Second Buffalo Billion deal benefits Ciminelli

Ciminelli companies benefited from lack of competition; AMRI project costs spiraled while promised jobs lag

U.S. Attorney Preet Bharara says the way LPCiminelli won the contract to build the SolarCity factory in Buffalo was criminal.

The deal-making behind another Buffalo Billion project that LPCiminelli had previously landed, to build space for biotech company Albany Molecular Research Inc., bears some striking similarities to the way the company won the SolarCity work, Investigative Post has found.

In both cases, for example, lobbyist Todd Howe worked for LPCiminelli and the state-affiliated economic development agency that managed Buffalo Billion projects and chose which companies would win contracts. Howe has pled guilty to federal corruption charges and is cooperating with prosecutors.

Another similarity: both projects appear to have skirted rules usually followed by state government to encourage competition and ensure a good deal for taxpayers. The Fort Schuyler Management Corp., which oversaw the AMRI and SolarCity projects, has long maintained that it is exempt from such requirements because it is a nonprofit rather than a state agency.

After initially settling on a site on the Buffalo Niagara Medical Campus to house AMRI, officials from Fort Schuyler abruptly abandoned that plan in the fall of 2013 in favor of a building under construction by Louis Ciminelli’s company, LPCiminelli, and owned by his brother Paul’s firm, Ciminelli Real Estate. The two companies are separate entities with no shared ownership.

Both companies benefited from the change of location to Conventus. LPCiminelli was chosen to perform at least $28 million worth of construction work on Buffalo Billion projects in the building, while the state bought one floor of the building from Ciminelli Real Estate for $9.3 million and has a 20-year lease on another worth $1 million annually.

Putting AMRI in the Ciminelli building required adding an extra floor in the midst of construction, which helped push the construction and real estate costs 50 percent higher than the state’s original estimate. 

And AMRI, the company the research space was being built for, had no say in where they would go. The seventh floor wasn’t a good fit for AMRI, as being so high up precluded the storage of some chemicals used in the company’s research, for fire safety reasons. One company executive described the arrangement as “inconvenient.”

As a result, the state paid a premium – one local real estate expert put the additional cost at around $2 million – to put AMRI into a building that’s not well suited to the company’s needs.

The dynamics of the deal “just stink” said one good-government advocate.

“There’s no way you could come up with more red flags,” said John Kaehny, executive director of Reinvent Albany.

Gov. Cuomo justified the state’s $50 million investment in building and equipping the AMRI facility by saying it would create 250 new jobs, but there’s no guarantee all of those positions will materialize.

AMRI itself is only legally obligated to create 55 jobs; the other new jobs are expected to come from partner companies. At least two of the three companies whose employment figures the state is counting towards the 250 goal do not have binding obligations to create jobs in connection with the AMRI project.

The cost of the jobs guaranteed by AMRI in exchange for the state investment works out to $900,000 each.

“That means this is a guaranteed loser for taxpayers,” said Greg LeRoy, executive director of Good Jobs First, a national subsidy research organization.

A biotech hub

Bringing AMRI to Buffalo was one of the Cuomo administration’s first major projects under the governor’s signature Buffalo Billion initiative. Characterized as a bold effort to revitalize the Western New York economy, the Buffalo Billion has been mired in controversy for the past two years amidst allegations of favoritism in the awarding of contracts to politically wired developers and the state’s lack of transparency in managing the program.

Bharara subpoenaed records relating to the AMRI project earlier this year, but nobody has been charged with any wrongdoing in connection with the project. The AMRI deal is not mentioned in the 80-page federal complaint unsealed by Bharara’s office in September that outlines the allegations of bribery and bid-rigging in the way LPCiminelli was chosen as one of the state’s “preferred developers” in the region and awarded the contract to build the SolarCity factory.


Listen to Charlotte Keith’s interview with WBFO

Listen to Jim Heaney’s interview with The Capitol Pressroom

 


This story is based on interviews with five people who had direct knowledge of the deal, five local real estate and construction professionals, and hundreds of pages of state records, including contracts, lease agreements, meeting minutes and architectural drawings. Many of those interviewed agreed to speak only on the condition they not be identified.

Jason Conwall, a spokesperson for Empire State Development, headed by Buffalo civic leader and business executive Howard Zemsky, refused to answer questions about the project. ESD is now charged with with overseeing Buffalo Billion projects.

LPCiminelli officials declined to comment, as did lawyers for Louis Ciminelli, the company’s CEO, Howe, and Kaloyeros. Ciminelli Real Estate said in a written statement that questions should be directed to the Fort Schuyler Management Corp., which oversaw the AMRI project.

