Thursday, Aug. 06, 2009

Exclusive: USC will buy out ousted developer

Kale Roscoe expects to get several hundred thousand for money he sank into Innovista project

USC will reimburse fired Innovista private developer Kale Roscoe hundreds of thousands of dollars after he failed to land a loan for a five-story building in the school’s research campus, The State newspaper has learned.

Both sides confirmed that their split will involve a cash settlement, but neither would divulge the amount. Roscoe said he invested $1 million in the deal before he was fired Tuesday. He expects a settlement within 10 days.

“We’re all being reasonable and I’m not interested in any sort of litigation,” Roscoe, a Detroit-based developer, told The State. “But I still remain very disappointed in the decision. Nobody likes to be fired.”

Three tenants slated for the building at the corner of Blossom and Assembly streets in downtown Columbia say they are still on board with the building if the University of South Carolina can find another option to build it.

And USC said Roscoe should be reimbursed at some level because his work in designing the building, known as Horizon II, and lining up tenants lays the groundwork for a new developer.

“We have an agreement in process but we have to agree what costs are,” said Innovista executive director John Parks, who recommended Roscoe to USC after working with him on the University of Kentucky’s Coldstream research park.

The two sides met for about an hour and half on Wednesday to discuss “unwinding” the partnership, Roscoe said.

The developer said he paid $650,000 to buy into the deal with Innovista’s first private developer, Craig Davis of Raleigh, who was shown the door last year.

And Roscoe told The State he has invested another $350,000 in designing the unbuilt Horizon II private research building and working to attract tenants.

Parks said the $650,000 figure Roscoe quoted was correct, but the $350,000 in investment expenses “would have to be validated.

Neither party would say what percentage of the total is being negotiated for reimbursement.

USC president Harris Pastides said Tuesday that the university would likely move toward a local developer to take over Innovista, which is to match the university’s researchers and business faculty with entrepreneurs to retool the Midlands economy from manufacturing to high-tech.

Roscoe said his work would make it easier for a new Innovista private developer — its third in the five years — to hit the ground running. That is the basis for the reimbursement, he said.

“Certainly it would give (a new developer) a head start,” Parks said. “There is value in terms of plans. We just have to look at all that.”

Roscoe on Wednesday also outlined the financing problems for the $30 million-plus building.

A commitment by BB&T required that 75 percent to 80 percent of the building be leased up front and that the Roscoe put 40 percent cash equity into the deal, he said.

Although Roscoe said he and the university met the leasing requirement, Roscoe could not raise the $12 million to $13 million required for the cash equity.

Normally, banks only require about 20 percent equity and a lower leasing occupancy, but those requirements have been dramatically ratcheted up since the recession shut down most commercial lending, Roscoe said.

“Banks want more skin in the game and less risk,” he said. “There is an unspoken moratorium on commercial. On the national level banks think the commercial market is overbuilt.”

Parks confirmed that a lack of cash equity killed the deal.

Roscoe said he called three tenants slated for the building on Monday to inform them that he was out.

In January, two Columbiabased companies — TM Floyd & Co. and VC3 — announced they would move most of their operations and about 120 employees into Horizon II.

They were to partner with IBM and BlueCross BlueShield of South Carolina in a unique computer-training program to be based in the building.

Called the Consortium for Enterprise Systems Management, the program focuses on high-volume, mainframe computing technology.

Consortium project executive director Lonnie Emard said that they are operating in 11 campuses, businesses and agencies across three states, but would still like to centralize its management team and install a mainframe computer to be provided by IBM in Horizon II.

“USC is our partner,” he said. “We’re going to give them every bit of latitude and we’re ready and waiting for whatever their options might be.”

Officials of the Consortium, TM Floyd and VC3 said they have a meeting with the university next week to sort out those options.

Terry Floyd, CEO and managing partner of TM Floyd, said his company could stay in its offices off Forest Drive if Horizon II is further delayed.

“We still hope that things can work out within the university,” he said.

VC3 CEO David Dunn said he owns his own building here so time is not that dramatic a factor.

“But now I have to reset to see what my options are,” he said.

Despite his dismissal, Roscoe said he thinks the Innovista concept — mixing researchers with private entrepreneurs in a urban setting with retail and residential development, will work.

“The good thing about Innovista is its integration with the urban environment,” he said. “(Suburban) research campuses everywhere are really clogged up because they don’t have that component.

“The problem here ... is that it has been a learning curve for everyone.”

Reach Wilkinson at (803) 771-8495.

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