The last time Denver super-developer-turned-S&L-deadbeat Bill Walters was heard from, he was lying low in his wife's California condo, ducking calls from the press and hoping not to hear a knock on the door from the G-men assigned to mop up the nation's thrift crisis. Walters had a lot to fear in those days; through a string of bum loans from Denver's ill-famed Silverado Banking, he had stiffed taxpayers for more than $100 million and been forced into bankruptcy. But wherever Walters is today, he must be smiling. After all these years, one of his old Denver buddies is back in the saddle--and gunning for 4,200 acres of publicly owned land at the former Stapleton Airport.
In some ways, the massive real estate deal proposed by former Walters attorney and business partner Harvey E. Deutsch is as brash as the ones Walters himself used to string together with his moneymen at Silverado: For $30 million in borrowed money, Deutsch and his five partners want to take Stapleton off Denver's hands.
The city would no longer bear the burden of wet-nursing the old airport, whose vacant runways and abandoned buildings now roll east from Quebec Street like an urban wilderness.
The airlines that relocated to Denver International Airport only to see Stapleton remain on Denver's books could breathe easier, assured that they no longer have to cover the costs for an aviation white elephant.
And Deutsch and his partners would gain clear title to the biggest piece of urban in-fill property in the United States.
For now, the Deutsch group's bid is notable as much for its chutzpah as for its chance of actually being accepted. "If the city did the deal with them, they'd look ridiculous," says one veteran Denver developer, adding that Deutsch lacks "the horsepower" to pull off such a gargantuan undertaking. Even Denver city councilman Ted Hackworth, a vocal advocate of selling Stapleton to the highest bidder, scoffs at the $30 million offer, noting that the city's share of environmental cleanup costs at the old airport could exceed that figure.
But the bid from out of the blue is no joke. Deutsch has done numerous deals since Walters left town, including the successful Gateway Village project in Montbello. He says his group has lined up Avanti Property Group, the giant Florida speculator whose logo can be seen on land parcels across the metro area, as a lender and equity investor. A politically palatable group of investors has signed on, including African-American construction contractor Charles C. Roberts, brother to former city councilman Bill Roberts. And a long line of other equity partners can be expected to pile aboard if the deal shows signs of life.
Whether the unsolicited bid will survive the next few weeks is now up to the city. But Deutsch's offer already has done what many observers believe was its true purpose: It has thrown a scare into an administration that, perhaps preoccupied with the Summit of the Eight and the Pepsi Center, had shunted Stapleton development to the back burner even as the local real estate market was boiling over. Says Errol Stevens, who until 1995 oversaw Stapleton development for the city and has since popped up as an equity partner in Deutsch's effort, "We deserve the Pulitzer Prize just for bringing this up."
The city has been talking about how to redevelop Stapleton since at least 1989, six years before the airport was mothballed to make room for DIA. First there was Stapleton 2000, the city agency set up by former mayor and DIA booster Federico Pena to try to figure out how to patch the giant hole in the city that would be left by his new airfield. Then there was the Stapleton Redevelopment Foundation, a nonprofit company bankrolled for $4 million by some of Denver's biggest private companies and charitable foundations. Today the Stapleton Development Corporation, yet another nonprofit entity created by the city, serves as the former airport's de facto development arm, with a budget this year of $8.1 million.
And so far, just 500 acres of the original 4,700-acre property has been sold.
Most of what has been unloaded--a 273-acre chunk that went to the Union Pacific Realty Company and has since been flipped to another developer in a private deal--wasn't actually sold at all. Instead, the city traded the parcel on Stapleton's northeast side to Union Pacific as part of a land swap made necessary when Denver condemned a piece of UP land to make way for DIA. The rest of the acreage went to the parent company of grocery giant King Soopers on bargain-basement terms that were widely viewed as an attempt to mollify a large hometown employer.
Stapleton's fate seemed to have been sealed in 1995, when Mayor Wellington Webb and the Denver City Council created the SDC and set it on the road toward autonomy. The mayor got to name nine of the SDC boardmembers, including board chairman Harry T. Lewis, and the Webb-appointed Denver Urban Renewal Authority the other two. But despite that cozy arrangement, progress has been painfully slow. A final agreement has never actually been worked out, and behind the scenes, tempers have run hot.
