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HOTEL RESERVATIONS

THE CITY OF DENVER HAS SUNK MORE THAN $2 MILLION INTO THE HISTORIC ROSSONIAN HOTEL. BUT CHECK OUT ITS ECONOMIC-DEVELOPMENT PLAN.

Paul Steward Collection/Black American West Museum
From the outside, the old Rossonian Hotel building looks like Denver's latest economic-development success story. The former jazz mecca, an historic and architectural landmark in the city's Five Points neighborhood, is nearing completion after a publicly funded makeover that has cost more than $2 million. What was until recently a boarded-up wreck has been reincarnated as a brand-new office building. The top two stories are fully leased to the Denver Housing Authority, and plans are afoot to install an upscale nightclub on the ground floor. If those plans pan out, live music will emanate from the grand old hotel for the first time in a generation. For Denver city officials, who have been trying to resuscitate the Rossonian for years, it's a dream come true.

From the inside, however, rough edges are beginning to show in the ambitious city-sponsored venture.

Tom Yates, the 47-year-old developer who has headed up the Rossonian initiative since its inception four years ago, seems to have spent much of his recent business career on the edge of a financial precipice. He presided over the demise of an insurance company now being liquidated by Colorado regulators and, according to court documents, deliberately misled state attorneys who took over American Woodmen's Life Insurance Company when it went into receivership. And he's had problems paying taxes. In 1991 the Internal Revenue Service slapped a lien on his house for nonpayment of federal taxes (records show that the taxes have since been paid and the lien has been released). State regulators say that in 1992 Yates used a company bank account to pay off a six-year-old personal tax debt to the Colorado Department of Revenue.

A nonprofit group formed last December at the insistence of regulators is supposed to be watching over the Rossonian's progress. But two of that group's five directors have already resigned from the board. Of the remaining three directors, two were unavailable for comment. The other boardmember is Tom Yates.

There are questions about whether a nightclub--the type of business venture that would be inherently risky even with massive financial support and a prime location--should be the focal point of a project being backed by taxpayers. And the city's past track record on Rossonian redevelopment also isn't encouraging. In 1986 the Mayor's Office of Economic Development (MOED)--controlled at the time by former mayor Federico Pena--loaned $378,000 to the then-owners of the building, who hoped to redevelop the structure. They used the money to buy a nearby lot for off-street parking as well as for architectural drawings and other "soft costs." A year later the group defaulted on the loan, and the city wound up owning the property.

But Bill Lysaught, deputy director of MOED and point man on the Rossonian for the administration of Mayor Wellington Webb, says the public has no cause to worry about the project. Anyone concerned about the Rossonian just has to walk a few blocks north on Welton Street, he says, and look at Five Points Plaza, a small shopping center Yates developed with a MOED loan in the Eighties. The plaza, now fully leased and successfully servicing the debt on the $1.5 million city loan, is a "magnificent achievement," Lysaught says, especially considering business conditions in this blighted part of the city.

"I would give him, on a scale of one to ten, a `ten' on his management of Five Points Plaza," Lysaught says of Yates. "I'm confident every penny [that went into the Rossonian] is going to come back."

In 1939, when he was still a teenager, Denver resident Shelley Rhym moved with his mother to an apartment at 2630 Welton Street, two doors down from the Rossonian Hotel. His bedroom was perched above a pawn shop; to Rhym, an aspiring drummer, it was the best seat in the house.

Every night, it seemed, great music came to Rhym through the window from bands playing the Ex-Servicemen's Club across the street. And the biggest names in black music--among them Duke Ellington, Count Basey, Fats Domino and Ella Fitzgerald--could be seen regularly at the Rossonian, where they stayed while passing through Denver on their way to Kansas City or the West Coast.

"It inspired me to play," says the seventy-year-old Rhym, who went on to have a long career as a jazz musician. "It couldn't have been a better environment."

Then, as now, Five Points was the center of activity for Denver's black community--home, it was said, to more black-owned businesses than any American neighborhood outside of Harlem. And the Rossonian was Five Points' natural hub: It was one of the largest buildings on Welton Street and actually stood at the five-cornered intersection that gives the commercial district its name. "The Rossonian represents the cultural history of the African-American renaissance," says Denver City Councilman Hiawatha Davis. "It's a very, very important piece of property."

