Archive for Friday, January 22, 2016

As deadline passes, city mum about next move on Oread hotel tax dispute; new questions about Oread tenants emerge

The Oread hotel, 1200 Oread Ave, is pictured on Jan. 22, 2016.

The Oread hotel, 1200 Oread Ave, is pictured on Jan. 22, 2016.

January 22, 2016


The final deadline for Oread Inn LC to comply with the city’s demands in a $500,000 tax dispute passed Monday with more contention, and city officials are remaining silent about their next move.

And while the dispute continues, a potential discrepancy has been found in the information the development group has provided to the city.

Two companies listed by the state as having registered offices at The Oread hotel — Warren LC and Oread Construction LC — are absent from a list of tenants given to the city in October from an attorney representing Oread Inn. Thomas Fritzel, the Lawrence businessman at the heart of the tax dispute with City Hall, is listed as an executive with both firms.

Interim City Manager Diane Stoddard said she was not aware of Warren LC or Oread Construction LC.

Stoddard said the list is sent annually and meant to show tenants of the hotel that have leases with Oread Inn. A business might not be listed, she said, if there's a resident of the hotel who also operates a business there. If there are businesses not on the list, the city surmises those businesses are not tenants, she said.

"I presume it could be possible that someone may have a professional business name and live there; there could be those circumstances," Stoddard said. "The major concern is for us to capture the tenants."

A call to one of Oread Inn's attorneys Friday was unreturned as of press time.

The city has spent months gathering information about The Oread hotel project after allegations came to light that a firm led by Fritzel, Oread Wholesale LC, was used to inflate sales tax totals at 1200 Oread Ave., the site of The Oread hotel. The hotel is part of a special taxing district where a large percentage of local sales tax dollars collected at the property are rebated back to the hotel development group, which is led by Fritzel.

Among the concerns raised in a city-ordered audit was that Oread Wholesale was listed as having an address at the hotel, even though there appeared to be no signs that the construction wholesale company actually operated there. Now, state records indicate there are two other companies — one a construction firm and the other a mechanical contractor — that don't appear to have a presence at the hotel, either.

The Kansas Business Center, managed by the Secretary of State’s Office, lists Warren LC and Oread Construction LC as having registered offices at 1200 Oread Ave.

Neither Oread Construction LC nor Warren LC is present on a list of the hotel’s current tenants that was sent to the city from an attorney representing Oread Inn. A list of tenants is sent from the development group by Nov. 1 each year as an obligation of its redevelopment agreement with the city that created the special taxing district, Stoddard said.

The 2015 list comprises The Olivia Collection LLC, the umbrella organization over The Oread and The Eldridge; Kangaroo LC, the ownership group of The Cave; Oread Wholesale; New Cingular Wireless; Verizon Wireless; University of Kansas Memorial Corporation, which owns KU Bookstore; and Citizens National Bank.

Fritzel is listed by the state as the registered agent of Oread Construction LC

Fritzel also signed annual reports as a manager of Warren LC, and his wife, Dru Fritzel, is listed as the only member who owns 5 percent or more of that company’s capital. According to the state, the registered agent for Warren LC, previously named Earnie’s LC, is Earnest Oshel.

Oshel is listed on city documents as the primary contact for Earnie’s Mechanical, which was hired by Gene Fritzel Construction Co. as the mechanical subcontractor for Rock Chalk Park.

In an application for payment for the Rock Chalk Park project, Earnie’s Mechanical’s listed address was a home at 1100 Delaware St. A storefront bearing the company’s name is located off Vermont Street across from the Lawrence Public Library.

When called Friday at the number on the storefront’s sign, Oshel declined to comment about whether he was the registered agent of Warren LC and whether the company had an office at The Oread. He repeated “no comment” when asked why Warren LC was not present on a document sent to the city listing the hotel’s tenants.

The redevelopment agreement with Oread Inn requires the development group to provide monthly sales tax returns from "assignees, purchasers, tenants, subtenants or any other entity acquiring property or occupancy rights" in the special tax district. When asked whether the city was confident it was getting all of the sales tax returns, Stoddard said, “as far as we are aware.”

