With the ever-expanding Buffalo Niagara Medical Campus just a stone's throw away, Pilgrim Village seemed ripe for its own rebirth.
A Buffalo developer, sensing the opportunity, joined with the complex's owner to announce a $96 million overhaul of the decades-old, low-income townhouse community known as Pilgrim Village and turn it into Campus Square.
But three years later, Campus Square – hailed as a much-needed addition to the neighborhood and the Medical Campus – is stalled, caught in a legal battle over irreconcilable differences.
That may put the entire project at risk, with tenants eagerly awaiting new homes after more than two dozen residential units already were demolished to make way for the new construction.
At the core of the delay is a dispute between the two partners – McGuire Development Co. and Mark H. Trammell, owner of Pilgrim Village – and their desire to boot each other out of the project.
McGuire – a subsidiary of nursing-home firm McGuire Group – claims Trammell is an impediment to moving forward, and pointed to a 2014 government lawsuit accusing Trammell of financial mismanagement at Pilgrim Village. The developer filed a foreclosure action against Trammell in mid-April, using $7 million in several mortgages it holds on the property as leverage to take full control.
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"The lending agencies willing to support this project were unable or unwilling to move forward with Trammell having any ownership or management roles in the project," Chief Executive Officer F. James McGuire said in a statement. "Without a financing plan in place, there is no way for the Campus Square project to move forward."
At the same time, Trammell has given up working with his former partner, and now is seeking to team up with a new developer. His attorney said Trammell already has assurances of financing from a new set of lenders, which could close within six months.
"There have been discussions with a replacement developer, which would resolve everything with the open issues with the current co-developer," said Jonathan Schechter, an attorney at Gross Shuman, who represents Trammell. "Litigation is a means to an end ... I believe that we will be able to resolve an amicable divorce with McGuire."
Disagreements are not uncommon in real estate projects, especially when multiple developers and contractors are involved. But it's unusual for such a divisive split between the principals to become public and threaten to derail the entire effort. And the Campus Square project is particularly visible because of the size of its sprawling property and its prominent location in the city.
Built in 1980 as an affordable housing development, Pilgrim Village originally was home to 17 residential buildings and 90 apartments on 11.41 acres just north of the Buffalo Niagara Medical Campus. It hadn't been significantly changed in years when Trammell, its longtime owner and occasional developer, saw a chance for something new and larger amid the burgeoning activity nearby.
Scheduled to break ground this summer, Campus Square was billed as a mixed-use and mixed-income development intended to benefit neighborhood residents, as well as Medical Campus students and workers.
"There's a real need for affordable housing there, and that's what this project is going to continue to do," Schechter said.
Five existing buildings with 25 townhome units were demolished to make room for a new, six-story, L-shaped building, the first phase of Campus Square. The new building would be located near the corner of North Street and Michigan Avenue, directly across from the Gates Vascular Institute.
The McGuire-Trammell plan called for 152 apartments – 90 affordable housing units and 62 market-rate units – and 42,000 square feet of commercial space for a grocery store, restaurant, dental office and coffee shop. Campus Square also includes space for two new tenants, the Muhammad School of Music, founded by Henri L. Muhammad, and Miss Barbara's School of Dance, founded by Barbara Glover.
"McGuire Development was very interested and excited in the opportunity to provide support to an East Side development project," McGuire said by email. "McGuire feels strongly about smart, community-driven development projects in these neighborhoods that demand such attention."
Then the problems started. The U.S. Dept. of Housing and Urban Development filed suit against Trammell, claiming he and members of his family collected "unreasonable and unnecessary" salaries and management fees from Pilgrim Village accounts, in violation of agreements signed when Trammell obtained loans and federal mortgage insurance through HUD.
HUD said it also uncovered Pilgrim Village checks made out to "Cash," as well as checks used to pay for personal airline tickets, hotels, club memberships and school tuition. Community funds also were used to pay for life insurance for Trammell.
Meanwhile, HUD asserted Pilgrim Village was cited for poor physical inspections and unsatisfactory management reviews.
"It is apparent, therefore, that providing decent, safe and sanitary housing was not the owner’s priority," the lawsuit claimed.
All told, the government estimated the "non-project related expenses" at about $1.53 million over an eight-year period ending in 2011. The agency sought double that amount – $3.07 million – in penalties, plus legal fees.
Trammell denied the allegations, but he settled the suit two years ago and agreed to pay $650,000 to HUD. And in an effort to remove the HUD suit as a potential obstacle, McGuire said his company agreed to pay the $650,000 settlement on Trammell's behalf.
"Funding the settlement amount, in context with the overall development proforma, appeared to make sense," he said.
Even more important, perhaps, the settlement barred Trammell from "acting as the project's management agent" in the future, although it did not restrict him from continuing to hold an equity stake as a property owner. So the partners brought in a third-party property management firm to oversee the operations, taking Trammell out of that role.
"At the time McGuire was made aware of the HUD complaint against Mark Trammell and his management entities, our firm already was heavily invested in the Campus Square project, both monetarily and from a passion and effort perspective," McGuire said.
Despite the allegations, Trammell's lawyer said HUD agreed to amend the regulatory agreement governing Pilgrim Village to allow the redevelopment project to proceed, providing a framework for what would be permitted.
"HUD is supportive of the project," attorney Schechter said. Otherwise, "they would not have allowed us to take down buildings with the intent to rebuild."
But more than a year later, McGuire learned that the lenders on the Campus Square project were not pleased. They wanted Trammell out of the project and cited the HUD settlement as the primary reason, he said.
McGuire said the company felt compelled to foreclose on Trammell after it became clear there was no resolution or alternative financing source on the horizon. He also wanted to protect his investors' stake in the project.
The foreclosure came just a month after the State Housing Finance Agency approved low-income housing tax credit financing for the project, paving the way for an expected groundbreaking this summer. It also came after the Erie County Industrial Development Agency approved tax breaks.
Now, though, everything is on hold until the tussles are resolved, although McGuire claimed his firm is trying to cooperate with Trammell. But Schechter said he was confident that Campus Square would eventually proceed. "It's a good project. It'll happen," Schechter said. "It's too good of a project for tenants. It's too good of a project for the city."