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.
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:
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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
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.
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.
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.