Over the last thirty years, however, both the neighborhood and the hotel have suffered a long, steady decline. Five Points has become synonymous with crime, drugs and urban decay. The Rossonian lost its jazz lounge in the Sixties, served as a strip joint for a while and later shut down completely. Since then it has been a home only to pigeons and transients.

But city officials maintain that the neighborhood has started to come back--thanks in large part to public investment in the area. Yates opened Five Points Plaza in 1988; a Colorado Department of Motor Vehicles office serves as its anchor tenant. Since then, two banks have set up branch offices in the neighborhood, and a hardware store went in. Just last month, KBDI-TV, one of the metro area's two public-television stations, moved into a new $2.5 million media center at Welton and 29th streets. The media center, too, was partially financed with city economic-development loans. And this fall the Regional Transportation District is scheduled to start up its new, $116 million light-rail line, which will link Welton Street's restaurants and other businesses to thousands of potential customers in downtown Denver.

For Lysaught, the use of public money for the Rossonian project is a no-brainer. He's seen what good economic-development loans can do, he says, ticking off a quick list of MOED projects: The Mayan Theater, the Imperial Chinese Seafood Restaurant on Broadway, La Coupole Cafe in lower downtown. None of them, he says, would have been possible without the city's help.

Neither would the Rossonian. "No private developer would have done this," says Lysaught. "But we think that it's money well spent." And since 1990, Denver has loaned corporations Yates controls almost $2.2 million to buy and refurbish the property--including a $715,000 loan approved just this spring by the city council. The building and a few surrounding parcels are the city's only collateral and have a market value far less than what Yates has already put into the project.

The Rossonian, meanwhile, isn't even finished, though Yates initially set a target date of May 1993. The DHA moved in on the second and third floors in December, but the ground floor remains little more than a shell. Lysaught says it might take another $500,000 in city loans to convince a private nightclub operator to refurbish the space and open for business.

Predicting whether economic-development projects will be boons or boondoggles is often impossible, says Richard Bingham, a professor of urban studies at Cleveland State University in Ohio. "You just never know until after it's over whether these things will work," adds Bingham, founder of the journal Economic Development Quarterly.

But Bingham says the Rossonian and projects like it should be judged over the long term, with consideration given to how much private development they generate in the surrounding area--even if they initially lose money. "You have to look at more than just the building," he says. "You have to look at it in a reasonable time perspective--three to five years--and look at what happens in the neighborhood."

Lysaught says that, compared to other city development projects, the Rossonian is a safe bet. The DHA has signed a five-year lease that brings in almost $12,000 a month in rent, enough at least to service the building's current MOED loans. And because DHA is a government agency that relies on taxpayers for its funds, there's no danger it will miss payments or go out of business. "The Rossonian is far less risky than our average deal--far less," Lysaught says. "I'd put it in the upper 10 percent" of MOED projects.

It wasn't until he actually walked through the inside of the Rossonian that Tom Yates realized what he was getting into. The year was 1990, and Yates, a real estate developer and insurance executive, was thinking of buying the historic building from the City of Denver. But his tour of the structure showed him just how ambitious the project would be.

Hundreds of pigeons were roosting on the third floor, coming and going as they pleased through holes in the roof. Bird droppings had piled up ankle-high in some places. Down on the second floor, fires lit by vagrants had badly seared the floor, the walls and the woodwork. Where the old jazz lounge had been there was a large collection of bottles discarded by winos.

"There were some people who said, `You're better off tearing this thing down,'" Yates recalls. "It looked like a building you ought to push over, inside and out. It was kind of like a haunted house."

American Woodmen's and the city worked out a deal whereby Yates would acquire the building and surrounding parcels with a $350,000 MOED loan. Using money from additional city loans of $1.8 million, Yates then hired controversial Denver contractor King Harris to do the construction work on the project. Last year MOED raised eyebrows when it agreed to sell the politically connected Harris a two-story building next door to the Rossonian--the building that Shelley Rhym used to live in--for only $8,000.

City councilman Ted Hackworth says he was uncomfortable with what he considered an abnormally low price. "I thought it was a giveaway," he says. Lysaught and Yates, however, defend the sale and suggest that the cost of renovating the structure would counter any conceivable increase in value due to its proximity to the newly remodeled Rossonian. Harris, who in the past has said he does not speak to members of the press, did not return a phone call from Westword.

