When Charlottesville entered a ground lease in 1991 to establish the Water Street Parking Garage downtown, it presumably thought it had made a good deal. But three decades later, that 99-year lease appears to be a shortsighted, multimillion-dollar blunder.
For years, in a complicated arrangement that effectively amounted to a public-private partnership, the city paid low prices to rent the land on which the garage sits. But in March, Charlottesville officials received distressing news: The friendly rent the city had long enjoyed would increase sixfold.
Between 2024 and 2091, the city estimated it would have to pay $273 million for a parking garage it does not own.
Alarmed by the legally binding contract’s new price tag, officials wanted a way out. So, landowner Mark Brown cut them a deal, letting them escape the lease in another 20 years instead of 67. But it comes at a steep price. Over the next 20 years, Charlottesville will pay Brown at least $70 million.
Some residents have objected to the large sum, asking the city to reconsider. But stuck in a lease signed during President George H.W. Bush’s administration, city officials determined the negotiated deal was Charlottesville’s best option. In the words of City Councilor Brian Pinkston at an Aug. 5 meeting, the negotiations made “what was a really horrible deal marginally less horrible.”
Minutes later, in what longtime Charlottesville journalist Dave McNair described as “the most reluctant unanimous vote I’ve seen on anything,” Council approved the deal.
“You could tell it was something they did not want to do but absolutely had no choice. Just totally getting screwed by this developer and not being able to do anything about it,” McNair told The Daily Progress. “It’s an awful deal that makes one guy a lot of money.”
It’s also a deal that, if city officials of yesteryear had made different decisions, could have been avoided entirely.
‘Garbage land’
The history of the Water Street Parking Garage began decades before it was ever built.
In 1959, local bankers and businessmen created the Charlottesville Parking Center, a corporation designed to create parking downtown. Facing pressures from suburbanization and the then-new Barracks Road Shopping Center, they needed more parking so more people would patronize downtown businesses. So, they purchased a parcel of land on Water Street and paved a parking lot.
Decades later, the corporation’s founders — including the late, prominent businessman Hovey Dabney — decided they needed even more parking. They wanted to replace the parking lot with a parking garage. But they didn’t have enough money to build it on their own, so they teamed up with the city and what was then Jefferson National Bank.
The corporation was the landowner, so Charlottesville would have to pay rent. The lease outlined a payment plan that would change each decade: The city would pay an annual rate of $67,000 for the first 10 years, and then a rate of $131,000 for the next decade.
Those prices were likely enticing to the City Council back then. Chris Engel, Charlottesville’s director of economic development, said even at the time, all parties agreed that the rates were significantly lower than fair-market value. The discounted pricing helped to quickly get a deal done and get a garage built.
“The city enjoyed 20 years of well-below-market rent on a facility that it very much needed,” Engel told The Daily Progress.
But not considering what might happen after those first 20 years was the city’s original parking garage sin.
The complex agreement required that, starting in 2014, the rent would reset every 10 years. Those resets would be based upon an appraisal of the land; the more valuable an appraiser determined the land to be, the more the city would have to pay in rent.
“This is Water Street, old railroad land against the train tracks. This was garbage land,” developer Richard Spurzem told The Daily Progress. “But someone should’ve said, ‘What happens if this becomes really valuable land and someone wants to build a Ritz-Carlton on it?’”
Because the city didn’t negotiate to put a market cap on the appraisal, or didn’t require that the appraisal be based on the value of the garage instead of the value of the land, it was setting itself up for trouble.
“It didn’t take a rocket scientist to figure out this land’s value would probably increase,” said Spurzem, arguing that the city should have objected to the deal. “We shouldn’t pay you based on this being land for a skyscraper when we don’t have a skyscraper on it.”
Playing checkers, playing chess
The iteration of City Council that agreed to the 1991 lease expected that the benevolent Charlottesville Parking Center would remain benevolent.
“In order to commit to the deal, everyone assumed the best but didn’t prepare for the worst. The city never thought CPC would quit acting like a charity,” said McNair.
Although Charlottesville Parking Center was a corporation with shareholders, McNair said it acted more like a nonprofit organization. That philosophy did not sit well with Spurzem. As one of the corporation’s shareholders, he would often butt heads with CPC leadership.