A back-and-forth between Oread Inn and the city started in December, when a city-hired auditor concluded the group used Oread Wholesale in order to “improperly” receive approximately $430,000 in reimbursements from the city.

The auditor’s final report accused Oread Inn of violating Kansas law, but the Kansas Department of Revenue told city officials that it was a city issue.

In response, an attorney for Oread Inn called the audit “one-sided,” “inflammatory” and “inaccurate,” and contended the city violated Kansas law by using money from a tax increment financing fund to pay for the city’s audit of Oread Wholesale.

The attorney, Roger Walter, said in a letter sent Monday that Oread Inn was working on a more in-depth response to the audit. He estimated it would be done by the end of the month.

Attorneys for both Oread Inn and Oread Wholesale have said the city lacks authority under the redevelopment agreement to make the demands it has.

The group did comply with one in a list of city demands: repaying nearly $500,000 in “improperly” received sales tax rebates, plus interest. But, in a letter accompanying the check, the group said it was sending it “under protest.”

It hasn’t complied with other demands, including that it hand over financial documents Oread Wholesale used to complete its sales tax returns. Oread Inn has also protested a demand to agree to an addition to the redevelopment agreement that would allow the city to audit any sales tax records of Oread Inn, its tenants or anyone doing business with The Oread hotel without advance notice.

The city has so far stood by its demands.

Stoddard said Thursday that, though the city has been transparent about the dispute up to this point, she wouldn’t comment on its next step.

“We really have been making it a priority to be as transparent and up front with everyone as we can, but I hope everyone realizes that it’s also sensitive,” Stoddard said.

When asked when the public would know of what the city’s actions would be, Stoddard said it “depends on what things may unfold.”

“We certainly don’t want to jeopardize our ability to appropriately handle this,” Stoddard said.

Timeline: Oread tax district dispute
● April 14, 2017 — Tentative settlement would reduce incentives to Oread hotel by millions, require Fritzel to resign management duties
● March 29, 2017 — Judge orders conclusion of mediation in Oread hotel lawsuit
● March 6, 2017 — After 10 hours of mediation and executive session, no public update in city’s lawsuit against The Oread hotel
● March 3, 2017 — City leaders to take part in second court-ordered mediation Monday for lawsuit against Oread hotel
● Feb. 22, 2017 — Mediation session does not resolve city’s suit against The Oread hotel; judge orders second session
● Jan. 20, 2017 — Judge orders mediation in city’s lawsuit against Oread hotel
● Dec. 9, 2016 — City’s lawsuit against Oread hotel moved to federal court
● Dec. 4, 2016 — City: Oread hotel developer admitted to much of alleged tax scheme
● Nov. 16, 2016 — Lawsuit against Oread group cites personal purchases, faked sales in alleged scheme to defraud city
● June 9, 2016 — Auditors continue to review Oread sales tax documents; timeline for resolution uncertain
● April 19, 2016 — After Oread kerfuffle, city suggests adding right to audit into future incentive deals
● April 6, 2016 — City awaiting findings from Oread sales tax documents; Fritzel sends letter to community
● March 15, 2016 — Oread developers agree to comply with city demands
● Feb. 22, 2016 — Developer-commissioned analysis: Oread Inn owes fraction of what city says
● Feb. 17, 2016 — Oread group willing to comply with some city demands, asks for meeting ‘immediately’
● Feb. 11, 2016 — Lawrence declares Oread Inn in default of redevelopment agreement; developer says city is in default
● Feb. 10, 2016 — Oread Wholesale submits report about city-ordered audit; record not released
● Jan. 22, 2016 — As deadline passes, city mum about next move on Oread hotel tax dispute; new questions about Oread tenants emerge
● Jan. 19, 2016 — Oread group again contests city’s demands, accuses city of violating state law
● Jan. 6, 2016 — City mum on action against Oread Inn, waiting on last deadline to comply with demands
● Dec. 31, 2015 — Oread group pays nearly $500,000 to city ‘under protest’
● Dec. 30, 2015 — City seeking more than money from Oread group as deadline nears
● Dec. 29, 2015 — Oread group has not yet responded to city letter demanding $500,000; city has discussed issue with law enforcement
● Dec. 16, 2015 — City seeks more than $500,000 from Oread group after audit finds possible violations of state sales tax law
● Dec. 16, 2015 — City overpaid Oread hotel’s development group, mayor says
● Nov. 22, 2015 — Lawrence hires firm to evaluate Oread tax district


Bob Forer 2 years, 2 months ago

Lack of full transparency on non-proprietary matters is overwhelming evidence of deception, and suggests active fraud.