The controversy over the sale to Harris didn't interfere with construction work on the Rossonian. Today the hotel has been transformed. Workers gutted the interior and installed all-new plumbing, electricity, walls and carpeting. An elevator and two stairwells were added. Because the space proved too small for Yates's plans, he also used city loan money to buy a one-story liquor store next door. Yates added two stories on top and then incorporated the whole thing into the Rossonian project.

Unexpected problems cropped up continually, driving costs skyward. A large section of the Rossonian's rooftop cornice toppled over in a rainstorm, and Yates had to have it refabricated with stucco-covered Styrofoam. Windows ordered for the building had to be returned because they didn't satisfy federal guidelines for historic structures. Workers discovered a pile of asbestos insulation hidden in a pit in the basement, and Yates had to pay someone to get rid of it. "That ran the budget up $30,000 right there," Yates says. "Asbestos removal is a bear."

Today only the Rossonian's ground floor remains empty. Yates says his dream is to find a tenant who will put an upscale jazz supper club in the space, a facility of the type he believes would draw Denverites to Welton Street and conjure up a bit of the Rossonian's colorful past. "People past a certain age have a Rossonian story to tell," Yates says. "We want them to come back down here."

Yates himself is a native of Kansas City, where he worked as a janitor at two insurance companies while still in high school and later got hired at one of them selling policies. In 1973, after a stint in the Air Force, he was recruited to Denver to work as an assistant to the president of American Woodmen's Life Insurance Company, one of only a few dozen black-owned insurers in the country. He rose quickly through the ranks, becoming executive vice president in 1979. The company's progress was less impressive: It fell into a steady financial decline and in 1988 was forced into receivership, the insurance equivalent of Chapter 11 bankruptcy.

Yates became president of American Woodmen's in 1991 and fought to keep the company alive. He was unsuccessful. Last August the company officially went belly up when Denver District Judge R. Michael Mullins ruled that American Woodmen's had no chance of regaining solid fiscal footing and ordered the state to liquidate its assets.

Yates says that despite the company's failure, his tenure at American Woodmen's is a source of professional pride. The company was in a difficult financial position when he came on board back in the Seventies, he says, and he was able to help keep it afloat for close to twenty years. "If people really understood everything we went through, I think the prudent man would say, `God, these folks hung on a long time and they did well with what they had to work with,'" Yates says. "When the judge slammed down the gavel for the last time, I was still trying to put together deals to save the company. I wanted to fight until the fat lady sang."

Public records related to the company's demise show that in the years leading up to the liquidation order, Yates desperately tried to shore up American Woodmen's finances. He formed a subsidiary in an unsuccessful effort to lease business equipment to government agencies. He took the company into the real estate market, purchasing the Rossonian and Five Points Plaza, along with a number of other properties. It didn't work, and as cash flow dwindled to a trickle, Yates even laid off the company janitor and began cleaning up the company headquarters on Downing Street himself, vacuuming the rugs and emptying trash cans after work. "I can't think of anything he didn't do to save that company," says Thomas Frank, an attorney for the state Division of Insurance. "He moved heaven and earth."

But last August, shortly after the liquidation order was entered, insurance division officials made an alarming discovery. While picking through American Woodmen's books they ran across an account at Norwest Bank, called Woodmen's Trust, that Yates had never told them about.

Further investigation revealed that Yates had "misused" the account, according to pleadings written by Frank and filed in the American Woodmen's liquidation case. Insurance premiums from policyholders had gone into the account, Frank discovered, but Yates had used it to pay at least one personal debt and other expenditures not directly related to the operation of the financially beleaguered company.

In October 1992, for instance, Yates had written a Woodmen's Trust check for more than $3,000 to the Colorado Department of Revenue to pay a personal income tax debt dating back six years. Yates had also used "WT," as he called the account, for political contributions, charitable donations, gifts for friends and other miscellaneous expenses.

Questioned by insurance regulators last October, Yates justified his personal use of Woodmen's Trust by pointing out that he had loaned the insurance company $10,000 of his own money during a period of financial crisis in the spring of 1992. Yates had borrowed the money from a business associate, he said, and pumped it into American Woodmen's so the insurer wouldn't go broke.

Yates says the controversy over the Woodmen's Trust account was largely due to personality conflicts with state regulators he felt were trying to take American Woodmen's down. "There were times I was very, very combative with these people," he says. "I thought they did some things that precluded my saving the company." The account was inconsequential, he says, but things "got ugly" because regulators were frustrated with the way he'd been dealing with them. "This was like payback time," he adds.

