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Sunday, September 9, 2018

IT'S ALL OVER...EXCEPT FOR THE FUNDRAISERS: Grand Traverse Academy Agrees To A $70,000 Settlement With Comstock Construction

BREAKING NEWS: GRAND TRAVERSE ACADEMY/COMSTOCK SUIT SETTLEMENT REACHED!  
Grand Traverse Academy Board of Directors approves, Comstock Construction signs off on $70,000 payment compromise to settle suit filed October 25, 2017 in Grand Traverse County Circuit Court

The Grand Traverse Academy has agreed to a $70,000 settlement with Comstock Construction “regarding money damages and expenses” Comstock claimed relating to the “proposed construction of a math and science center on Grand Traverse Academy property”.

Payments will be made in the following installments:
-$20,000 on or before September 30, 2018
-$25,000 on or before September 30, 2019
-$25,000 on or before September 30, 2020

The official “Mutual Release” document shown below was obtained by a Freedom of Information Act Request to the Grand Traverse Academy Board of Directors.



BACKSTORY 

Just a few months into a deficit elimination plan (in early 2015), the Grand Traverse Academy board looked to Mark Noss for a solution that would enable the school to construct a 29,000 square foot expansion, a seven-figure expense it was unable to finance.

The school was driven into deficit during the previous school year (2013/2014). Former manager, now convicted felon, Steven Ingersoll's so-called “pre-payments, rebates and related party receivables” incited conflicting claims about how much the company owed the school and how much the school owed the company in management fees. 

However, testifying in late December 2015 during Ingersoll’s federal sentencing hearing, former board president Bradley Habermehl appeared to settle the controversy, pegging Ingersoll's debt to the the Grand Traverse Academy at $5.0 million, an amount Habermehl revealed the board “had agreed to excuse”.

It was decided between the Grand Traverse Academy and Full Spectrum and/or Mark Noss, that a new company, MDN, would be formed to seek financing on the Grand Traverse Academy’s behalf and for “GT’s benefit in order to build the expansion to the School”, according to Comstock Construction’s October 25, 2017 complaint. 

On July 13, 2016, Comstock entered into a contract with MDN for the design and construction of an addition to the Grand Traverse Academy. In its complaint, Comstock stated the Grand Traverse Academy was unable to secure financing for the project on its own “due to instances of financial malfeasance by a prior administrator.” Comstock further alleged “MDN did not have any assets and was undercapitalized, failed to follow corporate formalities, and acted as an alter ego for Noss.” 

Mark Noss, then head of the Grand Traverse Academy's management company, Full Spectrum Management, LLC, formed MDN Development, LLC, his private, affiliated property development company, on June 18, 2015. 

Noss, who never revealed MDN Development’s business partners or investors, wasted little time locking down an “Exclusive Easement Agreement” with the Grand Traverse Academy to construct a 29,000 square foot building on Academy-owned property and lease it back to the charter school — inking the easement agreement on June 26, 2015, just eight days after forming MDN Development. 

Nearly eight months later, during a February 2, 2016 special board meeting, the Grand Traverse Academy board voted 4-0 to approve a “lease resolution” that acknowledged the Academy “explored and failed to secure various direct construction financing options” and has “received an offer to lease newly constructed facilities from MDN, LLC”. 

Although the lease resolution noted the seven-page lease was “subject to final legal/accounting review”, it was signed during the meeting by board treasurer Samer Bourdkani. 

The board did not conduct an independent legal review of the lease before it was signed. 

Although it’s now moot, the 20-year term of the contract, and the financial obligation it would have imposed on the Academy, appeared excessive when considering the use of the facility was to house a charter school whose budget is derived largely, if not entirely, from public funds. 

In addition to the above-market monthly lease rate ($30,000 per month, then levitating like a séance table to $38,000 monthly by the contract's second year), the lease contained a Purchase Option clause, with a price tag that delivered quite a punch. The “lessee (the Grand Traverse Academy) may exercise an option to purchase the building, fixtures and premises from the lessor on February 1, 2019 for a sum of Three Million Nine Hundred Thousand Dollars ($3,900,000).” 