Abrupt change of plans

At first, LPCiminelli had no involvement in the AMRI project. So, when Patrick Whalen heard about the change in plans, he was in disbelief.

At the time, Whalen was the chief operating officer of the Buffalo Niagara Medical Campus, the nonprofit that serves as an umbrella group for the campus’s anchor institutions including Kaleida Health and the Roswell Park Cancer Institute.

Several months earlier, during the summer of 2013, Whalen and other medical campus executives had received a piece of good news. New York State was planning to invest in a new facility in Buffalo for a drug discovery company, Albany Molecular Research Inc., and the medical campus was being invited to partner.

A 2013 agreement lays out each party’s responsibilities: the medical campus would find space to house AMRI, with the state paying for real estate, renovations and specialized equipment.

With the Innovation Center, the medical campus incubator for startup companies, almost full, officials settled on the empty SmartPill building on Main Street, at least in the short-term. Eventually, Whalen hoped, the medical campus would build a second innovation center and move AMRI into permanent space there, with help from an anticipated second round of state investment.

By late 2013, work on preparing the SmartPill building for AMRI was well underway. The medical campus had spent more than $100,000 on architect’s fees and held weekly conference calls to discuss the project’s progress. Drawings of the proposed renovations had gone to the Buffalo Planning Board.

Then, there was an abrupt change.

Whalen heard from a senior AMRI executive that the company would not be going into the SmartPill building, after all.

Instead, AMRI would go into space of similar size in the Conventus building, whose planned six stories were under construction just a few blocks further up Main Street. A seventh floor would be added for AMRI.

The logical choice to add the floor was the company already at work building the first six: LPCiminelli.

The push for change did not come from AMRI; several company executives said AMRI had no role in choosing where their research space would be.

As one former AMRI executive explained: “Obviously, Alain [Kaloyeros] and that group were the big pushers of moving it to the Conventus building. The state money was pretty much in their control, so we went along with it.”

Kaloyeros later said that temporary space in the SmartPill building was only one of several sites under consideration for AMRI. Conventus, on the other hand, offered the company a long-term location in Buffalo.

LPCiminelli regarded as “Buffalo friends”

LPCiminelli had a direct line to the key decision maker on the Buffalo Billion: Kaloyeros.

Alain Kaloyeros

Alain Kaloyeros

Kaloyeros had been empowered by Cuomo to oversee the major components of the Buffalo Billion program, as well as high-tech economic development projects across Upstate. Much of the money flowed through two nonprofit development corporations affiliated with the SUNY Polytechnic Institute, where Kaloyeros was the founding president.

One point of connection between LPCiminelli and Kaloyeros was lobbyist Todd Howe, who served as Kaloyeros’ de facto chief of staff while Howe’s clients – architects, engineering firms, developers – formed a roster of favored companies repeatedly chosen to work on SUNY Poly projects. Howe had an office and a reserved parking spot at SUNY Poly’s Albany headquarters, where he worked twice a week.

louis-ciminelli

Louis Ciminelli

Howe had been working as a consultant for Kaloyeros since 2012; for LPCiminelli, since the start of 2013. Federal prosecutors said LPCiminelli executives knew about Howe’s connections – it’s why they hired him as a lobbyist. Through the government relations arm of an Albany law firm, Howe was being paid $100,000 a year by LPCiminelli and $300,000 a year by SUNY Poly, according to the federal complaint.

LPCiminelli, whose owner, Louis Ciminelli is a major Cuomo contributor, soon became Kaloyeros’ go-to in Buffalo. When IBM executives came to town in 2013 to look at potential sites for the company’s new offices, part of another Buffalo Billion project, Kaloyeros asked executives from LPCiminelli to show them around.

By August, Howe was calling LPCiminelli “Buffalo friends” in emails to Kaloyeros.

At the same time, Howe was working on the AMRI project. The first time officials from the medical campus met with AMRI, Howe was in the room, Whalen said.

“It was clear to me that he was the driving guy, showing up at my door with AMRI,” he said. “It was explained to me: he’s tight with Cuomo and Kaloyeros, he’s making things happen.”

Ciminelli Real Estate, which owned the Conventus building, also stood to benefit from the decision to abandon the Smart Pill building. The company’s CEO, Paul Ciminelli – the brother of LPCiminelli CEO, Louis Ciminelli – had connections of his own.

Paul Ciminelli

Paul Ciminelli

At the time, he was sitting on the board of directors of the Empire State Development Corp., the state’s primary economic development agency, through which all of the Buffalo Billion money flowed. Paul Ciminelli, who was appointed by Gov. David Paterson, had been on the board since 2010. He has contributed to the campaign committees of both Paterson and Cuomo.