As for his delinquent tax debt to the state, Yates says he was unaware he was in arrears until receiving a notice from the Department of Revenue in 1992. "That was the first time I'd seen it," he says. "I didn't have the energy to fight it." And there was nothing wrong with paying the $3,000 debt with money from Woodmen's Trust, he says, because he'd loaned American Woodmen's much more than that earlier that year. "My commitment [to the company] was clear," he says. "I don't think anybody would question that."

After a review of the matter, Frank and other officials accepted Yates's explanation. "We were satisfied there was no criminal or even imprudent handling of that account," says Frank. "He put more money in than he took out."

However, court records indicate that regulators were sufficiently concerned about the account last year to order that the Rossonian and Five Points Plaza be taken from American Woodmen's and placed under the control of a nonprofit corporation. (Even though the state regulators' job technically was to distribute American Woodmen's assets to creditors, the two Welton Street properties were so heavily encumbered by city loans that they had taken on a negative value.)

Yates asked that the two properties instead be given to a former American Woodmen's subsidiary called AWL Financial, and that the company be allowed to court investors and begin operating as a new, for-profit real estate company. State officials refused. Instead, they formed the Five Points Community Development Corporation. The nonprofit now owns Five Points Plaza outright and is the general partner in a new entity called the Rossonian Limited Partnership, which in turns owns the Rossonian. Bank One, which invested in the Rossonian in return for $287,000 in federal tax credits, is the nonprofit's limited partner in the venture.

Yates now serves on the board of the Five Points Community Development Corporation. Last September he was given a one-year contract that pays him an annual management fee of between $35,000 and $40,000 for his ongoing work on the Rossonian project. That money is taken out of the MOED loans.

But how much control the nonprofit actually exercises over the development is unclear. One director, Anne Job, of the Downtown Denver Partnership, resigned earlier this year only a few months after her appointment. Job says she agreed to serve on the board after a request from John Huggins, former director of the MOED. But when she couldn't decipher what the board's duties were, she says, she decided to step down. "I didn't feel comfortable being on a board when I didn't know what the purpose was," says Job.

Another boardmember, Denver Housing Authority attorney Cynthia Jones, has also resigned. Jones did not return calls, but DHA spokeswoman Phyllis Searles says Jones "just couldn't commit the time to it." The other two boardmembers--Lisa Peterson, of the Five Points Business Association, and Elmer Jackson, a Denver accountant--couldn't be reached for comment.

Today Yates and the City of Denver are actively seeking a tenant willing to open a jazz club on the Rossonian's first floor and finish out the project. MOED's Lysaught argues that the city is in a "perfect situation" now that the DHA has moved in and is making payments on the existing Rossonian debt.

"We're in a position to offer the right operators a deal they can't refuse," Lysaught says, referring to the availability of the $500,000 in additional loan funds. "We can take our time and make a good selection of the investment team to bring back the [Rossonian] club."

Denverites with experience in the music business say the nightclub phase of the Rossonian project may be the riskiest phase of all, especially since any operator will ultimately be required to pay the substantial start-up costs whether the loan comes from the city or from a bank.

"I wouldn't put a ton of money into that place," says Allan Roth, co-owner of the Denver rock club Herman's Hideaway. "It would be tough to get it out of there." Others agree. "During the week, they'll be lucky if they make a dime," says Jerry Krantz, owner of the El Chapultepec jazz club on Market Street. "Denver is a weekend town. It's going to be very, very, very hard."

Lysaught and Yates say they know that nightclubs and restaurants are among the toughest of all business ventures. But with a low-interest loan from the city, they say, it should be possible to find a club that will succeed. "There will be risk," Lysaught admits. "But not knowing who's going to do it, it would be hard to say how large a risk it's going to be."

Yates, meanwhile, says he's entertaining two serious proposals for the club right now. He says he will be "ecstatic" if the club opens by Christmas, shortly after the light-rail line starts running past the Rossonian from downtown. He's giving the club concept two years, he adds. If he can't find a solid tenant by then, he'll begin looking at other ideas for developing the first-floor space. The important thing, he says, is to get the building finished, because no matter how much progress the rest of Five Points makes, the neighborhood won't have arrived until the former hotel's redevelopment is complete.

"It was the most prominent building on Welton Street," Yates says. "Just given its history and its reputation, Five Points is not really on its way until the Rossonian gets done.

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