The Hotel Sterling Scandal Part 2

February 22, 2007
The Hotel Sterling Scandal Part 2 by John Morgan
Last week we introduced this scandal with an overview of the particulars. Basically we laid out the sequence of events and connected the dots. It's gotten some definite attention and today we're examining the details of the Perry Block property at the center of the controversy. These were the three buildings on West Market Street in Wilkes-Barre which were suddenly demolished by the City to the tune of $303,000. That money, crucial to a cash starved City, was needed desperately for repairs to a firehouse but instead was flushed down a hole known as CityVest.

CityVest is a non profit created by Congressman Paul Kanjorski. The group is redeveloping the old Hotel Sterling, a $40 million project which has already received $8 million in public monies, a combination of federal, state and local grants. Read about it here.

This part is going to take a detailed look into the Perry Block deals because they're at the heart of the scandal and say much about how Wilkes-Barre seems to be managed...er...mismanaged. It concerns three old buildings situated from 37-45 West Market Street in W-B, coming directly up to the old Hotel Sterling. They were purchased in the late 90's by a couple who later moved to Maine. They were the Lulls. The Lulls had difficulty securing a mortgage for the properties though and got two friends to guarantee the mortgage, Todd Vonderheid and Larry Newman. Both men worked for the local Chamber of Business and Industry at the time. Vonderheid became a Luzerne County Commissioner. Luzerne County gave $4 million to the Hotel Sterling project.

In spite of guaranteeing the mortgage for his friends to the tune of $69,226 Vonderheid has claimed to have no interest in the properties. Sure.

After purchasing the land the Lulls decided to get Keystone Opportunity Zone (KOZ) designation so they would receive tax breaks from the City, County and schools. In 1999 they obtained this. In order to receive a KOZ designation, by law, a property must be up to code. This seems to be enforced differently by different municipalities, but Perry Block (the Lulls) got it for 1999. In 2000 things got interesting. Wilkes-Barre didn't give it KOZ status.

Some reports seem to say the then Mayor, Tom McGroarty, didn't like the Lulls and withheld the KOZ designation. Since both the City and State needed to agree on the KOZ designation it was removed. So the taxes began accumulating on the properties. All the taxes. The Lulls say they contested the removal of KOZ and the City never responded. Oops.

Because they threatened legal action once back City taxes got to $17,494 City Council forgave all those back taxes rather than get sued (they say). Two weeks later they found out the buildings were falling down and had to be demolished. It cost W-B $303,000 to demolish the buildings from 37-45 West market Street. They attached a lien for the funds.

In between a few other things happened. As I said, in order to be designated a Keystone Opportunity Zone a building must be sound. W-B allows them to be boarded up for security but they must be sound. These obviously weren't. All of the floors had collapsed into the basement when it was discovered they might collapse onto Market Street. Big problem. Especially with the Hotel Sterling adjacent and CityVest heavily invested there.

The City Council voted to forego all the back taxes for Perry Block (the Lulls). It seems that for KOZ to allow tax forgiveness the buildings must be sound and up to code. The only way City Council could legally forego the taxes was to re-designate it a KOZ. Oops, the buildings fell down two weeks later. Did those floors disappear into the basement that quickly or did Wilkes-Barre's money? How do you say poof to $303,000 of taxpayer money in a flash?

No, it simply hadn't been properly inspected. All that had been done was a cursory outdoor inspection to insure it was still standing, essentially. On April 14, 2004 City Building Inspector Bob Mosley is reported to have written a memo saying the building met KOZ status. Wow, it sure fell apart quickly, a year later it was rubble. But meanwhile it was safe enough to qualify for tax forgiveness?

After the emergency demolition the City filed a lien against Perry Block for its $303,000. They failed to obtain an open end mortgage however which would have insured repayment if and when the properties were sold. At the time the City Solicitor Tim Henry said (quoted in a local paper) "If Perry Block now tries to sell that property these liens are going to have to be taken care of." It was and they weren't. Can you say poof to $303,000 of public monies?

CityVest, the non profit redeveloping the adjacent Hotel Sterling bought the property for $325,000 and absorbed the liens. Wilkes-Barre failed to protect its taxpayer's investment in the land through the liens and allowed them to revert to CityVest. Supposedly they plan on forgiving the liens as part of a grant to CityVest. Can you say poof to $303,000 of public monies?

County and school taxes apparently remain unpaid to the tune of over $24,000.

Now CityVest, the Congressman's baby, owns all the property when you include the parking lot on the other side of the Hotel which the City condemned and gave them. This is a nice spread of prime riverfront city land. Three groups invited to bid on the redevelopment of the Hotel Sterling have said however that the Hotel is too old and not suitable for renovation. They maintain it should be razed and rebuilt. That's the problem with old buildings with low ceilings and narrow hallways. It just isn't worth the money to gut them and redo. But wait, now CityVest, conveniently, owns all these adjacent parcels! And you paid for them!

So CityVest is looking at a $40 million project to build a big new project in downtown Wilkes-Barre. They already have $8 million in public money plus the $303,000 to demolish the Perry Block buildings and the cash used to buy the adjacent parking lot. Public money being used for private profit. Hmmmm, isn't that a definition of corruption? What's more, the manner in which all this happened simply stinks.

Meanwhile who is going to buy a $300,000 condo in a blighted area of Wilkes-Barre when the Hotel Sterling project finally, if ever, gets finished? There is nothing else in the area to attract those kinds of buyers and tenants. No arts area, no trendy shops, no Starbucks, no nice restaurants. Why is all this public money being poured into this project? Because powerful people are involved. It doesn't make sense and the sooner someone pulls the plug the better.



The Hotel Sterling Scandal Part 2