Webb administration officials and SDC boardmembers aren't eager to characterize the tenor of their relationship. Both Webb spokesman Andrew Hudson and city public works director Bruce Baumgartner, the mayor's point man on Stapleton, failed to return phone calls from Westword, and SDC chairman Lewis declines to criticize the city, noting, "We're really their agent." However, sources say SDC boardmembers have grown increasingly frustrated by the city's foot-dragging on the question of when and how to transfer the Stapleton property title to the SDC.
"They have been pulling their hair out for two years because the city won't let them do anything," says one person close to the situation. "Harry Lewis and some of the other boardmembers almost walked a couple of times." According to this source, the Webb administration, in particular City Attorney Dan Muse, just can't bring itself to cut the cord and give the SDC the land--partly because the city doesn't want to be seen as handing over control to an outside entity, and partly because of a simple turf war.
Other observers blame the delays on the SDC's citizens' advisory board, a group set up at the city's insistence to represent the concerns of the nearby Park Hill neighborhood--even though the SDC's board of directors already includes such community leaders as the Reverend Paul Martin of the Macedonia Baptist Church. "To me, they've been unable to make decisions because of constantly bringing neighborhood concerns in," complains Hackworth. "The neighborhoods they seem to be representing are constantly demanding more."
If those neighbors are demanding, however, they come by it honestly. It was Park Hill's constant complaints about airplane noise that provided Pena with one of the key political pretexts for shutting down Stapleton in the first place. And once that decision was made, the city bent over backward to ensure that residents would have a say in what happened to the old airfield. Scores of public meetings were held before the Stapleton Redevelopment Foundation in 1995 unveiled an ambitious--some would say utopian--master plan that calls for the establishment of eight "mixed-use villages" and up to 1,600 acres of parks and open space.
The city says it has reached a "conceptual outline" with the SDC on how and when Denver would hand Stapleton over to the nonprofit corporation. Under that tentative arrangement, which the city admits could be thrown out if a majority of airlines object, Denver would transfer title but retain veto power over specific sales. The idea is to preserve city oversight--but it would also enable politicians to nix deals the SDC's paid staff had spent months or years putting together.
It took a battle-tested survivor of the turbulent 1980s to recognize the opportunity created by such a two-headed monster. Deutsch's solution: Scrap the whole concept of the SDC and just sell the land in one big hunk. Let Harvey sort it out.
"It's brilliant," says one Denver real estate lawyer. "The city created this situation, and he saw the opening."
In military terms, Deutsch's tactic--to exploit the friction between the city and the SDC for his own benefit--might be known as divide and conquer. He has handled it more like a banzai charge.
Harvey Deutsch, who started out as a small-time labor lawyer and went on to build one of the city's biggest real estate law practices, has emerged from the crazy Eighties with few visible scars. At 57, he remains ebullient, energetic and prone to the wisecrack, even when it comes to his days as right-hand man to Walters, one of the few Denver developers ever to conclusively disprove the old real estate maxim that "you can't get hurt in dirt."
"If I was an estate lawyer, it would have been a nice, quiet life," says Deutsch of his sometimes stormy past. "I didn't choose that, and if I had to do it all over again, I wouldn't choose it, either."
Hooking up with Walters at the peak of Denver's boom, Deutsch served as the developer's general counsel for two years in the early Eighties, a position from which he coordinated all of Walters's business. Even after leaving that in-house post, he continued to work for Walters until the developer's house of cards toppled along with the notorious Silverado in 1988.
"I did represent him and others in their attempts to fend off the FDIC and the RTC foreclosures, to hold on to these properties until the economy improved," Deutsch says. "In Bill's case, it just turned out to be too long to have to hold on."
Even coming from an old friend like Deutsch, that assessment is almost comically charitable. In fact, William Lester Walters single-handedly burned up more taxpayer money than nearly any other figure in the thrift crisis. Largely because of the huge loans he took out from Silverado and never paid back, the federal government wound up seizing the local institution, whose blue neon sign still adorns the old headquarters building at I-25 and Colorado Boulevard. The public paid handsomely for the privilege.
