Correction: This story has been updated to reflect that Detroit Medical Center and the University Physician Group came close to severing their ties in 2018

Detroit — Wayne State University’s decision to pay up to $16.15 million to lease – and potentially buy – a Midtown building for a new pediatrics center has widened a rift within the Board of Governors and sparked accusations of backroom dealing, open meeting violations and a conflict of interest.

Four of the board members were absent at the late June meeting where the other four governors – with WSU President M. Roy Wilson sitting as an ex officio member – agreed to lease a former hospice at 400 Mack Ave., with an option to buy it by July 1, 2021, to house university physicians.

The four who missed the session – Michael Busuito, Anil Kumar, Sandra Hughes O’Brien and Dana Thompson – sued the other members this month, alleging their colleagues lacked a quorum to conduct business at the June 21 meeting and asking that board actions that day be voided.

The real estate deal – and the dispute over how it was approved – is at the center of the latest battle between those four governors and the rest of the eight-person board, which has wrangled for months over numerous issues, including the future of Wilson.

Hughes O’Brien, Busuito, Thompson and Kumar question the terms of thereal estate transaction, which calls for lease payments totaling $1.18 million over two years, with an option to buy the two-story, 55,000-square-foot building near Children's Hospital of Michigan for $16.15 million. If WSU decides against purchasing the site, the third-year lease would cost $1.38 million, with annual increases of 2.3% to 2.6% afterward.

The four voted earlier this year against buying the property for $14 million.

With Kumar on a previously scheduled vacation at the time of the June 21 meeting, the four governors who supported acquiring the building saw an opening to push the transaction through, Hughes O’Brien said. She, Busuito and Thompson boycotted the session after the deal was added to the meeting agenda.

“It was approved for $2 million more than we rejected for on three occasions. The timing was an opportunity with Kumar gone,” Hughes O’Brien said.

But board Chair Kim Trent defends the action by her and governors Bryan Barnhill III, Mark Gaffney and Marilyn Kelly, as legal and necessary to house a replacement for University Pediatrics, a 170-member group of physicians that left earlier this year to affiliate with the medical school at Central Michigan University.

At stake is the loss of tens of millions dollars in federal funding, pediatricians to train residents in their rotations and accreditation of the medical school, Trent said.

“We need to have a core group of people in order for us to continue to have a practice so we are teaching our students,” Trent said. “We have to figure this out; otherwise, our accreditation is in jeopardy.”

'Quite the flip'

According to city of Detroit records, the building is the former headquarters of Hospice of Michigan, which sold it for $6.1 million in June 2016. This year, the city of Detroit set the assessed value of the property at $3.285 million, which translates to a market value of $6.57 million under state law.

Hughes O’Brien said she recently paid $60 to the Wayne County Register of Deeds to get documents on the property since the administration did not provide details to help board members make an informed decision.

Harrison West, a Detroit-based senior research analyst at JLL, a real estate and investment management firm based in Chicago, said for the university to be paying nearly $300 per square foot is on the high end for that area of Midtown, especially considering what the property sold for three years ago.

“That’s quite the flip,” he said. “If they’re pushing $300, it’s certainly high-end. Just looking at the buys in the greater Detroit area in the last few years, this would be the highest price.”

West compared the Mack site to similar-sized buildings like the Hemmeter Building on East Grand River that sold recently for $235 per square foot. That building is fully renovated with a rooftop area. One of the largest recent sales in that area, 1211 Griswold in Capitol Park, was sold to Bedrock for $250 per square foot.

West said most of the higher-end sale prices are $230-$250 per square foot but added that there aren’t any other medical office spaces in that particular area, which makes exact comparison difficult.

Matt Lockwood, a Wayne State spokesman, declined to release a university appraisal of the property. “There is a confidentiality clause with the appraiser that she doesn’t want to waive,” he said.

The distrust

Beside objecting to the financial terms, Hughes O’Brien and the other three opponents say the transaction presents a potential conflict of interest, because WSU will lease the building from the Sterling Group, a private real estate and investment company in Detroit founded by Gary Torgow, a local attorney and businessman who sits on the board of the Wayne State University Foundation.

Torgow also contributed $2,000 to Gaffney’s reelection campaign last year,according to the Michigan Campaign Finance Network.

Busuito said it “looks fishy” when the university makes a financial transaction that is considerably more than the market value and when it involves the family of someone who has a relationship with the university, the president and a board member.

“Under the circumstances, it just looks bad with these other factors added in,” Busuito said.

The university does not believe there is a conflict of interest and disclosed the relationship in memos to the board. Danny Samson, chief development officer, also denied that a conflict exists in an email to The Detroit News.

“Mr. Torgow has no ownership of the Sterling Group or the property and is not involved in the transaction,” Samson wrote. “There is no conflict.”

In a memo to board members, university counsel Louis Lessem explained WSU’s position.

“The Director and The Foundation are not negotiating for the purchase of the property,” Lessem wrote. “The Foundation has no role in Wayne State University’s real estate transactions; either in this instance or in general.”

