The art of the deal: Floyd County style
As my story in today’s Floyd Press reports, county officials hope to close a deal by September 1 to sell 51.5 acres of undeveloped land in the Commerce Park on Christiansburg Pike to Data Knight 365 for $900,000 — plus interest — even though we uncovered past and present legal problems of some involved in the project.
“I don’t think it’s relevant,” Economic Development Authority chairman Jack Russell says of the run-ins with the Federal Trade Commission by Cleveland’s Power Direct and its owner, Dan Delfino. Russell and other county officials did not know of Delfino’s fine by the FTC for violating federal “do not call” registry rules until we reported it recently. Power Direct is backing the deal even though the project is a data storage facility, not a call center.
They also did not know that Paul Allen, the front man for the deal, lost the right to operate his company, B Telecom, Inc., when the Secretary of State in Ohio revoked that company’s articles of incorporation and certificate of authority in March of this year for not filing disclosure reports or paying taxes. The company’s status remains “on hold” in Ohio because of an open investigation of other actvities. Bti’s web site is down and returns a “403 Forbidden code.”
County administrator Dan Campbell says the county checked references and ran Dun & Bradstreet reports on Delfino’s company and also vetted Bill Byler, an Amish businessman involved in the deal but did not conduct a full background investigation. The county, Campbell says, does not have the resources for such investigations.
Neither do I. I found the infomation in short order by seaching the Internet and the databases of the sources like the Ohio Secretary of State’s business filings database, D&B reports and the Cleveland Plain Dealer online archives. It’s the kind of research that any first-year associate of the law firm of county attorney Jim Cornwell could have completed in a day or two.
In the county’s defense, Bti appeared to be a going concern when Allen and other company reps came to Floyd last fall and began negotiations. Bti touted a deal with the Department of Defense for, they said, a top-secret data facility “somewhere outside of Blacksburg, VA.” We’ve learned the proposed center was slated for space the company would rent at the the Radford Army Ammunition Plant complex but that deal fell through for reasons that remain private because of pending litigation. Although the Bti web site claimed ground had been broken on the construction on September 8 last year no such construction ever began.
A news database search last year, however, would have found controversy surrounding Bti in the controversial Networx deal in Memphis, TN, where an investment banking group hired by the city’s public utility found problems with Bti and questioned the company’s ability to fund the deal or its honesty in due diligence.
A month after Ohio shut down Bti, Byler filed papers in the state to create Data Knight 365.
Russell, Campbell and others in Floyd County government feel they have crafted a performance agreement that protects the county if the deal goes south and one that will allow the county to collect at least $100,000 in a non-refundable deposit that the company must have by September 1. The performance agreement also requires the company to spend over $7 million on site prep and construction by certain dates and pay the remaining $800,000 at 7.5 percent interest over the next few years. The county holds the first deed of trust on the land and can take it back at any time that Data Knight fails to meet its milestones in the agreement. Any money paid remains in the EDA accounts and any improvements become county property.
Data Knight has not asked for any tax concessions or money from the county and Campbell estimates the county has spent about $4,000 in legal fees.
So, if Data Knight comes up wth a hundred grand by September 1, the county makes at least $96,000 and stands to make more if the project proceeds. If the project is fully developed, Data Knight must build a 120,000 square foot facility and spend over $67 million facility that could bring $2.6 million a year to the county in taxes on land and equipment. About 20 employees would work there if it opens.
The county is still waiting for addtional verfications documents before scheduling an exact date for closing.
Floyd is a poor county and cannot afford to spend the $1 million or so that it would take the prep the 51 acres behind a power substation for use in the commerce park. Basically, the EDA and county feels it can dump 51.5 acres at a profit by taking a chance on a company that may or may not be able to deliver on its promises.
Both Russell and Campbell admit the deal is a risk but they feel the county has crafted an agreement that minimizes risk to the county and provides a big payoff if things work out.
“If” remains the question. Can the Data Knight team deliver on its grand promises? If more legal problems arise for those involved in the project, will the county be tainted by an association with the company or its players? Does the potential reward justify the risk?
Time will tell.
Rick, ouch, yes, its all too obvious: “As my story in today’s Floyd Press reports…” Sorry — this is what happens when you skim and then react.