“If it’s for profit, you’re supposed to be acting like a real company. Not like a nonprofit,” Spurzem said. “But they said, ‘We only did this to help out merchants in the Downtown Mall and the city by allowing free parking.’”
The center went up for sale in 2008, but the city declined to purchase it. Spurzem has criticized that “stupid” decision for years: Whoever owned the center would own the land, and whoever owned the land could collect rent.
What Spurzem and others knew was that, starting in 2014, the cheap rates that had existed for the first 20 years of the lease would expire and the city would have to pay market rate to rent the garage. Had the city purchased the parking center, it would have become the landowner, thus evading the anticipated rent escalation. But it missed its opportunity, leaving an opening for a developer to swoop in.
That developer was Brown. A University of Virginia alumnus and 33 years old at the time, he bought the garage and the surface lot across the street for $13.8 million in 2014.
“We’ve been trying to sell the company for years and years, and this is by far the best offer we’ve had,” the parking center’s chairman, Jim Berry, told C-Ville Weekly at the time.
Brown was now the owner of a piece of prime downtown real estate, the city was his tenant and the lease would soon allow him to drive rent up.
“Mark Brown studied the documents. He knew exactly what was going to happen and how it would all play out. That’s why he was playing chess and [city leaders] were playing checkers,” said Spurzem. “They just weren’t smart enough to have bought the thing when they could have.”
Great until it wasn’t
Shortly after City Council approved the “marginally less horrible” agreement in August, Brown appeared on local radio show Cville Right Now, where he explained the history of the Charlotteville Parking Center.
“I ruined the party,” he told journalist Courteney Stuart of his 2014 purchase. “The party” had been the friendly relationship between the corporation and the city.
Not long after purchasing the garage, Brown sparked a public feud with the city that would last for years. It was perhaps the first sign that Charlottesville had erred when it agreed to the 1991 lease in the first place.
“I don’t think anybody entered into anything intentionally hoping to create an error,” said Engel, who was not working for the city at the time. “It was a great partnership until it wasn’t.”
In 2016, Brown sued Charlottesville. He wanted to raise the parking rates in the garage, but the city didn’t, arguing the garage was a public good.
Neither party could adjust the rates on their own. Management of the garage, including rates and hours, was decided by an eight-member governing board known as the Water Street Parking Garage Condominium Association. The condo association’s 1994 agreement specified that six members were needed to achieve a majority. The city controlled five seats. Brown only controlled two until 2015, when he bought out Wells Fargo Bank, formerly Jefferson National Bank.
Now with three seats, Brown still did not have enough votes to raise rates without the city’s cooperation. So he took Charlottesville to court, claiming it was conspiring to keep rates at the garage below market rate. The city countersued the next month, arguing it should have had the right of first refusal on the Wells Fargo seat on the board.
Brown and city officials regularly exchanged barbs in the yearslong back-and-forth. Twice, Brown threatened to close the garage and the city threatened to use eminent domain.
The feud presented opportunities for the city to get out of the 1991 lease. According to reporting from C-Ville Weekly, Brown wanted at least $9 million for the land, but then-City Manager Maurice Jones “scoffed at the idea.” Additionally, the city made an offer to sell its share in the garage for $10 million, which would have allowed it to exit the deal. But local businesses mounted a public relations campaign, worried that Brown would raise rates so drastically that fewer people would visit downtown. The city caved to the pressure and withdrew its offer.
A 2018 settlement resolved the conflict, with the city electing to pay $413,180 in exchange for control of garage operations. City councilors applauded themselves for “sticking to their guns” and prioritizing low parking rates for downtown visitors. Former Mayor Mike Signer called it a “good result for the public.”
But the city was still stuck with the 1991 contract, and barreling toward 2024 when rent would reset. It was the moment Brown had been waiting for.
‘Disgraceful’
The appraisal done in early 2014 set Charlottesville’s annual rent at $415,000. As 2024 approached, Engel knew the next appraisal would be even higher.
Brown hired appraiser Stuart Holtzman, who determined the value of the land was $2.4 million.
“We were expecting a significant increase. Two point four million dollars was more than we were expecting. So it was a little bit of a shock,” Engel said.
