Louisville's Sterling Beer Project Fell Through; Let's Examine The Deal
Earlier this year, the developer who planned to turn two historic properties on Bardstown Road into a brewery and taproom for Sterling Beer sold the buildings. And because the developer sold them for more than twice what the company paid the city of Louisville for them, the deal immediately raised eyebrows around town. Some are questioning the ethics of the sale, while others are criticizing the new proposed use.
The two buildings, at 1300 and 1306 Bardstown Road, were previously used as a telephone exchange, a police station and the home of the Louisville Ballet. Developer John Hollenbach’s company Louisville Sterling, LLC, purchased the two in late 2016 for $425,000 — $75,000 less than their appraised value.
Less than a year later, Hollenbach learned Sterling Beer would not move forward with its plans. In March 2018, he sold the properties for $950,000.
The new owners want to turn them into mini storage, a restaurant and an Airbnb unit. Hollenbach said he is an investor in the new project, too, and will put in the $250,000 he netted in the sale — after spending "hundreds of thousands of dollars" on building improvements.
Questions about the transactions led District 8 Councilman Brandon Coan — who represents the Highlands, where the buildings are — to allege unjust enrichment. Hollenbach denies the charge.
Coan said he is seeking legal and equitable relief for the city of Louisville and taxpayers. He wants the Metro Council to inspect the case.
One possible outcome Coan would like would be for Louisville Sterling, LLC, to pay back the $525,000 profit to the city. But he’s open to another option as well.
“The current ownership group can deliver a project to the people, to the city, that fulfills its obligations under the original purchase agreement,” Coan said. “A project that doesn’t have to be the Sterling Brewery, but something that‘s substantially similar to that because that was the deal.”
But was that the deal?
Coan said the contract Louisville entered into with Louisville Sterling was a good one. It had a section in the purchase agreement that would have allowed Louisville to request a “development agreement” in the 120 days following the sale of the buildings on Dec. 2, 2016.
That development agreement could have established terms and conditions for development of the properties, and set guidelines for scenarios in which the city would be able to repurchase the properties for as much as it sold them.
But the city never requested a development agreement. That is why Hollenbach’s lawyer, Bissell Roberts, said there was nothing wrong with Hollenbach’s failure to deliver the Sterling Beer project.
“My opinion was and is that Louisville Metro has no claim against John or Louisville Sterling for anything,” Roberts said.
Hollenbach could not be reached by phone, but answered questions via email. He is well-connected, as the brother of a former Kentucky state treasurer and the son of a former Jefferson County judge-executive and commonwealth's attorney. He’s also part of a lot of other high-profile deals in the city — like the new Butchertown soccer stadium.
The soccer stadium is the type of project for which the city typically enters into development agreements, since it invested in and provided financial incentives for it, said Louisville Forward spokeswoman Jessica Wethington.
Coan said Louisville Sterling failed to follow through on its commitments to the city and the community.
“That kind of project would have merited the city selling the property at the price that it did,” Coan said. “We certainly didn’t sell the property in the way that we did in order for the developer to flip or build whatever else they want there. That’s clearly not a good deal.”
If Louisville officials had known during that 120-day window that the project wasn’t viable, they could have chosen to exercise that development agreement provision.
Coan said Hollenbach’s delay in disclosing the failure of the Sterling Beer project hurt the city. The project was deemed not “financially feasible” sometime in “early 2017,” according to a letter from Roberts to County Attorney Michael O’Connell obtained through an open records request.
A spokesman for the County Attorney said the office does not discuss possible legal advice with anyone but its clients.
What Did He Know — And When Did He Know It?
Hollenbach did not specify when in early 2017 he learned of Sterling Beer’s withdrawal. He said he informed Louisville Forward Deputy Director Rebecca Fleischaker about the project not proceeding in August 2017. In November 2017, he told Louisville Metro about the mini storage plan, he said.
If Hollenbach knew that the Sterling Beer project wasn’t going to happen any time in the first quarter of 2017, that would have fallen within the 120-day window in which Louisville could have requested a development agreement.
According to Coan, it would have been Hollenbach’s responsibility to inform the city of the change within that period.
“I think [the city] would have exercised its option for a development agreement in this case had it known, and had it been disclosed to them within the 120-day development option window, that Sterling Beer had pulled out of the deal,” Coan said.
He said Hollenbach misled the city “in terms of timely, accurate, complete disclosures.”
Louisville’s remaining legal rights over the Bardstown Road properties relate to zoning, according to Roberts, Hollenbach’s attorney. The new ownership group, MS Bardstown Road, LLC, is in the process of applying for a Conditional Use Permit that would allow it to set up mini storage in the buildings.
On September 17, the Board of Zoning Adjustment will hold a meeting to consider the application.
Area residents who are concerned about the new proposed uses for the building, their impact on parking and how the deal went down expressed their opposition at a neighborhood meeting in July.
Already, the zoning for the properties would allow for used car sales, laser tag or a pawn shop. Roberts said neighbors may take issue with the mini storage plan, but it could be worse.
In fact, because there is no development agreement, Roberts said there is no legal document that says the historic buildings need to be restored — or even remain standing.
But going forward, Coan said there is a need to reevaluate how Louisville’s economic development agency handles deals such as this one.
“My first priority is to resolve this matter,” he said. “And my second priority is to look at the system going forward.”
The councilman said the Metro Council’s government oversight committee, and perhaps also the labor and economic development committee, should look at this case. He said the timing for such hearings has not yet been set.