OSHKOSH ARENA SUIT REVEALS STRAIN
Documents: Negotiations continue as financial struggles drag on
OSHKOSH - Dec. 1, 2017, was a night of unbridled optimism at the Menominee Nation Arena.
A standing-room-only crowd gathered to watch the Milwaukee Bucks’ new G-League affiliate, the Wisconsin Herd, beat the Iowa Wolves, 116-109, in the team’s first game in the new $21.5 million arena. The arena’s first year would see several Herd sellouts, boxing, the opening of the Maple Pub, high school graduations and performances by the likes of Gladys Knight, Sawyer Brown and Larry the Cable Guy.
Thousands of northeastern Wisconsin residents and visitors to the region
have attended events at the arena in the 20 months since that first Herd game. Community leaders applauded Fox Valley Pro Basketball Inc.’s rapid transformation of a decrepit, sprawling, 150year-old furniture factory into a multiuse event center, praising the arena’s potential to re-energize Oshkosh’s south side.
Yet even as Oshkosh celebrated, signs of financial strain had already emerged.
It was public knowledge when the arena opened that its cost had ballooned from $14 million to $21.5 million. Behind the scenes, the arena’s general contractor was already struggling to collect payments from Fox Valley Pro Basketball, the company that owns and operates the arena, and its president, Greg Pierce.
According to court documents filed in a lawsuit by Bayland Buildings Inc., Pierce had begun making promises of payments that would rarely pan out.
In its lawsuit, Bayland claims it is still owed $13 million for building the arena. It is asking a judge to appoint a receiver who would take over the arena’s finances and sell the arena to a new owner.
A judge could appoint Oshkosh attorney Paul Swanson as receiver as soon as Monday.
Meanwhile, investors are trying to figure out what happened to the $19.5 million that Securities and Exchange Commission records indicate Pierce raised from private sources as a way to finance the arena without using traditional bank financing.
Details of how Fox Valley Pro Basketball ended up unable to pay its bills remain murky because of private contracts, nondisclosure agreements and investors’ lack of interest in making their claims public.
The Herd’s president, Steve Brandes, released a statement Aug. 9 reiterating the team’s commitment to Oshkosh and its willingness to work with Bayland. However, the team has not responded to requests this week for information about the arena’s finances or Pierce’s relationship with the Bucks and the Herd. Pierce has declined repeated interview requests, as well.
But documents USA TODAY NETWORK-Wisconsin obtained through the state’s Public Records Law paint a picture of an enterprise that was never fully funded, forcing Pierce to unsuccessfully search for bank financing as creditors pushed for payment. The records include city officials’ correspondence with Fox Valley Pro Basketball and Bayland, city staff memos and other correspondence, as well as financial documents from Bayland’s lawsuit and a separate $1.1 million lawsuit filed by Oshkosh investor Eric Hoopman.
Private investment fell short
Traditionally, a project like the arena would be funded with a mix of cash from the developer or investors, bank financing that’s repaid over 10 or 20 years and city-funded infrastructure improvements.
Fox Valley Pro Basketball eschewed the traditional route in favor of funding the $21.5 million arena and related improvements entirely via investors, according to city memos.
The company expected to raise up to $27.1 million from investors, with a minimum contribution of $50,000, according to Fox Valley Pro Basketball’s filings with the SEC.
By May 1, the company had only raised $19.7 million. SEC documents show investors had contributed $5 million by May 2017, another $9.5 million by May 2018 and an additional $5.2 million by May 2019. A total of 75 groups or individuals invested in the company, an average of $263,000 per investor.
Meanwhile, Fox Valley Pro Basketball negotiated three amendments to its development agreement with the city, each aiming to give Pierce more flexibility to secure more financing:
❚ Oct. 24, 2017 — The Common Council approved language enabling Pierce to use the city’s agreement to repay infrastructure costs as collateral for a lender. The clause was not needed when investors were expected to provide most of the financing.
❚ Dec. 12, 2017 — The council agreed to separate the municipal revenue obligation and the development agreement. City Manager Mark Rohloff’s memo to the council said Fox Valley Pro Basketball was finalizing a loan and the lender wanted the revenue obligation removed from the development agreement “to give them greater comfort in providing a loan.”
❚ Oct. 9, 2018 — The council changed language in the development agreement to allow Pierce to sell the revenue obligation’s revenue stream to a lender or investor. In an Oct. 4, 2018, memo, City Attorney Lynn Lorenson said Pierce expected to close that sale in November and was working with several banks on a mortgage.
