“I’m shocked – shocked!” – Line Hotel tax assessment lowered by $33 million

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The early 20th century First Church of Christ, Scientist and a new adjacent building house The Line Hotel, which opened in Adams Morgan on New Year's Day. (Photo courtesy of Mapio.net)
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In light of the squabble roiling the Adams Morgan Partnership Business Improvement District (BID) described in an story elsewhere in this issue, a change in the assessed value of the newly-opened Line Hotel is raising eyebrows among board members.

A Jan. 26 decision of the District’s Real Property Tax Appeals Commission, rendered following a Jan. 17 hearing, reduced the hotel’s assessment from $39 million to to $5.7 million.

“We’d all like to know how they swung that,” said Kristen Barden, the BID’s executive director. “Now the issue is how long has the hotel known about this.”

A notice of the decision was sent on Jan. 29 to the hotel’s owners, Adams Morgan Hotel Owners in New York. The concern has the same address as the Sydell Group, a hotel company with properties in New York, Los Angeles, Miami and other cities.

A March 28 email from Constantine Stavropoulos, the president of the BID board, announced the reduced assessment to the board members and described the effect the change will have on the BID’s financial situation. He said the BID that day had received information that would oblige the board to rescind the tax reduction voted on at the March 13 meeting, and make necessary a new budget for the 2018 fiscal year.

“The Line Hotel appealed their $39 million fiscal year 2018 tax assessment and won,” he said. “[The new assessment] means their total BID tax payment for [Fiscal Year] 2018 goes from $81,900 to $12,017. But the disgusting part of this is when that decision was made – Jan. 26, 19 days before our Feb. 13 meeting and 47 days before our March 13 meeting.”

Stavropoulos went on to describe the situation.

“We have two representative board members of the Line Hotel sitting on our board who failed to disclose this critical bit of information,” he said. “For 47 days they failed to alert us to the fact that the information we were basing our [budget] decisions on was wrong. They remained silent on all this while publicly berating us and distracting this board with accusations of ‘improper allocation of resources.’ But it was awfully gentlemanly of them to abstain from a vote that lowered their tax rate to [17.5 cents] while the rest of us paid [19 cents]. Well, none of us are getting a [BID tax] reduction next year.

“There was a call for [Board Vice President] Arianne’s [Bennett] and my resignation in the last meeting, but no one motioned or seconded. Maybe someone will motion for some resignations at our next meeting.”

At the board’s March 13 meeting – the same one where the Line Hotel’s Matt Wexler accused board officers of unlawful conduct and demanded their resignation – board members approved a resolution to reduce the BID tax rate. It went from 21 cents per $100 of a property’s assessed value to 19 cents. For hotels with more than 100 rooms – like the Line Hotel – the rate was knocked down to 17.5 cents. A clause of the resolution stated that the board had earlier decided to lower the BID tax rate once the assessment of the Line Hotel was known. The addition of a property like the hotel to the tax rolls would make such a reduction possible.

That resolution passed with 12 members voting in favor. Board member Jeffrey Schonberger voted no, saying he opposed a two-tier system. Wexler and Friedman abstained.

Barden confirmed the hotel’s new assessment will mean the BID cannot lower its tax rate after all.

“The additional revenue from the hotel we thought would lower the BID tax won’t be available till next year,” she said, when the hotel’s assessment will return to the higher figure.

Arcane questions of tax law led to the windfall for the hotel.

The decision by the tax appeal board’s two commissioners, Richard Amato and Alvin Jackson, was based on the fact that the hotel was still under construction in 2017. According to documents filed by the hotel owners, only 63.66 percent of construction costs had been spent by July 31. The law says that a property under construction should be reassessed if “65 percent of the total estimated construction has occurred.” The statute calls for the supplemental assessment to take place between Jan. 31 and June 30. But such an assessment was not conducted by the Office of Tax and Revenue (OTR) until Oct. 16.

Because the hotel was only 63.66 percent complete on June 30, and because the OTR did not conduct the reassessment on time, the commissioners threw out the new $39 million assessment and restored the old one.

Wexler responded indignantly to Stavropoulos’ email to board members.

