When Louisville’s Metropolitan Sewer District sought to sell a five-acre lot in the Butchertown neighborhood last year, documents suggest that both the agency and a Metro Government official had a buyer in mind, as well as a unique procurement process.
Emails obtained by WFPL show that then-Economic Development Chief Ted Smith played a role in brokering the $790,000 deal, which took place in a remarkable 24-hour period and outside the government agency's typical sales process.
Public records suggest that MSD enlisted a commercial real estate agency in what may have been in deference to the eventual buyer, pork processor JBS Swift.
At issue is the 2014 sale of a five-acre property on Cabel Street. Swift had leased the lot for the past decade, using it as a staging area for trucks traveling to and from its nearby Story Avenue pork plant. The sale was unique on several fronts.
First, MSD went forward with hiring a commercial real estate agent—a move unprecedented in the past five years, and one that raised initial concerns from MSD Executive Director Greg Heitzman, who worried about an appearance of a lack of transparency. Meanwhile, Metro Government—through Smith—had a hand in the matter. And because the process went through a commercial firm, it cost the public agency—and Jefferson County ratepayers—$47,400 in realtor commission.
After months ofcommunicating with Swift about the sale of the Cabel Street lot, the $790,000 deal took place in a 24-hour period. And the deal has drawn the ire of local businessman Jess Abby, who made two offers on the property—both of which were virtually ignored. One of his offers topped the Swift deal by $60,000, but by then the contract was with Swift.
MSD’s Heitzman defended the way the agency sold the Cabel Street property, saying a commercial real estate agent was in the best interest of both MSD and ratepayers.
The entire transaction raised the eyebrows of government watchdogs such as Richard Beliles of Common Cause Kentucky. “It’s necessary in the sale of such a property that the public interest requires that [MSD] is more transparent than usual and that everyone is given a fair chance to bid and compete,” he said.
Cabel Street Sales Process Tailored to JBS Swift?
In an email sent on November 8, 2013, MSD Chief Engineer Steve Emly told Heitzman and General Counsel Paula Purifoy that, according to Ted Smith, Swift’s preference was to avoid the agency’s public bidding process.
The email continued, though part was redacted because MSD claimed it was a preliminary recommendation and thus not subject to the state’s open record laws:
Using a commercial real estate firm isn’t listed as an option for MSD in the agency’s procurement regulations. Emly told WFPL last month that the agency’s lawyers had determined hiring a real estate professional fit the intent of the law, but a request for either a formal legal opinion or suggestions on the matter didn’t turn up any documents.
The agency did fill out what it calls a Procurement Method Determination Form to fulfill a separate part of the regulations that requires the agency to justify hiring a licensed professional from outside MSD.
Metro Government Involvement
Ted Smith, currently Mayor Greg Fischer's chief of civic innovation, didn’t return a request for comment. Fischer's spokesman, Chris Poynter, replied via e-mail: “[Smith] was leading Economic Development for the city at the time of that email and–as part of that job–was interacting with multiple companies and businesses (including Swift) to help them stay in Louisville and grow."
JBS Swift General Manager John Cliff said neither he nor the company's legal counsel recall speaking with Smith about the purchase of the Cabel Street lot.
Heitzman Objections
Heitzman responded to Emly’s Nov. 8 email, saying he would prefer prospective buyers bid on the property, especially in light of the2011 state audit that found serious mismanagement and ethical concerns at MSD. Heitzman was brought in by Louisville Mayor Greg Fischer in the wake of the audit, replacing then-director Bud Schardein.
In an interview, Heitzman said after he wrote that email he discussed the matter with Emly and MSD’s attorneys, and changed his mind.
“Steve did come back to me and we talked about it, we also talked about it with our legal group, saying we have multiple choices on how to do this,” Heitzman said. “And I said, ‘Steve, well if you feel the broker route is the best way to get the best price for the organization and not have to tax our own resources, then go on and go the broker route.’”
$47,400 Cost to Ratepayers
Ultimately, using a commercial real estate agent to sell Cabel Street cost MSD $47,400, or six percent of the $790,000 sale price. Heitzman said the expense was justified, because it would still cost MSD resources to use the agency’s own lawyers to execute the deal—and hiring a real estate professional also included benefits such as additional marketing expertise and networks.
MSD oversees sewer and drainage systems in Jefferson County and has about 240,000 residential, business and industrial ratepayers. The agency is a component of Metro Government; the mayor appoints and Metro Council approves MSD's board members.
Using a Realtor is Rare for MSD
Using a real estate broker to sell surplus property isn’t something MSD does often, or perhaps, ever. The Cabel Street deal is the only time the agency has used a realtor in the past five years. In an email to MSD Attorney Paula Purifoy, Emly asks how to proceed.
A request for all surplus properties sold by MSD since Jan. 1, 2010 turned up only two transactions in addition to the Cabel Street deal. One, executed in September 2010, involved the swap of one MSD-owned property on Newburg Avenue for several Metro-owned properties. No money was exchanged during the deal.
The second was the sale of several acres at 4818 Jennings Lane to a company called Faurecia Exhaust Systems, whose property abutted the MSD land. Neither of these transactions involved a commercial realtor.
Heitzman said for a property as large as Cabel Street, MSD figured it would make more sense to call on a real estate agent’s expertise to market and ultimately sell the lot.
“We don’t have the resources to go out and give it out to the multiple listings and get it out to as many people as possible,” he said. “We thought [using a real estate agent] would be the best way to give Swift an opportunity to be able to compete for the property but also allow others through the multiple listings and the network of Commercial Kentucky to get access to it.”
But if the point in using Commercial Kentucky was to market the Cabel Street property more broadly, the strategy was ineffective.
MSD attorney Scott Porteremailed a Swift lawyer as soon as the property was listed, and Swift made an offer less than 24 hours later. The sign advertising the property was posted along with a sign reading “Under Contract.” And another interested buyer—Jess Abby of Abby Werner Holdings—was denied access when he asked to view the property two days after it was listed.
Abby said when he inquired, he was told by Commercial Kentucky that the property was so new on the market, the firm didn’t have keys to the lot. Despite this, Abby made a full cash offer. Several days later, he raised his offer by $60,000, but at that point MSD was already under contract with Swift.
Swift’s purchase of the Cabel Street lot was finalized in December of last year.
To view the documents referenced in this story, go hereand here.