Councilman: Sterling owes Louisville taxpayers for dumped project

Metro Councilman Brandon Coan thinks an investment group associated with the 155-year-old Sterling Beer company owes Louisville taxpayers more than an explanation about why its brewery project in the Highlands folded.

He told the Courier Journal on Monday that council leaders should do whatever possible — even launching a City Hall investigation — to force developers to pay back more than half a million dollars in profits they earned from selling two properties they bought from the city.

"I intend to do everything within my power to get the city and taxpayers restitution for what I see as a clear case of unjust enrichment," Coan said.

Background: Sorry Sterling fans, plans for a tap room on Bardstown have gone flat

But developer John Hollenbach said Tuesday afternoon that Coan and other critics don’t know how much money has been invested in the project on top of the original cost of the buildings.

“If you want to do the math on what I bought it for and take everything I put into it, there really isn’t any profit,” Hollenbach said. “I’m taking those funds and reinvesting it in order to do what I committed to do for the city. When I lost the tenant, there was nothing I could do.”

Louisville Sterling LLC, an investor group for the craft beer brand, scrapped plans last week to build a small brewing operation at the site a year and a half after buying two historic buildings along Bardstown Road for $425,000.

The investors have since sold the properties to another development group for a total of $950,000, according to public records. The new investment group wants to build a mixed-use project, including a mini-storage facility, at the site.

Coan said that isn't what the city bargained for, and he's calling on the Metro Council’s oversight committee, which has subpoena powers over Mayor Greg Fischer's administration, to investigate the matter and to make sure it doesn't happen again.

"I'm really angry about this," he said.

Hollenbach, who's involved with both investment groups, would not specify how much money he spent. But he said he began looking for other opportunities soon after Sterling Beer backed out.

“People shift gears,” Hollenbach said. “This was a three-year process. It’s a long time, and a lot of things can change. That’s the nature of the beast.”

Councilman Brent Ackerson, who chairs the oversight committee, said a deeper inquiry is warranted. He said he has voiced concern since 2010 about how the city gives away land to developers.

"If anything, so we don’t make this stupid business error in the future, and that’s what it was," said Ackerson, D-26th District. "Five-hundred and twenty-five thousand dollars is a perverse windfall on its initial face."

Councilman Scott Reed, R-16th, who is vice chair of the oversight committee, said he agrees that a wider look at the city's land purchases is needed.

"I think audits are always good business," he said. "I'm not asserting any malfeasance on behalf of the mayor or his administration, but I can't see how that would be a bad thing."

The oversight committee is examining the extent of its new subpoena powers, which were granted by the state legislature last year.

"We need to be questioning what are we doing," Ackerson said. "Are we making legitimate investments or are we taking properties and giving them to those who have helped the system, whether they’re contributors or anything else?"

Coan, who is a lawyer, said after reviewing the city's agreement with investors he also will ask the Jefferson County Attorney’s Office to see if the city has any legal options to recoup the money. He said he is keeping a "laser focus" on the Sterling deal, but that his inquiry could lead to a wider examination into how similar agreements have worked out for the taxpayer.

"Do I think that the city's contract could have been more tightly written? Absolutely," said Coan, D-8th. "Do I think that any imperfections in the contract somehow permits Louisville Sterling to flip the property and keep the profit? Absolutely not."

Fischer administration officials said they have discussed the issue with Coan, who represents most of the Highlands, and that there is a shared interest in seeing the properties developed as initially planned.

If a project close to the original proposal cannot happen, "then an appraisal should be completed to determine the value of any improvements made to the property in the time since (the city) sold it," said Jessica Wethington, a spokeswoman for Louisville Forward, the city's economic development arm.

"We share in Councilman Coan's disappointment and discontent about the development thus far, but remain focused on the endgame," she added.

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Coan said if the developers don't repay the money then they should either build something substantially similar to what they originally promised or return the buildings to the city so they can be put back on the market.

Metro Council declared the two properties — an old BellSouth and city police station — at 1300 and 1306 Bardstown Road, respectively, as surplus in November 2015.

Under the original agreement, Louisville Sterling said it planned to use the space to set up its corporate offices in addition to building a retail store, craft house and tasting room. It was pitched to council members as an economic development opportunity that would create jobs and rehabilitate an empty property by city officials.

"Whenever we can return vacant and historic properties to productive reuse and beautiful restoration, the community wins on many levels," Fischer said in December 2016. "These buildings will once again house an active use and bring people together on an already active commercial corridor."

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But Todd Jackson, the president of Sterling Beer, told the Courier Journal last week that the numbers for the original project didn’t add up. He also declined to share specifics but said they are actively looking for another spot to open the tap room.

Hollenbach said previously that the new mixed-use project is designed to keep in line with the types of businesses associated with Bardstown Road. He said that the sale was designed to bring in new investors with the right expertise for the new mixed-use plan.

Someone please explain to me why Louisville taxpayers aren't entitled to every last penny difference between the price Metro Government sold these buildings to Louisville Sterling for and the price at which they resold, because this is in no way the project the city bargained for https://t.co/oVKEHKbJM1 — Brandon Coan (@CMBrandonCoan) June 13, 2018

Elizabeth Henson-Hasty, a resident who lives near Bardstown Road, said she wasn’t sure why the new project would include a storage facility.

"These houses are all old and sprawling," she said. "It doesn’t seem like there’s a big need for storage."

Resident Bill Wade had been keeping an eye on the building since before the Sterling Beer investors purchased it. He said he was worried that a brewery down the road would be too rowdy and the deal wasn't fair to taxpayers.

"I was concerned about that to begin with, and then nothing happened, but for them to profit off (the sale) is not real cool," Wade said. "I would have hoped there was some kind of measure in the agreement that if their plans fell through it had to go back to the city."

Hollenbach said before the original plans for the beer house spiraled, the investors met with residents near the property, which he said “went very well.”

He said the new investment group plans to sit down with neighbors again to present their plans, which include the construction of a mini-storage facility, a single rental residence and 1,000 square feet of retail space with an 860-square-foot patio.

“We think what we’re proposing now is going to be great for the community,” Hollenbach said.

Maggie Menderski contributed reporting. Reporter Phillip M. Bailey can be reached at 502-582-4475 or pbailey@courierjournal.com. Support strong local journalism by subscribing today: www.courier-journal.com/philb.

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