Deutsch, however, says he has nothing to apologize for. "I was not Bill's financial advisor, I did not make decisions on the economics of projects, and I did not make decisions on whether banks would lend money to him," he says. "I was a lawyer engaged to make sure the legal work was done correctly."
As such, Deutsch was never charged criminally in connection with his work for Walters. He also escaped the blizzard of civil suits that ensued when the government and others tried to trace where all the money loaned to Walters and others actually ended up. Foreclosure documents did list him as a co-owner of one of Walters's biggest turkeys, the Bromley Park project near Brighton, which helped swallow up a $26 million Silverado loan before going belly-up. Deutsch explains that he wound up with small pieces of "three or four" Walters projects through his practice of accepting reduced legal fees in return for a piece of future profits. "I never got any profits," he says. "I did get a reduced fee."
Even today, though, Deutsch declines to badmouth his former boss, whom he says he hasn't spoken to in some time. "I'm very proud of my work for Bill Walters," he says. "I'm not embarrassed by it. I'm still practicing law, I still have my license. I'm pretty good at it. And I have no regrets."
Deutsch isn't the only member of the Stapleton partnership who did business with the man who would one day give Neil Bush a run for his money as poster boy for the S&L scandal. Brooke Banbury, another attorney-turned-real-estate-developer who's joined Deutsch's Stapleton bid, partnered up with Walters on a proposed mixed-use development near the intersection of Arapahoe and Parker roads, personally guaranteeing a $14.4 million loan from New York's Chase Manhattan Bank in the process. "Then the economy went bad, and Walters went south in the bankruptcy," recalls Banbury, whose family today owns a half interest in the Stapleton Plaza Hotel. The Arapahoe County development never happened, and the bank initiated foreclosure proceedings in 1992, declaring that, six years after the loan had been made, $14.3 million of the $14.4 million in principal remained unpaid. Banbury says that he was left "holding the bag" but that he managed to fend off the foreclosure by lining up a buyer and settling with the bank.
Others in the Stapleton group have more indirect links to Walters. Deutsch partner Norman Sheldon is the cousin of Michael Sheldon, a former law partner of Deutsch's who also once served as Walters's attorney. Joel Farkas, at 36 the youngster in the bunch, is the nephew of Greenwood Village developer Howard Farkas, who was a partner of Walters's on the doomed Bromley Park project. Had that typically grandiose Walters venture succeeded, it would have tripled the size of Brighton. Instead, the federal government later foreclosed on a 1,500-acre chunk of the property. Deutsch, though, kept his fingers in the pot; he has since helped another developer buy back the land and is still involved as an attorney on the deal. "And this is ten years later," he adds, with a touch of pride.
Indeed, Deutsch says the roller-coaster ride he and his partners took during the 1980s--and the fact that they made it out alive--uniquely qualifies them to read the dips and crests of Denver's latest boom. Say, for instance, those involved in redeveloping Stapleton.
"We do not have unrealistic expectations, which I think is a good part of what happened in the Eighties," he says. "We're not going to go deeply into debt to undertake this project. We're going to bring in equity partners so we have long-term staying power. We're not going to base our financing arrangements on projections based on what happened in Denver in the very best years of the 1980s."
Joel Farkas notes that he graduated from college in 1983 and came to Denver just in time to experience the city's near-death experience of the mid-1980s, when an ocean of vacant office space threatened to drown the lenders who had paid for it. "We've talked about this a great deal," he says. "We certainly do not forget what happened in the Eighties. We'll be conservative in our financing and expectations."
Along with that self-imposed discipline, adds Deutsch, all Denver developers now operate in a climate of "lender constraint"--a polite way of saying that, having been burned repeatedly by pie-in-the-sky projections during the Eighties, bankers no longer dish out handshake loans over drinks at the club.