Struggle to start Wayne Pediatrics

Trent said her colleagues raised questions about the new pediatric group.

“It’s a chicken and egg thing,” she said. “Some of my colleagues have said. ‘How do we know some of the pediatricians are going to come over?’ We know if they don’t have somewhere to practice, they are not going to come over to us.”

The deal’s genesis came in the spring, when board members discussed a concept for an initiative aimed at providing a range of health care services to poor African American children, Hughes O’Brien said.

A few days later, WSU Chief Finance Office William Decatur signed a nonbinding letter of intent to purchase the structure, she said.

“I don’t know who gave him permission to do that,” Hughes O'Brien said.

The day before a scheduled executive committee meeting of the board on April 5, officials amended the agenda to include discussion of buying the building for $14 million.

During the executive meeting, officials said the building was going to house Wayne Pediatrics, a new pediatrician group forming to replace University Pediatrics. According to Hughes O’Brien, university officials said it would cost $12 million to renovate the building but offered no appraisal, business plan or information on comparable sales.

“You gotta give us something,” she said. “How do you expect us to approve this when we have nothing but the price? We had nothing.”

Hughes O’Brien, along with Busuito, Thompson and Kumar, rejected the purchase of the building, and voted it down at two subsequent meetings.

Trent said the four opposing board members called for a lease, adding, “it was clear it would be more expensive.”

“In my opinion, there was no downside because even if we bought the building and couldn’t attract any doctors, we would have a red-hot building for sale in a prime location we could resell,” she said. “Four colleagues disagreed and said they’d prefer to lease.”

Trent also rejects the argument that she and the other three board members who approved the transaction acted improperly at the June 21 meeting. She said Busuito, Kumar, Hughes O’Brien and Thompson had hinted they planned to skip the meeting due to a disagreement on tuition rates, leading the other board members to research whether Wilson could be counted to establish a quorum.

Trent said none of the board members who boycotted the meeting shared their concern about the agenda item for the building transaction, which was added two days before the meeting.

She said there was an urgent need to hold the meeting because tuition had to be set before July, and Kumar could only attend June 30. In addition to approving the building deal, the four governors approved a 3.2% tuition hike for the coming academic year at the June 21 meeting.

“We actually tried to accommodate, but any day after would have been the week of Fourth of July, and people go out of town,” Trent said.

The university intends to use the building to create a pediatrics center and house the University Physician Group, a nonprofit multi-specialty group that is affiliated with the university’s School of Medicine. Many UPG physicians serve as faculty at the school and hundreds practice at the Detroit Medical Center, Karmanos Cancer Center and other health care institutions.

However, the DMC and the UPG came close to severing their ties in 2018 after months of fighting. Then, after agreeing in August 2018 to extend their partnership, the UPG filed for bankruptcy two months later. Given those factors, the four opposing board members said the deal to lease the Mack property with UPG was not a good option.

The group emerged from bankruptcy on June 3 when the federal bankruptcy court in Detroit approved its reorganization plan.

“It doesn't add up,” Hughes O’Brien said. “Why plan to lease out a building to UPG we just bailed out of bankruptcy two weeks prior and getting them back into this sublease deal?”

The deal has been approved by the UPG Board of Directors, CEO Dr. Charles Shanley confirmed.

Board drama

The legal battle over the real estate transaction is the latest in a split that’s been simmering for months on the board, where Busuito is the lone Republican.

It started in December when the board voted 5-3 to extend Wilson’s contract through 2023. Two lame-duck members joined the majority, with Busuito, Hughes O’Brien and Thompson voting no.

Two months later, those three and Kumar declared their opposition to a planned partnership that aimed to make Henry Ford Health System the university’s primary medical education partner, effectively blocking the deal championed by Wilson.

A month later, Thompson said at a March 20 board meeting that Wilson should resign, accusing him of a “lack of transparency and accountability.”

Trent pushed back, chastising the board members who opposed the Henry Ford tie-up.

“We are not here to do things like go to the press in the midst of a very fragile negotiation,” she said at the time. “This board has demonstrated incredibly poor judgment.”

Hughes O’Brien said in a recent interview that she and her colleagues are fulfilling their duty to make Wilson and the rest of WSU’s administration accountable and fiscally prudent.

“Rather than work with us to come up with solutions beneficial to our students, faculty, university community, on the merits or based on policy, it is easier for this administration to challenge our loyalty to (Wilson), as if that equates to loyalty to the university,” Hughes O’Brien said.

But Trent said the real issue is that four board members want to get rid of Wilson and are frustrated they don’t have enough votes.

“They know that they don’t have five votes to get rid of Roy Wilson so they hoping to make his life miserable, so he’ll quit," she said.

Charles Parrish, president of WSU’s faculty union, said the governors face important issues and need to address them amicably for the good of the university.

“The Board must solve the issue of how to work together for the good of the University,” Parrish said in a letter to members earlier this month. “All these complicated considerations must be evaluated by an elected Board, who are paid nothing, but with every member believing that she or he is trying to do the best thing for WSU.”