ASK ELI TO INVESTIGATE: Is the Troubled Developer Really Connected to PDIG?

Friday, December 12, 2014, 12:25 am
By: 
Alice Dreger

Last week, ELi took up the question of why some East Lansing residents are fearful of the City trying to work with PDIG, the development company proposing to redevelop the blighted corner at Abbot Road and Grand River Avenue. As we explained, the developer’s apparent ties to troubled developer Scott Chappelle and his primary company, Strathmore Development, are raising concerns that if the City tries to work with PDIG, the City may prolong rather than alleviate the blight, and might also put the City at financial risk. Strathmore has a history of failed and stalled projects, foreclosure actions, lawsuits, and contractor and tax liens.

In response to that article, we were asked by a reader essentially* this:

The question: Is PDIG really connected in important ways to Scott Chappelle and Strathmore Development, enough so that it could impact this particular project?

The short answer: Yes, apparently so.

East Lansing citizen-watchdog Eliot Singer has been searching public records and has now assembled a number of legal and financial documents that show a recent history of complicated and strong ties between the majority owner of PDIG, a company called “Crouch Investment Group, LLC,” and Chappelle—ties that could impact PDIG’s ability to pull off this project.

To understand the evidence, first you need to know that, following public questioning about PDIG’s ownership, the lawyer for PDIG has produced a letter saying that “the primary owner” of PDIG is “Crouch Investment Group, LLC,” with an ownership stake of about 82%. According to the letter, Crouch Investment Group is “controlled by Charles Crouch.”

This was read by some as meaning Crouch himself owns and controls PDIG. However, “Crouch Investment Group, LLC,” is not a person, but a limited liability company (LLC)—a company apparently managed by Scott Chappelle and with complex financial and legal relationships with Chappelle and his various development companies. There is a lot we still don’t know about who owns and controls Crouch Investment Group, LLC, which means there is still a lot we don’t know about who owns and controls PDIG.

The evidence:  Singer has provided on request several documents tying Chappelle to Crouch Investment Group. We will summarize here just a couple that are illustrative:

1. The 2014 Michigan Department of Licensing and Regulatory Affairs LLC annual statement from Crouch Investment Group, LLC, says that the company’s manager is Scott A. Chappelle. Chappelle himself (electronically) signed the required form for Crouch Investment Group. (Click here to see it.)

2. Mortgage documents from a recent development in Ohio indicate that Chappelle has guaranteed a $16,250,000 mortgage given to a company (Creekside Investment Group) owned by Crouch Investment Group. This means that, if the company owned by Crouch Investment Group cannot pay the loan, Chappelle himself has promised to pay it back. One doesn’t normally promise to pay back large loans for companies with whom one doesn’t have important relationships. In this document again Chappelle is listed as the manager for Crouch Investment Group, LLC. (Click here to see key pages from this mortgage.)

In addition, if you look at the site plan applications from PDIG for the project at the blighted corner in East Lansing, the forms give as the address of the application representative the same address as Chappelle's primary company, Strathmore Development Company.

Why do some citizens think this matters? At this point, it appears based on these documents that Scott Chappelle is the manager for the majority owner of PDIG and has some kind of important financial relationship with PDIG’s majority owner. Thus, it looks likely that Chappelle and his complicated financial and legal situations are tied up with PDIG, and that he is functioning as the manager for development projects of the majority owner of PDIG. Given his track record, this is raising concerns.

That said, we still don’t really know who (in terms of actual humans) owns PDIG, who (in terms of actual humans) runs PDIG, or whose financial obligations and financial difficulties are ultimately tied up with the East Lansing project.

When will we know? That isn’t clear. As we have reported, City Planning Director Tim Dempsey and other staff (including the City Attorney and Planning’s Lori Mullins) have been telling City Council and the East Lansing Brownfield Redevelopment Authority that now is not the time to look closely at these legal and financial questions about PDIG and its ownership, even though the project depends on public-private partnership, including tens of millions of dollars in tax financing incentives.

At a Council meeting in late November, Dempsey told Council that the exact ownership of PDIG might ultimately be revealed to staff, and perhaps to Council, but perhaps never to the public. As follow-up, I have twice asked City Manager George Lahanas, “Do you think this is an appropriate way to handle the approval of this project, and why or why not?” Lahanas has not answered this question.

 

*Note: Our reader’s exact question was, “Do we know how much of Crouch is Strathmore?” In order to make the question comprehensible to more readers, I have rephrased it as above.

 

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