The issues at the heart of this case, the construction of an expansion of the Grand Traverse Academy by Noss and his MDN Development, LLC property, was covered extensively on this blog — notably at this link (“DOOMED GRAND TRAVERSE ACADEMY DEVELOPMENT DEAL DESTINED FOR DUMPSTER”), which includes a comprehensive list of my coverage.

During MDN Development's 18-month odyssey to nail down construction financing, various Grand Traverse Academy board members, and the school's former superintendent Susan Dameron, made public statements they knew, or ought to have known, were misleading. 

For example, during a May 12, 2016 appearance on WTCM/NewsTalk 580's “The Ron Jolly Show”, Dameron and board member Lea Piché made hollow assertions during a discussion about the proposed 29,700 square foot classroom addition, variously claiming during the interview that the “management company” was providing the financing for the new building, while insisting there would be “no payments for the first year”. 

Dameron stated during the May 12, 2016 interview that the school would simply “negotiate with the bank to pick up that loan”, and that Noss was not profiting from the construction, lease and subsequent sale of the new building. However, she offered no concrete facts, construction budget figures or proof. In fact, Dameron publicly made other conflicting statements about the project and its cost. 

In a March 18, 2016 report on UpNorthLive.com, Dameron was quoted as stating the “project is costing the school around $3 million”. And on Mr. Jolly’s show (this time, without mentioning any specific dollar amount), Dameron claimed that Noss was charging the Academy exactly what he was borrowing from the bank. 

If you weren't listening carefully, you'd be forgiven for thinking that Comstock Construction's winning bid was $3.9 million, the amount the Grand Traverse Academy board had already agreed to pay Mark Noss/MDN Development. 

It wasn't. 

While investigating the story and seeking to determine if Noss had suddenly developed an egalitarian streak and would not make “any money” on the deal, I submitted a Freedom of Information Act request to Lake Superior State University's charter school office seeking documents that could illuminate what really happened. 

Here's what I discovered: A September 2, 2016 email from Dickinson-Wright attorney, Roger A. Swets, to Rebecca Clawson at Lake Superior State University stating: “MDN will obtain a construction loan with a 3 year term from Traverse City State Bank (TCSB) to financing [sic] the construction of the expansion. The ground lease and facilities lease are long term documents so that the construction loan from TCSB can convert into long term financing if it takes more than 3 years for GTA to be able to directly finance the exercise of its purchase option.” 

And there's more: the true construction cost estimate was $3.2 million, not $3.9 million. A September 30, 2016 email to Clawson from Dan Stahl at Traverse City State reveals those key financing details: “Project Description: In January 2016, Comstock Construction provided the winning bid to construct a two-story, 25,116 SF “Math and Science Center” high school addition, connected on the north side to the existing campus at Hammond Road and Three Mile Road. AAI provided architectural site plans, with an expected completion in about 10-12 months from ground breaking. The expansion will accommodate 350 students in 10 new classrooms, administrative offices, conference and utilities rooms, along with some unfinished “white box” space for future expansion. 

Comstock built the existing campus, and estimates $3.236M in build costs, with the remainder of the requested loan funds allocated to potential overruns, borrowing costs and interest reserve.”  

You read that correctly. 

Although the actual construction of the expansion was estimated at roughly $3.2 million, the Grand Traverse Academy board of directors had agreed to cover not just the cost of construction, it would reimburse Noss for his borrowing costs and interest reserves.


1 comment:

  1. Ah yes, the board. Weak, uneducated, inexperienced and yet able to toy with millions of dollars in public funds. Each member hand-picked for their ability to follow Ingersoll groupthink. Dameron’s only skill was getting the masses to drink the kool-aid, and boy was she good at it. No one should’ve trusted her with a checkbook either. What a poor example of leadership and civic service. That organization is cancer, no matter how hard they try they’ll never recover. Their reputation is crap. I wonder how Noss will pay his share?

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