Update: Wilder calls for Rao’s dismissal, JLARC investigation after $73M VCU Health development payout

Public Safety old rendering

A previous rendering of the project to replace the Public Safety Building. (BizSense file)

Noon update:

Former governor Doug Wilder called for the firing of VCU President Michael Rao and a state investigation in light of a $73 million payment VCU Health System quietly made in February to back out of a downtown development project.

In a press conference Tuesday at the State Capitol, Wilder called on the Joint Legislative Audit & Review Commission to investigate the payment that was made to allow VCU Health to buy its way out of its lease as the master tenant for a $325 million development that would have replaced the city’s Public Safety Building at 500 N. 10th St.

Wilder, a VCU professor and namesake of its L. Douglas Wilder School of Government and Public Affairs, also called for the VCU Board of Visitors to fire Michael Rao, president of the university and VCU Health.

WilderVCUHS

Doug Wilder addressing reporters at Tuesday’s press conference at the Capitol. (Jonathan Spiers photo)

“I couldn’t believe it when I read and heard about it, that $73 million being wasted right under the governor’s and the legislature’s nose,” Wilder said, referring to the news first reported Friday by Richmond BizSense resulting from a Freedom of Information Act request.

“I call for the Joint Legislative Audit & Review Commission to conduct an immediate investigation into this misappropriation of VCU spending,” Wilder said. “I further call on Governor Youngkin to employ the resources of his office to provide transparency to the taxpayers on how and why this financial misbehavior can be tolerated.”

Referring to the payment and “many previous shortcomings in VCU leadership,” Wilder added, “I also cannot contemplate how Michael Rao can continue in his role as president of Virginia Commonwealth University.”

Asked if he was calling for the Board of Visitors to fire Rao, Wilder said, “Yes.”

A request to Rao’s office for comment was returned by a spokesperson for VCU and VCU Health, who provided a statement on behalf of the university:

“We agree with Gov. Wilder that this financial outcome is disappointing. But by late 2021, construction and other challenges made it simply impossible to build the original project,” the statement read.

“Moving forward would have caused dire long-term financial repercussions. The one-time payment was funded by VCU Health operating funds and represents less than 2.5 percent of the health system’s annual operating budget.”

The statement added that neither university funds nor state revenues were used to make the payment, which it said “allowed VCU Health to avoid far greater financial obligations and problems in the future.”

This is a developing story. Stay tuned for updates. Today’s original story follows:

__________________________________

Former governor Doug Wilder is calling for an investigation into a $73 million payment quietly paid by VCU Health System to back out of its lease for an unbuilt downtown development project.

Doug Wilder

Doug Wilder

Wilder, a VCU professor and namesake of its L. Douglas Wilder School of Government and Public Affairs, plans to call for the investigation at a press conference this morning at the State Capitol, according to an advisory put out late Monday afternoon.

A spokesperson said Wilder would not comment ahead of the announcement, which is scheduled for 10 a.m.

The payment was made to buy VCU Health out of its lease as the master tenant for a $325 million development that would have replaced the city’s Public Safety Building at 500 N. 10th St.

The advisory describes the payment, which was first reported by Richmond BizSense, as being made by VCU using taxpayer dollars. The university is a separate entity from VCU Health, which said it made the $73 million payment using the health system’s operating funds.

In an interview with Richmond BizSense Monday, interim VCU Health CEO Marlon Levy reiterated that the payment was made using VCU Health funds.

Marlon Levy

Dr. Marlon Levy

“I think there may be some confusion as to whether the payment came from the health system or the university, and it clearly came from the health system and from our operating revenues,” Levy said.

The payment was revealed Friday in response to a Freedom of Information Act request to VCU Health from Richmond BizSense. In a statement accompanying requested documents relating to the lease termination and other steps taken to wind down the project, Levy said the onetime payment was needed to end the health system’s obligations on the site.

The 25-year lease, signed in July 2020, put the health system on the hook to pay more than a half billion dollars in monthly rent over that time, with the overall lease totaling more than $617 million.

The payment – required as part of a defeasance agreement that allowed the parties to walk away from the project free from litigation – was made to the project’s would-be landlord, an LLC tied to Oak Street Real Estate Capital that purchased the 3-acre property from the City of Richmond in 2021 for $3.5 million.