This is the first time I’m seeing this, and our partners just told me that they were under the impression that the decision was not yet formally on record and they were awaiting formal notification,” he wrote. “I had no idea until opening your email about the new assessment, believe it or not, and please know that I am just learning now about what Constantine wrote below.  I do apologize that this information was not provided to me, the board and the BID earlier; if I had it, I would have absolutely passed it along.”

Stavropoulos was skeptical.

“If anyone buys this, I have a bridge in Brooklyn to sell you,” he wrote.

Bennett also said she found Wexler’s claim hard to believe.

“People believe in the Easter bunny and Santa Claus, too,” she said in an interview.

Pat Patrick was surprised the Line Hotel did not erupt in celebration on the date the reassessment was announced.

“Here’s a man working on a multi-million dollar operation,” said Patrick, another board member. “You would think he’d be having a party on Jan. 29. It’s unfathomable they claim they didn’t know until three days ago that their tax was reduced.”

Patrick had been in favor of the new two-tier BID tax that would have given the hotel a lower tax rate.

“We gave Matt and the hotel another pricing system to enable them to make their entrance into the BID a little more comfortable,” he said.

Now he wants Wexler and his partner, Brian Friedman, also a BID board member, to stand down from the board.

“My recommendation is that Matt and Brian excuse themselves from the board for 90 days until we get this mess straightened out,” Patrick said. “I want to get to the bottom of this and find out what they knew and didn’t know.”

Board member Saied Azali’s credulity was also strained.

“These people are money people, they are developers,” he said. “How does he not know? If he doesn’t know, he’s a horrible businessman. I don’t think he’s a horrible businessman. If it was me, I would know. I rent spaces [for my restaurants] from other people. They tell me what the taxes are right away. They don’t wait three months.

“This makes it difficult to talk to each other, to trust each other. I want to trust him, but he better check his taxes.”

In a March 30 email, Wexler defended himself.

“I had absolutely no knowledge about the hotel’s assessment before the BID learned about it,” he wrote. “None whatsoever. What incentive would I possibly have to withhold that information? My partners and I want the BID to have a full budget to do what it is meant to do. . . . I cautioned the board leadership multiple times over the past months that the assessment had been appealed and that it might be lowered, and also specifically suggested prior to the March board meeting that the board delay the tax reduction proposal. In consultation with Sydell, at the March board meeting both Brian and I abstained from voting on the tax rate proposal.

“The board’s leadership has elected to attack me personally instead of addressing and rectifying the very substantive issues I have been bringing up for years. My interests are those of being a good fiduciary and of having the BID serve the needs of the entire Adams Morgan Community both during the day and at night.”

Gregory Syphax, the chairman of the Real Property Tax Appeals Commission, said when members of the commission hear an appeal, the burden of proof is on the petitioner to show that the assessment is too high.

Syphax said large businesses typically have a lawyer or real estate professional attend the hearings to argue their case.

At press time, The Current had not learned the name or names of those who represented the Line Hotel at the Jan. 17 hearing of the commission. The commission’s executive director, Carlynn Fuller, did supply the name on the paperwork.

“This case was filed by Steve Thompson of Ryan, LLC on behalf of the owner of record – Adams Morgan Hotel Owners LLC,” Fuller wrote in an email.

The Adams Morgan BID has 250 businesses within its boundaries, in buildings owned by 220 commercial property owners. Property owners, not business owners, pay BID taxes.

The BID’s website is adamsmorganonline.org.

UPDATE: In an April 3 email, BID secretary Adam Crain asked for a special meeting immediately following the board’s regular monthly meeting on April 10. He wrote, “Many of you have told me that you no longer want Matt Wexler to continue on as a member of the board.” Crain said the purpose of the special meeting would be to “to vote on whether or not Matt Wexler should remain on the board.”

Stavropoulos responded the following day in an email sent to all board members. He agreed that the special meeting Crain requested would take place on April 10.

“Matt’s behavior has generated considerable ill will and angst among our board members and staff for some time now, but this latest series of stunts and his withholding of critical information has crossed the line for many, including his closest associate on the board,” Stavropoulos wrote. “. . . After two very impassioned phone conversations, [Brian Friedman] convinced me that Matt only speaks for Matt – and I believe him!  Brian asked for time to speak at the next meeting and I think he deserves to be heard.”

Stavropoulos then outlined the procedure laid down in the BID’s bylaws for removing a board member for cause. He stipulated that this procedure includes giving Wexler the opportunity to be heard.