Ken Easthouse 2 years, 2 months ago

So, in a year when the city saw record numbers of construction, three construction-oriented companies operated out of a hotel within a special taxing district with intent on inflating the returns to that district, all by one owner.

Seems to me there's a simple, logical solution to this whole mess that no one has discussed yet: repeal the special taxing district. It's obviously being manipulated far beyond the original intent.

Mike Green 2 years, 2 months ago

Before repealing, they should have avoided giving more tax dollars to other "ownership groups" this man is involved with. The fact that the council voted to give the breaks to the Eldridge Hotel speaks volumes on the cities true loyalties.

Richard Heckler 2 years, 2 months ago

in addition to numerous site plan violations as if they never occurred.

the blind eye enforcement of city regulations is a failed policy ...

the menards deal will be interesting considering the history they have accrued. It's like our city commission seems to think the menards people have turned over a new leaf and suddenly have respect for EPA regulations and will demonstrate worship level respect for city hall.

Could it be that the Meanrds folks have been observing some of the Fritzel group behavior?

City should be mum about what's up next.

Is this IRS material?

Richard Heckler 2 years, 2 months ago

In my opinion any company that accepts preferential tax favors must be open to any type of audit because taxpayers want to know and accepting tax favors instantly makes taxpayers a significant number of stakeholders.

Some of we taxpayers do not take kindly to the handing out of corporate welfare much less to abuse of such a privilege.

Richard Heckler Stakeholder/Taxpayer

Sue Grosdidier 2 years, 2 months ago

I find it so sad that this man would deceive the city in which provided his family a profitable livelihood for his entire life. I also find it unbelievable that the city did not look more closely at his Junction City dealings and realize past history is repeatable history which is exactly what we are seeing. Greed and deception go hand in hand!!

Theodore Calvin 2 years, 2 months ago

Thanks LJ. Keep this front and center. Don't let this slip under the rug & let business return to normal. Those of us who voted for a change in the way we court developers in this town now expect your words to turn into actions commissioners. We feel a bit let down that you rushed through a vote for the Eldridge incentives, knowing there was potential malfeasance at Oread. Let this be a turning point. You have learned your lessons, now going forward make sure you craft agreements that allow you proper remedies in these situations. Craft agreements that will allow you to ensure the incentives are being used in accordance with the agreement. Craft agreements that will allow us to measure the effectiveness of the incentives, the merit, and allow us to definitively say if these agreements are successful, so we can make more informed decisions when it comes to incentives. And above all protect us, the taxpayers. Do your due diligence.

David Holroyd 2 years, 2 months ago

So, the Fritzel ordeal and HERE parking has shifted the focus from Mr Farmer,why is thet?

Wouldn't it be interesting to know how Mr Farmer was courted by the Fritzels and by HERE?

Bob Forer 2 years, 2 months ago

How was he courted? He was offered a job that he had very little experience in after he had been fired from two separate jobs for misuse of funds, and within a couple of years, his salary had just about doubled. Further, all one has to do is look at his campaign contribution list. I recall seeing the names of seven or eight members of the Fritzel family. Do you think those folks give after their money because they believe in good government?

Bob Forer 2 years, 2 months ago

My point? You raised the rhetorical question as to how Farmer was courted. I suggested a possible answer.

Samantha Martin 2 years, 2 months ago

Bob you know more about the Farmer fiasco then most. Farmer was a puppet of many during his short lived time in a position power. The last thing Farmer supporters want is him questioned under oath. Rock Caulk Park infrastructure audit and Eldridge tax district were issues Farmer was instrumental is getting approved, these projects were worth millions to someone.

Richard Heckler 2 years, 2 months ago

City should be mum about what's up next.

That being said I would rather here any city hall thoughts first from city hall on Tuesday nights in order to prevent statements potentially becoming misconstrued.

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