Oak Street, now a division of New York-based investment firm Blue Owl Capital, was handling financing for the project for developer Capital City Partners.

The city took back the property this February after determining that the project had not progressed according to a development agreement between the city and CCP. The transfer back to the city involved zero dollars.

At the same time, about a dozen legal documents were terminated as part of the defeasance process to wind down the project, and to unwind a $425 million loan that the landlord LLC had secured from UMB Bank. It had secured that loan in 2021 to finance the project, which had been expected to take nearly four years to complete.

PublicSafetyBldg1

The 3-acre Public Safety Building property at 500 N. 10th St. (BizSense file photo)

Levy on Monday would not elaborate on what prompted VCU Health’s decision to back out of the project. He referred to Friday’s statement when asked questions about the project and why the health system had signed the lease in the first place. Levy was named interim CEO last November and said he had no prior involvement in the project.

Friday’s statement said the health system decided to exit the project in light of construction and other challenges arising from the pandemic and the “long-term financial repercussions” that would come from moving forward with the project.

On Monday, Levy reiterated that point.

“The whole healthcare industry is under some challenging financial situations, so obviously we continue to focus on that, just as every other health system does in the country,” he said.

VCU’s Board of Visitors announced in March it is pursuing a larger and more expensive project for the Public Safety Building site: a $415 million development to house its planned VCU Dentistry Center, which would replace the School of Dentistry’s Lyons Dental Building and Dental Building 1 on the university’s nearby MCV Campus.

The university – which shares some leadership with VCU Health in President Michael Rao and other dual administrators and board members – has said the new 314,000-square-foot facility is envisioned as “a grand gateway” for its downtown medical center.

Public Safety old rendering

A previous rendering of the project to replace the Public Safety Building. (BizSense file)

Noon update:

Former governor Doug Wilder called for the firing of VCU President Michael Rao and a state investigation in light of a $73 million payment VCU Health System quietly made in February to back out of a downtown development project.

In a press conference Tuesday at the State Capitol, Wilder called on the Joint Legislative Audit & Review Commission to investigate the payment that was made to allow VCU Health to buy its way out of its lease as the master tenant for a $325 million development that would have replaced the city’s Public Safety Building at 500 N. 10th St.

Wilder, a VCU professor and namesake of its L. Douglas Wilder School of Government and Public Affairs, also called for the VCU Board of Visitors to fire Michael Rao, president of the university and VCU Health.

WilderVCUHS

Doug Wilder addressing reporters at Tuesday’s press conference at the Capitol. (Jonathan Spiers photo)

“I couldn’t believe it when I read and heard about it, that $73 million being wasted right under the governor’s and the legislature’s nose,” Wilder said, referring to the news first reported Friday by Richmond BizSense resulting from a Freedom of Information Act request.

“I call for the Joint Legislative Audit & Review Commission to conduct an immediate investigation into this misappropriation of VCU spending,” Wilder said. “I further call on Governor Youngkin to employ the resources of his office to provide transparency to the taxpayers on how and why this financial misbehavior can be tolerated.”

Referring to the payment and “many previous shortcomings in VCU leadership,” Wilder added, “I also cannot contemplate how Michael Rao can continue in his role as president of Virginia Commonwealth University.”

Asked if he was calling for the Board of Visitors to fire Rao, Wilder said, “Yes.”

A request to Rao’s office for comment was returned by a spokesperson for VCU and VCU Health, who provided a statement on behalf of the university:

“We agree with Gov. Wilder that this financial outcome is disappointing. But by late 2021, construction and other challenges made it simply impossible to build the original project,” the statement read.

“Moving forward would have caused dire long-term financial repercussions. The one-time payment was funded by VCU Health operating funds and represents less than 2.5 percent of the health system’s annual operating budget.”

The statement added that neither university funds nor state revenues were used to make the payment, which it said “allowed VCU Health to avoid far greater financial obligations and problems in the future.”

This is a developing story. Stay tuned for updates. Today’s original story follows:

__________________________________

Former governor Doug Wilder is calling for an investigation into a $73 million payment quietly paid by VCU Health System to back out of its lease for an unbuilt downtown development project.