Denver's economic climate today, however, isn't all that different from the go-go years of the 1980s. New residents are pouring in by the thousands, and Fortune 500 companies are relocating entire staffs to Colorado. And though Deutsch's experiences with Walters apparently taught him the importance of caution, he also seems to have learned that if you want to make a splash in real estate, it often pays to think big.
To the careful observer, there have long been signs that the Webb administration may be tiring of its slow dance with the SDC. This past March, after a city bond statement set Stapleton's present-day value at $30 million, Assistant City Attorney Lee Marable was quoted in the Rocky Mountain News as saying that if someone were to make the city an offer for $30 million, "we would seriously consider it." On August 6, another city official showed up in the news: Planning director Jennifer Moulton told a Wall Street Journal reporter that there was a "conflict between what the plan calls for and current market demand." The city council-approved master plan, Moulton added, "is a starting point, not an ending point."
On the same day the Journal article appeared, Deutsch and his partners made their play. And they saw no reason to inform the SDC. Instead, Deutsch sent a letter to Webb, pitching the mayor directly on the privatization of Stapleton. He made sure to send copies to the city council, just in case word didn't leak to the press.
If the snub got under the skin of SDC boardmembers--and by all accounts, it did--the offense was definitely intended. Deutsch and his partners openly ridicule the nonprofit agency, charging that it operates in secret--in fact, the SDC recently refused a Denver Post request to review copies of its leases and employment contracts--and that it has allowed some of Stapleton's buildings to deteriorate. They also mock the lack of development expertise on the nonprofit's board, whose political roots are hard to conceal: Along with the Reverend Martin, the group includes former Denver school-board president Ed Garner, who now runs a janitorial service, and a representative from the League of Women Voters.
"One of the things lacking at the SDC is anyone with any experience in the real estate business," says Deutsch. "Nobody on that team has that perspective." Errol Stevens, who serves as Deutsch's eyes and ears at city hall, says he's been struck by how few of the boardmembers even bother to show up at their own meetings. He attended SDC board meetings for six months last year, he adds, and saw that generally fewer than half of the members bothered to appear.
"My read is there is a great deal of feeling in the city and on the SDC board that things are not going well," says Stevens, who during his days with the city was never a fan of the communal process that led to a plan calling for "urban villages" against the industrial backdrop of I-70. "The whole real estate community says, 'My God, what's going on?'"
"To really know," adds Deutsch, who clearly is enjoying his jousting with the city, "we'll have to wait for the Kitty Kelley book."
Deutsch's letter to Webb, however, has none of the drama of a typical Kelley creation. Instead, the six-page missive is a straight-ahead business proposition, alternately cocksure and deferential in tone. It pledges to uphold the urban-village vision of the Stapleton Redevelopment Plan, for instance, while noting that the plan will need to be "updated periodically to reflect current market conditions." And it includes frequent references to the sheer expense of subsidizing the Stapleton Development Corporation.
The city's current plan calls for funding the SDC's "ongoing operation and maintenance expenses" via at least $63 million in bond debt that would be repaid by tapping DIA revenues. Though that approach is widely considered a political winner for Webb--it involves no new direct taxes--it essentially amounts to sticking airlines with the cost of redeveloping an airport the airlines didn't want shut down in the first place. The airlines could in turn be counted on to stick it to their passengers. Selling outright would avoid that onerous process altogether--one reason United Airlines, which accounts for most of the revenues at the new airport and has threatened to take the city to court if it tries to issue Stapleton bonds, has signaled its support for a sale of the property.
In his letter, Deutsch gave Webb until September 8 to respond. On September 2 he received a letter from Webb chief of staff Stephanie Foote, who took the trouble to scratch out the typed "Dear Mr. Deutsch" greeting of her secretary and replace it with a friendlier "Harvey" written in longhand. Despite the familiar tone, though, Foote was careful not to tip the city's hand. On the one hand, her two-paragraph letter notes that the city is still talking to the SDC about the transfer of the Stapleton property and "has not made a policy decision to solicit further interest from other parties in the Stapleton property." On the other hand, Foote says the city wants to schedule a meeting with the Deutsch group as soon as possible to discuss specific terms. Deutsch responded by sending the city a letter extending the offer to October 8 and waiting by the phone. At last word, he was still waiting.
