said as much as $30 million was spent on the hospital building, including the $5 million purchase.

“Where all that money went, I don’t know,” said Elliott Summey, the county councilman.

James Johnson, president of the National Action Network’s South Carolina chapter, said his group leased an office in the hospital for about a year, paying Blackburn $1 for the space. Johnson said he still doesn’t understand why the county didn’t just move in.

“The county dropped the ball on this — I don’t care what anybody says,” said Johnson. “They could have moved in there.”

The project’s supporters on County Council want to press ahead, but they will have to a find a source of money to do so. 

The county had long considered it a given that it had $17 million to play with from the planned sale of two of its buildings on the Charleston peninsula to MUSC. That money, along with interest and other cost savings, was expected to pay for the first 15 years of the hospital lease with no impact to the county’s general budget.

What council members apparently weren’t told was that the property sale to MUSC was never finalized. There was no contract, and no $17 million. 

MUSC and the county apparently had a verbal agreement in place, but nothing was ever placed in writing. 

It was another significant bungle in a project dogged by mistakes, misperceptions and miscalculations. Taxpayers are out $33 million to date, but the meter is still running and there's no end in sight. 

Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.