Doug Wilder

Doug Wilder

Wilder, a VCU professor and namesake of its L. Douglas Wilder School of Government and Public Affairs, plans to call for the investigation at a press conference this morning at the State Capitol, according to an advisory put out late Monday afternoon.

A spokesperson said Wilder would not comment ahead of the announcement, which is scheduled for 10 a.m.

The payment was made to buy VCU Health out of its lease as the master tenant for a $325 million development that would have replaced the city’s Public Safety Building at 500 N. 10th St.

The advisory describes the payment, which was first reported by Richmond BizSense, as being made by VCU using taxpayer dollars. The university is a separate entity from VCU Health, which said it made the $73 million payment using the health system’s operating funds.

In an interview with Richmond BizSense Monday, interim VCU Health CEO Marlon Levy reiterated that the payment was made using VCU Health funds.

Marlon Levy

Dr. Marlon Levy

“I think there may be some confusion as to whether the payment came from the health system or the university, and it clearly came from the health system and from our operating revenues,” Levy said.

The payment was revealed Friday in response to a Freedom of Information Act request to VCU Health from Richmond BizSense. In a statement accompanying requested documents relating to the lease termination and other steps taken to wind down the project, Levy said the onetime payment was needed to end the health system’s obligations on the site.

The 25-year lease, signed in July 2020, put the health system on the hook to pay more than a half billion dollars in monthly rent over that time, with the overall lease totaling more than $617 million.

The payment – required as part of a defeasance agreement that allowed the parties to walk away from the project free from litigation – was made to the project’s would-be landlord, an LLC tied to Oak Street Real Estate Capital that purchased the 3-acre property from the City of Richmond in 2021 for $3.5 million.

Oak Street, now a division of New York-based investment firm Blue Owl Capital, was handling financing for the project for developer Capital City Partners.

The city took back the property this February after determining that the project had not progressed according to a development agreement between the city and CCP. The transfer back to the city involved zero dollars.

At the same time, about a dozen legal documents were terminated as part of the defeasance process to wind down the project, and to unwind a $425 million loan that the landlord LLC had secured from UMB Bank. It had secured that loan in 2021 to finance the project, which had been expected to take nearly four years to complete.

PublicSafetyBldg1

The 3-acre Public Safety Building property at 500 N. 10th St. (BizSense file photo)

Levy on Monday would not elaborate on what prompted VCU Health’s decision to back out of the project. He referred to Friday’s statement when asked questions about the project and why the health system had signed the lease in the first place. Levy was named interim CEO last November and said he had no prior involvement in the project.

Friday’s statement said the health system decided to exit the project in light of construction and other challenges arising from the pandemic and the “long-term financial repercussions” that would come from moving forward with the project.

On Monday, Levy reiterated that point.

“The whole healthcare industry is under some challenging financial situations, so obviously we continue to focus on that, just as every other health system does in the country,” he said.

VCU’s Board of Visitors announced in March it is pursuing a larger and more expensive project for the Public Safety Building site: a $415 million development to house its planned VCU Dentistry Center, which would replace the School of Dentistry’s Lyons Dental Building and Dental Building 1 on the university’s nearby MCV Campus.

The university – which shares some leadership with VCU Health in President Michael Rao and other dual administrators and board members – has said the new 314,000-square-foot facility is envisioned as “a grand gateway” for its downtown medical center.

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Lawrence Rand
Lawrence Rand
10 months ago

Very confusing exactly whose $ was used to
pay the $73M and why. Seems like this could have
been settled for.far less money. Hopefully
the Commonwealth hasn’t wasted a large amount of money. Need to find the decision maker!

Steven Gooch
Steven Gooch
10 months ago

Spent like it was other peoples money.

Eric Viking
Eric Viking
10 months ago

Oh my, this could get ugly.

Bruce Milam
Bruce Milam
10 months ago

So which entity backed out first? The developer (who had a loan in place?), the City, or VCU?

Chris Hilbert
Chris Hilbert
10 months ago
Reply to  Bruce Milam

Please stop blaming the city for everything.