ESD voted in March 2014 to approve funding for the AMRI project – funding that would go, in part, to buy the seventh floor of the Conventus building for $9.3 million from Ciminelli Real Estate. The seventh floor, owned by the state, is like a condo within the building.

Paul Ciminelli disclosed the conflict of interest and recused himself, which is all that state law requires. He resigned from the board a few days afterwards, citing “the pressures of business.”

Good government advocates say this shows the shortcomings of the state’s conflict of interest rules.

“It’s just not enough to say that he recused himself from the vote,” said Kaehny of Reinvent Albany. “Any board member is going to have a big advantage as an insider. It’s an inherent conflict of interest.”

Questions of competition

The way the Conventus site was chosen stands in marked contrast to the way state government usually makes real estate decisions.

The state Office of General Services, which handles real estate for state agencies, scours the marketplace, canvasses landlords and advertises widely, with the intention of creating a competitive environment, said OGS spokesperson Heather Groll.

Different sites were informally considered for AMRI at different times, but Investigative Post’s review of documents and interviews with people involved in the project found nothing that showed, or even suggested, that Fort Schuyler used a formal competitive process to choose the Conventus location or LPCiminelli to build the seventh floor.

Investigative Post asked Empire State Development officials point blank whether any formal competitive processes were used. ESD officials refused to answer.

However, Fort Schuyler has always held that it is not subject to the same procurement rules as state agencies. Fort Schuyler officials have said they consider the state rules to be “guidelines” rather than requirements.

A report from a former prosecutor hired earlier this year by Cuomo to investigate the Buffalo Billion and other SUNY Poly projects found that, in general, Fort Schuyler and a sister organization, the Fuller Road Management Corp., often failed to implement or follow proper procedures.

After the criminal charges against Kaloyeros were announced, Cuomo transferred responsibility for SUNY Poly’s projects to Empire State Development, with the promise of changes to the way these kinds of deals are done. Kaloyeros has since resigned as president of SUNY Poly.

Cuomo on Wednesday proposed a spate of ethics reforms, including appointing an inspector general for the SUNY system, a “Chief Procurement Officer” to review all state contracts for impropriety, and instructing state Democrats to refuse campaign contributions from companies seeking state work, or for six months after they have successfully won state contracts.

Good government groups, in response, pointed out the myriad loopholes in the governor’s plan; among them, that the chief procurement officer would not be independent of the governor — unlike the state comptroller, already tasked with overseeing state contracts.

Excessive costs

One way SUNY Poly justified using state-affiliated non-profits like Fort Schuyler was that, unburdened by the procedures and protocols of state agencies, they could work at the same pace as their partners in private business. But it would also be unusual in the private sector to choose a site with so little competition, according to local real estate and development sources.

“A private company would never just hand a deal like this to someone without taking it out to the marketplace,” said one local real estate professional.

Competition not only levels the playing field, it also keeps costs down.

For instance, when McGuire Development was tasked with finding office space for IBM as part of another Buffalo Billion project, the company asked for proposals from a dozen property owners. The final choice, Key Center, which is managed by Ciminelli Real Estate, was chosen from a shortlist of three – with the state paying around 20 percent less for the space than the original asking price.

Usually, when state government rents or buys real estate, cost considerations are “of the utmost importance,” said Groll, the OGS spokesperson.

Kaloyeros, however, had different priorities – like aesthetics.

During discussions about the SmartPill building, Whalen said, SUNY Poly officials were concerned with its perceived lack of grandeur. A low-slung, grey block of a building, SmartPill wasn’t about to win any architectural awards.

“I was upset with the amount of money that was being budgeted to make the building look good,” Whalen recalled. “I said, ‘It’s like putting lipstick on a pig’”.

screen-shot-2016-11-15-at-4-27-55-pm

Artist rendering of the SmartPill Building, 847 Main Street.

But Kaloyeros’ vision was grandiose: high-tech companies in gleaming state-of-the-art buildings, like the ZEN building on SUNY Poly’s Albany campus. The $191 million price tag for that building was roughly twice the cost of a typical office building in the Capital Region, according to the state’s criminal complaint against Kaloyeros.

SUNY Poly officials did ask another favored construction company, Columbia Development, to informally submit cost estimates for the work at the SmartPill building and, later, at Conventus. Columbia’s president, Joseph Nicolla, is facing state corruption charges alongside Kaloyeros over allegations they conspired to rig a bid to build student housing in Albany.

The total cost of putting AMRI into Conventus – at least $23.3 million – ended up costing 50 percent more than ESD had anticipated, state records show. That meant less money from the state grant was available for AMRI to spend on equipment.