Bill Kovarik
August 23, 2009 at 6:00 pm
Uh… Bill… Doug is the reporter that is covering this story for the Floyd Press. There are of course different standards for blogging vs. journalism. We can get ourselves in a pickle if we confuse the two. Doing both is not a job for amateurs, obviously. Fortunately, Doug’s been around the block once or twice.
Rick Parrish
August 23, 2009 at 4:18 pm
I think its a telling comment about the mainstream news media in general and the Floyd Press in particular that they bring so much gullibility to the job.
Thanks, Doug, for picking up the slack.
Bill Kovarik
August 23, 2009 at 3:57 pm
Thanks, Doug, for your thought-provoking skepticism.
I hope things turn out OK for the county, but this company maintains secrecy even before it’s built to maintain secrecy.
Randall A. Wells
August 23, 2009 at 9:20 am
I read the story in today’s Floyd Press and your follow up here and I can only express my extreme disappointment in our county officials and their callous willingness to sell their souls in the hope of making a little money from a shady operation.
Thank you for doing the job our county should have done in the first place. It is sad that they will go ahead and try to get something out of nothing. It says a lot about the lack of morality of our government officials.
Shame on them.
Joanna Allen
August 20, 2009 at 5:41 pm
If someone wants to start a recall petition on our entire county board, I will sign it and encourage others to do so.
Carolyn Henderson
August 20, 2009 at 5:48 pm
Let’s keep our powder dry ladies. Industries with jobs aren’t exactly beating the door down to locate in Floyd. And like the man said, life is full of risks. The stipulations on this thing look pretty good for the County. My guess is that the taxpayers have a 50/50 chance of getting a $96,000 payday real soon, and possibly a free building by the time this charade ends.
Bob
August 20, 2009 at 5:34 pm
I have learned that Data Knight 365 has been asking local people to invest $20-$25,000 in this data center scheme.
It would appear that county officials have arranged matters so that the county will not lose money, but are exposing local citizens to the risk of investing in an unvetted and highly speculative promotional scheme.
If DK365 gets unsuspecting citizens to invest in this “county approved” data center project, they will do well financially, even if the data center never materializes.
I feel that the primary intent of this DK365 project is not to build a data center, but to set up a scheme to harvest money from gullible investors.
It has uncomfortable similarities to the movie, “The Music Man”.
David St Lawrence
August 21, 2009 at 10:26 am
I truly hope that my skepticism is proven wrong – I hope this works out well for all Floyd Countians. As Doug says, time will tell. I have to say, though, that the way this deal was put together does not generate any respect or confidence on my part for those who did so. Why all the back-room wheeling and dealing? Are our elected officials so knowledgeable that they cannot ask for some help in evaluating this proposal from experts outside government? This is done on a routine basis everywhere else. With Virginia Tech 20 miles away, there are any number of very qualified people who could render an opinion on this project. $4,000 in legal fees? A pittance for a deal this size. Another question: why does DataKnight need 51.5 acres of land for a 120,000 square foot building? Yet another question: does anyone have any idea how much data could be stored in 120,000 square feet of space? Vastly more than you can imagine, I can assure you. I’ve done work for Level 3, Qwest, Verizon, Global Crossing, and other tier one telecommunications companies that have nowhere near this amount of space to work with and they have vastly better track records than DataKnight has or ever will have. 20 jobs? Very unlikely. I regularly do work in an AT&T switching office that has about 120,000 square feet and there are only 6 full-time AT&T employees there. There are a lot of contractors that perform work in the building as AT&T needs equipment installed, but they are not full-time employees.
There is a most unappealing smell that emanates from this project.
I just hope the taxpayers of Floyd County aren’t left high and dry by the people behind this deal. The opportunity costs of tying up 51.5 acres of prime industrial land could be quite significant. Doug, you’ve done a commendable job in covering this story and I hope that you revisit the topic on a regular basis in the future. If this deal turns out to be an albatross, I hope you hang it around the neck of those responsible. As you say, the role of the journalist is to afflict the comfortable and comfort the afflicted. In my opinion, those in government (and not just in Floyd County) are far, far too comfortable!
Jeff Blakley
August 26, 2009 at 9:38 pm