Peter James
Peter James
10 months ago
Reply to  Chris Hilbert

Bruce isn’t blaming the city – he was simply asking a very straight-forward question, particulaly when this was still early in the news cycle and before what we now know had been fleshed out. Asking a valid question does not equate to finger-pointing.

Jim Jones
Jim Jones
10 months ago

Somebody didn’t get their cutt…….

Ron Melancon
Ron Melancon
10 months ago

I find it ironic that Governor Wilder school of Business might have taught VCU executives Joe to blow 73 Million dollars of starving College Students who suffer with outrageous College debt who eat “Raman Noodles”. Let’s do the math. That 73,000,000 could have given 365 FULL RIDE SCHOLARSHIPS at 200,000 for 4 years including my daughter who is graduating Glen Allen High to get a degree so they can learn how not to make a 73,000,000 mistake. Dr. Rao how dare you? Did you use this money to pay the lawsuit of Family sues fraternity for $28 million over Virginia… Read more »

Jeff Stein
Jeff Stein
10 months ago
Reply to  Ron Melancon

You had an upvote until Hunter Biden. Internet and media literacy are skills that our public woefully deficient with.

Justin Ranson
Justin Ranson
10 months ago
Reply to  Jeff Stein

Ron has a history of getting it SO close.

Eric Smith
Eric Smith
10 months ago
Reply to  Justin Ranson

Ron was happy to taut Rao as a prominent client while trying to sell me a suit. I don’t suspect that Rao will be buying anymore suits from Mr. Melancon.

Jordan Tucker
Jordan Tucker
10 months ago
Reply to  Jeff Stein

No worries he can get my “upvote”
He is exactly right

Mark White
Mark White
10 months ago
Reply to  Jordan Tucker

Right is right, and well…you know the rest. I agree witcha as well. This really isnt about politics….its just wrong. #BadBoyMr.Rao! Lol

Peter James
Peter James
10 months ago
Reply to  Mark White

I agree, Mark. It’s not about politics, nor should we politicize it. How does that resolve anything? It’s a non-sequitur.

What it IS about is serious financial mismanagment with a healthy dose of either incompetence, corruption or, perhaps, both.

Michael Morgan-Dodson
Michael Morgan-Dodson
10 months ago
Reply to  Ron Melancon

It is the Wilder School of Government and Public Affairs….Ironically I do not think the School of Business has another person or entity name on it.

Chris Crews
Chris Crews
10 months ago
Reply to  Ron Melancon

Know what the real scandal is, Ron? FARM TRUCKS! And, for the life of me, I’ve never understood why nobody took you up on your Coliseum plan.

Ron Melancon
Ron Melancon
10 months ago

#firedrrao

Jeff Stein
Jeff Stein
10 months ago

We should never forget who those “leaders” and “players” are that PUSHED the Navy Hill project as ZERO risk to the taxpayer.

Despite not getting built, taxpayers still get shafted for “playing” the game. It wasn’t our choice to even play the game. Who was making those choices for us?

Michelle Reynolds
Michelle Reynolds
10 months ago

As absurd as the 73 million payment sounds my jaw literally dropped when I heard this landlord is getting that kind of payment from VCU Health while a different arm of VCU wants to build a bigger project on the same site…

Ron Melancon
Ron Melancon
10 months ago

To Governor Youngkin get the message no more state money goes to VCU until your office does and completes a full investigation on “Where The Money Went” and who got it. “Show Us The Money”

Jordan Tucker
Jordan Tucker
10 months ago
Reply to  Ron Melancon

Exactly

Ron Melancon
Ron Melancon
10 months ago

“VCU Gate” this is outrageous Dr. Rao this is under your watch and you signed off and didn’t disclose. You need to be fired

Julius Shapiro
Julius Shapiro
10 months ago

Doug Wilder is a legendary leader in Virginia and should be applauded for standing up to this because the silence is deafening from our other leaders. Here’s how it works for those of you not in the business sign a master lease and tenant upfit at a certain price, then when you tell the tenant then actual cost and they want to back out threaten them with a lawsuit and settle.

Jim Jones
Jim Jones
10 months ago
Reply to  Julius Shapiro

legendary leader, now that’s funny

Julius Shapiro
Julius Shapiro
10 months ago
Reply to  Jim Jones

Like Aaron Burr said to a bunch of lawyers, “ Never write anything down, because some day some one may read it.”