In addition, industry sources said, adding a floor to a building already under construction is unlikely to be a cost-effective option.

After reviewing the numbers, one local real estate professional estimated the state paid at least a 10 percent premium – around $2.3 million, or $50 per square foot – to put AMRI in Conventus.

“Conventus is a beautiful building, but that doesn’t mean it’s a good deal for the state,” he said.

Athenex deal

The AMRI deal wasn’t the only time the Ciminelli companies profited from the Conventus building.

Earlier this year, Cuomo announced that the state would spend $25 million for the headquarters of another biotech company, Athenex, on the sixth floor of Conventus.

Fort Schuyler had signed a 20-year lease to rent the sixth floor of the building from Ciminelli Real Estate long before the Athenex funding was approved.

Conventus BuildingLPCiminelli was given the $14 million work to ready the space for Athenex, apparently awarded without any further competition. The company had by this time been designated a “preferred developer” as a result of what the U.S. Attorney contends was the rigged RFP process.

Athenex is receiving another $250 million from the state to build a drug manufacturing facility in Dunkirk and will create 1,400 jobs in total.

Athenex’ chief operating officer, Flint Besecker, credits Ciminelli Real Estate with helping the company secure state funding in a video posted on the company’s Facebook page.

“They brought ideas to the table, and those ideas resulted in … a public private partnership with the state of New York,” he said.

The relationship between the companies appears to be a longstanding one; Paul Ciminelli was an early investor in Athenex.

Besecker did not respond to requests for comment.

Shortcomings with building

AMRI officials had little say over where their offices would be located.

“We really did not have a role in terms of the site selection,” said Rory Curtis, head of AMRI’s Buffalo office.

The result: Expensive space that is not well suited to the company’s needs.

Rory Curtis

Rory Curtis

Being on the seventh floor of the Conventus building proved to be an obstacle when AMRI decided to use part of the space for chemical research, working with highly flammable solvents.

“The higher you are, the less flammable stuff you can have, for fire safety reasons,” Curtis explained.

Being on the seventh floor also limited the size of the chemistry lab the company could build and the number of chemists it can have in Buffalo, he said.

Once the problem became apparent, AMRI “pushed back” on Kaloyeros over the Conventus location, according to a former senior executive at the company.

“The fact that we were on the seventh floor was initially highly restrictive,” he said.

AMRI even looked at other possible locations for the chemistry space – including the SmartPill building that Kaloyeros had spurned. In hindsight, the single-story building, with everything at ground level, would have been a good fit, several officials familiar with the deal said.

AMRI did eventually develop a workaround, with the state leasing a small space on the first floor where the company stores solvents, which are then taken up to the seventh floor as needed.

Curtis said this solution is adequate, but not ideal.

“It’s like having your laundry on the same floor as your bedroom versus seven floors down,” he said. “Moving stuff around is inconvenient.”

Exaggerated job claims

At $50 million, the state’s investment in AMRI is one of the most generous subsidies offered to any company in the region in recent years. To justify the cost to taxpayers, state officials have said that bringing the company to Buffalo will create 250 new jobs by 2020.

But AMRI itself is only contractually committed to creating 55 of those jobs. The rest are expected to come from suppliers and partner companies that share research space and collaborate with AMRI. At least two of the three companies whose jobs the state is counting towards the 250 goal do not have formal job creation commitments, state records and interviews show.

Kaloyeros said in early 2013 that hundreds of jobs would soon materialize.

“My own projections are that within two to three years, we are looking at in excess of 500 high-tech jobs,” he said.

Three years on, that hasn’t happened. AMRI currently has 33 employees in Buffalo. Partner companies contribute another 20 jobs.

But one of those companies, HarkerBIO, is receiving its own generous subsidy package through the StartUp New York program, under which the company will pay no state or local taxes for 10 years.

Another, the New York Center for Nanomedicine Research, whose six full-time equivalent jobs state officials are counting towards the 250 goal, is restructuring and currently has no paid employees, according to its CEO.

Even AMRI’s commitment of 55 jobs is less than the 75 positions previously touted by Kaloyeros.

The state’s investment works out to $900,000 per job, a figure one subsidy expert described as “off the charts.”

“That’s a terrible number,” said LeRoy of Good Jobs First. “New York State taxpayers will never break even on that.”

Hearing the $900,000 cost per job figure, Sam Magavern, executive director of the Partnership for the Public Good, a coalition of local nonprofit activist groups, shook his head and sighed.

“Ask an ordinary person living in the city of Buffalo what nine hundred thousand dollars of public investment could do for their neighborhood,” he said.