Pierce’s efforts to find financing were unsuccessful, but assurances that he was negotiating with lenders did buy Fox Valley Pro Basketball more time with Bayland Buildings.
According to Bayland’s lawsuit, Fox Valley Pro Basketball promised in March 2018 to pay down its construction debt by selling the revenue obligation.
Two months later, Bayland obtained a $13 million mortgage against the property in an attempt to assure payment of the debt.
When scheduled mortgage payments were not made by August 2018, Fox Valley Pro Basketball signed agreements acknowledging it had defaulted on the mortgage, although Bayland agreed not to foreclose if the company made a $4 million payment within a few weeks’ time. Fox Valley Pro Basketball missed that payment as well.
Pierce continued trying to sell the revenue obligation from December to spring, while also trying to land longterm financing of any kind, according to city correspondence.
In a Feb. 21 memo to the council, Lorenson said Pierce was working on a loan with Phoenix-based Western Alliance Bank. The arena’s lawyer, Phillip R. Bower, emailed Rohloff and Lorenson on May 16, saying Western Alliance would not lend money for at least 60 days.
Bower also said the company was exploring financing from “the high-yield debt market,” a lending market in which borrowers pay higher interest rates to lenders due to a greater risk of default. He said he expected to identify a funding source within 10 business days.
In June and July emails, arena representatives told city officials the search for financing was ongoing.
A glimmer of ownership insight
Investors have been silent about what Fox Valley Pro Basketball told them or the status of their investments.
The one exception is Hoopman, an Oshkosh businessman, who is suing the arena for the company’s failure to make payments beginning this spring on a $1 million loan. Hoopman, who has declined to comment on the lawsuit, claims Fox Valley Pro Basketball has missed $100,000 in payments since the first of the year.
Hoopman’s loan document allows him to convert the loan into an equity investment in Fox Valley Pro Basketball Inc. That option was not acted upon.
It also includes an option to buy Fox Valley Pro Basketball’s stake in the Wisconsin Herd. The terms gave Hoopman the right to buy a 20 percent share of “any ownership interest purchased (by FVPB) in the Wisconsin Herd team” for $420,000 in cash. The document indicates Fox Valley Pro Basketball has a 30% interest in the company that owns the Wisconsin Herd that is worth about $2.1 million.
That puts the team’s total value in January 2018 at about $7 million.
Switching game plans
Although Fox Valley Pro Basketball is required to notify the city if a mortgage is filed against the arena, that didn’t immediately happen when Bayland took its $13.1 million mortgage to assure payment of unpaid bills, Lorenson said.
Bayland resorted to taking the mortgage after learning it could not file a traditional construction lien against the property because the land is owned by the city’s Redevelopment Authority. Liens can’t be placed on public property.
The land remains publicly owned because of still-unresolved environmental issues that include prior environmental cleanup efforts not checking for perand polyfluoroalkyl substances, commonly referred to as PFAS.
Fox Valley Pro Basketball did report a second, June 2018 mortgage with Two Willows LLC for $1.3 million. The firm lists James Schoessow as registered agent and an address in De Pere that is home to steel and aluminum supplier S.I. Metals and Supply. Schoessow could not be reached for comment.
By May 2018, Lorenson and Bayland’s attorney were in regular contact and sharing concerns about the project’s finances. The city and contractor compared notes at an April 16, 2018, meeting that Fox Valley Pro Basketball declined to attend.
In a memo summarizing the meeting for the council, Lorenson said Bayland expected a $1.4 million payment from FVPB on April 16, but the payment did not occur. The construction company told the city it had failed to get Fox Valley Pro Basketball to commit to a payment plan, and never got financial information it had requested from the company.
City, taxpayers protected
City administrators also said this week they’re still unsure about Fox Valley Pro Basketball’s true financial condition because the city’s role in the deal was limited to repaying Pierce for the road work and infrastructure improvements.
They also said the structure of a tax incremental financing agreement and revenue obligation protect taxpayers by not providing up-front financial assistance to the project.
Rohloff said the city has suspended its repayment agreement in light of Bayland’s lawsuit and had not previously made a payment to Fox Valley Pro Basketball.
Contact Jeff Bollier at 920-431-8387 or jbollier@gannett.com. Contact Lydia Slattery at 920-573-8725 or lslattery@gannett.com. Follow them on Twitter at @GBstreetwise and @lydiaslattery.