Frank Wood
Frank Wood
10 months ago

“VCU’s Board of Visitors announced in March it is pursuing a larger and more expensive project for the Public Safety Building site: a $415 million development to house its planned VCU Dentistry Center,”

So instead of looking at the feasibility of exchanging VCU Health with VCU Dentistry, VCU Health paid $73 million so Dentistry Center can explore spending $415 million?! Got it – taxpayer money.

Henrico is nuts to pursue Green City with the same Developers who didn’t perform on this project.

Joe Blackacre
Joe Blackacre
10 months ago
Reply to  Frank Wood

The great part for city taxpayers is that by VCU Health owning the property, instead of leasing it, that it gets taken off the tax rolls. One can only hope that VCU’s PILOT fees go up accordingly, but I suspect not.

Bruce D Anderson
Bruce D Anderson
10 months ago

Kudos to BizSense for uncovering this. Dr. Levy says, “Oh don’t worry, it wasn’t taxpayer funds, it came from VCU Health’s operating budget.” Oh, okay, so it was just our health insurance that paid for it. Great! Seems like funds should be clawed back, and heads should roll for this one.

Michael Morgan-Dodson
Michael Morgan-Dodson
10 months ago

So true Bruce. They did not just print the monies. VCU’s Heath System gets its revenue from taxpayers (Medicare payments are taxpayer dollars), donations, health insurance, and direct patient payments (and maybe an endowment)…so which entity would they like to then claim paid the outrageous sum.

Peter James
Peter James
10 months ago

100% agreed, Bruce. Kudos to Jonathan Spiers and the editorial staff at RBS (and likely their legal staff as well) for doggedly chasing this story down. This is what good old-school shoeleather journalism and solid investigative reporting is all about. I offer that Jonathan’s reporting on this merits nomination and serious consideration for a Virginia Press Association award when nominations are fielded next year for work done in 2023.

Michael Morgan-Dodson
Michael Morgan-Dodson
10 months ago

I am not sure who paid whom on the $73M but I am certain that the City’s outside attorneys (on call legal services contract) were asked to review some of the documents and that the City will be billed accordingly.

David Humphrey
David Humphrey
10 months ago

So the same guy that is getting paid hundreds of thousands of dollars to teach one class is complaining about the university wasting money? Well, isn’t that rich.

Jay Emory
Jay Emory
10 months ago
Reply to  David Humphrey

That’s precisely what stood out to me. As a recent graduate of the Wilder School I can tell you that man is a waste of space. He’s pompous and vindictive. This is coming from someone who votes the same way Wilder does btw.

Julian Utley
Julian Utley
10 months ago

Again, that’s 22.5% of the projected project cost!

Jordan Tucker
Jordan Tucker
10 months ago

VCU is in an interesting position.
They are losing nurses and Physicians in droves including the health CEO who Levy is filling in for.They are raising tuition but can throw 73M out the window.
Wilder is right
Rao should be booted

Victoria Woodhull
Victoria Woodhull
10 months ago

SOMEONE’s head needs to roll. I agree with Bruce Anderson – our insurance premiums and tax dollars paid this money through VCU Health. I’m not sure about Rao, he can go or not go, but I can surely see him throwing VCU Health under the proverbial bus.

I’m sure the response from VCU Health will be “uuhh, you see we are smart because we were on the hook for 617 Mil, and now we only paid 73Mil! – what a savings!” (sarc)

John Lindner
John Lindner
10 months ago

Can someone explain why VCU was still on the hook as a tenant when the developer said that changing market conditions meant they couldn’t build what they promised?

Matthew Scot
Matthew Scot
10 months ago

Wilder always choses the nuclear option. Maybe he should seek understanding prior to seeking destruction.

Victoria Woodhull
Victoria Woodhull
10 months ago
Reply to  Matthew Scot

Wilder should contemplate, educate, and mourn this issue. Former Gov Wilder has said in the past, that we need to think big – to creatively imagine and build places where people will see and contextualize. Whatever that means??? It’s not in quotes because I contextualized his meaning. (sarc)