The condo association contract offered a potential recourse: If there was a dispute over the landowner’s appraisal, the association could have a second appraisal done, and tenants would have to pay the average of the two appraisals. But getting a second appraisal required a majority vote, and after Brown had bought out Wells Fargo, the city couldn’t get to the required 70% majority. It would be forced to pay the $2.4 million.
Engel said the city chose to get another appraisal done anyway for “informational” and “negotiating purposes.” That appraiser, Steven Noble, found the value of the land was $800,000.
It’s unclear why there is such a large discrepancy between the figures. While appraisals are opinions of value and it is not unusual for them to be disputed, it is unusual for them to be so disparate.
“In my opinion, appraisal values by appraisers that are familiar with a given market should be within 10% of each other,” Sherwood Clements, an assistant professor in Virginia Tech’s real estate department told The Daily Progress.
While traveling abroad, Brown declined to answer a list of questions from The Daily Progress, including how and why he selected his appraiser. But the high number meant he had the city in a bind.
Charlottesville hired a third party to compare the two methodologies. That review, conducted by appraiser John Reyle in Fairfax, appears to find the $800,000 appraisal more accurate.
“In my opinion, the market value and fair market rental estimates are not adequately supported,” Reyle wrote of the $2.4 million appraisal.
City Councilor Lloyd Snook said the $2.4 million figure was “substantially more than we think is appropriate” and he believes the cap rate — which is key in determining an appraisal value — was “much higher” than appropriate.
But after receiving legal advice from Sands Anderson, a Richmond-based law firm, the city saw no legal avenue to escape the deal. According to Snook, himself an attorney, courts have held that cities can’t use eminent domain to get out of bad deals and would not be sympathetic to Charlottesville’s predicament. And even if the city wanted to cut ties with the garage, they couldn’t simply walk away from the deal.
“They could say, ‘We don’t want the parking anymore,’” McNair said. “But they still have a contractual agreement for the next 67 years.”
Anticipating future appraisals would be even higher, the city estimated the lease would cost them $273 million, and they could not get out until it expired in the year 2091. So, with virtually no leverage, Engel went to Brown to negotiate. After five months of discussions, Brown gave them an out in the year 2044, when the city will either be able to purchase the garage or sell its shares.
In the meantime, the city will have to pay $51 million to rent the land and $19 million to rent the parking spots for a total of $70 million over 20 years.
If the city sells its shares, it will recoup roughly $5 million, ultimately paying $65 million to walk away from the lease. If it decides to buy the garage, the total cost of rent and the purchase will be $140 million.
“One hundred forty million is a big number that seems like it’s going to a single person, but in the grand scheme of things, it’s painful, but we at least now can plan for it,” said Engel.
There is value in knowing how much the city will have to pay as opposed to the unknown of new appraisals every 10 years. But it is the largest city expenditure in recent memory, and certainly the largest any current city councilors have seen during their tenure.
The deal was the last action item of Council’s agenda at its Aug. 5 meeting. Fewer than five people were in the audience when it was approved. One of them was Planning Commissioner Rory Stolzenberg, who told councilors the “decision to hand Mark Brown over $70 million into his pockets … is disgraceful.”
Stolzenberg’s criticism was not as much about the decision itself as it was about the process. He didn’t approve of Council making the big purchase its last item of the night, and he objected to the city staff report prepared for councilors.
“That staff report doesn’t even say what the cost will be over the term of the lease. Not once,” Stolzenberg told The Daily Progress, arguing the details should be made clear for the public. “Regardless of the merits of the decision, it seems to me, the scale of it warrants some examination about how much it will cost the city.”
City officials insist the deal was in no way rushed and only came after carefully considering all other options. But it provides more ammunition for those who have criticized the city’s previous real estate deals, including its 2017 purchase of a lot on Market Street for $2.85 million in 2017. It planned to build a garage, but a new Council canceled the project.
In Spurzem’s eyes, the Water Street Parking Garage saga is more of the same. Charlottesville got “completely outplayed” and Brown got “filthy rich.”
“The city gets involved in these real estate things, and this is what happens,” he said. “It was just another bad deal they were stuck in forever.”
Source: www.dailyprogress.com
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