UPDATED: A spokesperson for the Statler Hotel & Residences project offers some answers to our questions. I’ve added them to the bottom of the post.
The grand opening was promised last October, and what an opening it would have been. The Statler Hilton, one of Dallas’ most storied and beloved historic buildings, was supposed to represent a new high water mark in the redevelopment of downtown Dallas. After sitting vacant for years, and flirting with various buyer interest, the Statler Hilton is planned to reopen as The Statler Hotel & Residences, a 161-room boutique luxury hotel with an additional 219 condos, four restaurants, retail and office space, trendy bars, and a 14,500-square-foot ballroom for concerts and large events.
But now that the Internal Revenue Service has opened an investigation into the financing of the deal, is that plan still on the table?
The Dallas Morning News, which is set to become a major tenant of the new Statler Hotel & Residences (it signed a lease to move into the old Dallas Public Library space adjacent to the hotel), reports that the IRS is looking into the complex financing that raised $26.5 million of the $221 million project, part of a tax-exempt bond sale that local experts at the time called “unusual:”
Lawyers involved in the tax-exempt bond sale published a notice Monday telling investors that the IRS is examining the deal because of concerns “that the debt issuance may fail one or more provisions” of the tax code. The notice said the concerns may have been raised by “external sources.”
This isn’t the first time the developer behind the Statler redo, Mehrdad Moayedi, has faced legal scrutiny. You may remember that last fall the Dallas Observer reported that Moayedi was at the center of a “class-action lawsuit, a citation for failure to pay school taxes and attacks from Kyle Bass, a Dallas-based hedge fund operator who claims Moayedi is part of a Ponzi-like scheme involving United Development Funding IV, a Dallas-based real-estate lender.” United Development Funding’s Grapevine offices were raided by the FBI in early 2016, two years after the real estate investment trust became the subject of a Securities and Exchange Commission investigation. Kyle Bass also launched UDFexposed.com, which intends to out how the company “built a billion dollar house of cards.”
It all has the makings of a fascinating legal thriller, but for Joe Schmoe Dallasite waiting for that invite to the grand re-opening of the Statler, the two most pressing questions are these:
- If that Statler project is part of a “billion dollar house of cards,” does this IRS probe represent the toppling of the first card?
- With tens of millions of city tax intensives backing the bonds that are now the subject of the IRS investigation, when the dust settles, will the city be left holding the bag?
Per the DMN’s story, neither city officials nor representatives of the Statler developer could answer these questions. I reached out to the Statler Hotel & Residences PR people just to see if they have rescheduled that opening party. I did not receive an immediate response.
UPDATED: Sarah Dodd, a spokesperson for Mehrdad Moayedi responded to my request with information she also provided the Dallas Morning News last night but which didn’t make it into the story. In short, the funds being used to fund the Statler project are not being questioned nor are they in jeopardy because the IRS review, Dodd says. The Statler’s TIF reimbursement agreement was sold to the Public Finance Authority, a governmental subdivision established by the State of Wisconsin, and it was the Public Finance Authority which made the determination whether or not the sale was taxable or tax exempt. The IRS is looking into whether or not the PFA correctly determined that the sale was exempt.
“There is no question if these bonds could be sold,” Dodd writes.
However, if the IRS determines that the sale was not exempt, then there will be an additional cost to the Statler project. Dodd did not know off hand how much that additional cost would be.
With regards to the delayed opening, Dodd attributed to complications with working downtown and the need to shut off parts of Commerce St. in order to complete construction. The delay was caused, in part, by another Commerce St. construction project that required shutting down the street also running behind schedule.