In the meantime, SDC president Andy Barnes, a hired gun brought in last year from Washington, D.C., to jump-start the development process, has told the press that at least two other private investment groups have expressed an interest in buying Stapleton. And while the Webb administration has remained coy on the question of a bulk sale, the SDC has launched what by its own somnolent standards may actually represent a counter-attack.
Chairman Lewis, a reserved investment banker who has done volunteer work for the city for years, emerged from his shell a few days after the Deutsch bid to declare himself "befuddled" by the offer. Lewis now goes so far as to accuse Deutsch of trying to "steal" Stapleton. And though he admits Deutsch's move will likely prompt the administration to accept bids on large tracts of Stapleton land, he says it's highly unlikely that Deutsch or anyone else will ever actually buy the airport outright. "Your holding costs would eat you alive," says Lewis, noting that a developer would have to spend millions of dollars just to maintain the property while seeking buyers. Lewis also notes that the Deutsch offer arrived while the Federal Aviation Administration and the airlines are in the midst of negotiating who will pay the environmental cleanup costs at the old airport, which could run anywhere from $31 million to $85 million. It's folly, he says, to think any lender would put up the money for a purchase without knowing exactly who will have to foot the bill for the pollution.
Deutsch and his partners, however, say there's no reason environmental issues couldn't be worked out concurrent with a sale. They also say they're more than willing to compete with other private bidders for Stapleton. "Maybe I'm being Pollyanna-ish, but I would say there's a 90 percent chance of it being private," says Banbury. "At least if anybody has any sense, it does."
Many observers say they'd be surprised if the city sold Stapleton out from under the SDC at this late date. "It's always possible that people can change their minds," says Tom Gougeon, the former Pena aide who served as executive director of the Stapleton Redevelopment Foundation. "But it seems to me they created the plan, they created the corporation, they appointed the board and they adopted the plan. At least at some point, they were committed to that path."
Carrie Kramlich, a real estate attorney who worked with the SDC on the Union Pacific deal, says she believes the city will ultimately side with the development corporation. "Deutsch's approach may actually have solidified that relationship," she predicts. "It was kind of a divide-and-conquer strategy, and my guess is it will backfire. The community is too invested in this." Among those likely to object to the concept: influential Denver oilman Sam Gary, the philanthropist who coughed up much of the money that paid for the Stapleton Redevelopment Plan.
Among SDC supporters, one popular theory is that Webb himself has too much political capital invested in Stapleton to simply put it on the auction block. "I think Wellington in particular understands the long view," says one SDC official. "It's why he's placed so much emphasis on parks. He wants to be remembered as a mayor, like Speer, who created things we'll enjoy thirty or forty years later."
From Hackworth's vantage point, predicting Webb's behavior is never a safe bet. "I have seen the mayor wish-wash on this both ways," says the conservative Republican councilman, who despite his outright dismissal of Deutsch's $30 million offer is probably the developer's best friend on the council. "[Webb] is saying he is going to look at the possibility of having a private group develop it, and then he's saying he'll stick with the SDC."
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The mayor doesn't seem to be getting much heat yet. Even Greater Park Hill Community, Inc., the neighborhood with the territorial stance so reviled by Hackworth, hasn't flatly rejected the Deutsch deal. The community group's official position on the offer: Every Stapleton proposal should be judged on its own merits. That diplomatic response has everything to do with the fact that, unlike the SDC, Greater Park Hill got several courtesy calls from Deutsch's group before an offer was put on the table.
No matter how Webb cuts it, if he wants to continue subsidizing Stapleton development, he'll have to pay for it--the coming year's budget reportedly calls for a direct payment of $8.4 million to the SDC, up $300,000 from the previous year. And with those kinds of numbers being thrown around, it may be appropriate that a onetime protege of Bill Walters is the person who has finally succeeded in thrusting the stodgy issue of Stapleton development into the limelight.
DIA, after all, was a land deal long before it was an airport. Now, more than a decade after the city began mulling the idea of scrapping Stapleton, the venerable airfield's fate may once again ride on who can cut the best deal.
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