|Wealth & Responsibility|
Issue Date: March 9, 2007
Boon or boondoggle?
Nobody's saying in Detroit
By JOE FEUERHERD
A delicate female hand dangles a single key attached to a bright red heart.
Treat the one you love to an unforgettable escape, reads the new luxury hotels online marketing pitch. The $189 weekend romance package features rose petal turn-down service, truffles and breakfast for two at the resorts casually elegant restaurant. The Bloody Mary bar will be open.
The rest, continues the tease, is up to you ...
Those of greater means can choose the 1,600-square foot presidential suite, whose breathtaking bathroom emanates decadence with natural stone flooring, granite countertops, impressive vanity including a cosmetic mirror, oversized shower, Jacuzzi tub, bidet, European amenities, and cotton robes designed to wrap you in luxurious comfort.
The complexs 27-hole public golf course offers recreational opportunities to guests who prefer outdoor sport.
This unparalleled elegance and luxury comes courtesy of the Detroit archdiocese. Or, more specifically, its archbishop, Cardinal Adam Maida, who, according to the Inn at St. Johns Web site, brought to life a vision of reviving the [former seminary] property as a resource for diocesan youth and families.
The Detroit church is not unique. Under both canon and civil law, enormous financial power is concentrated in the hands of the man the pope chooses to head a diocese. The old saw that a bishop answers only to God and to Rome is largely true, especially when it comes to the money. Whether the bishop has the temperament, training and skill to manage such wealth matters not at all.
Unlike corporations, which provide quarterly financial statements to the SEC and hold quarterly conference calls with outside analysts, the church is subject to almost no recurring outside financial scrutiny, Villanova University researchers Charles Zech and Robert West said in their recent study, Internal Financial Controls in the U.S. Catholic Church. Since they are not required by law to be transparent and accountable in their finances, [many dioceses] choose to keep their finances private.
Case in point: Detroit and The Inn at St. Johns.
A seminary transformed
Shuttered since 1988 and slated to be sold by Maidas predecessor, Cardinal Edmund Szoka, the seminary site got a reprieve when Maida chose a different course for the 192-acre property in the Western Detroit suburbs. In 1996, the St. Johns Center for Youth & Family opened on the south side of the property. Two years and $11 million in improvements later, a conference center and reception hall were added. That renovation took advantage of the picturesque onsite chapels appeal as a wedding venue.
An additional $9 million was spent to expand the golf course to 27 holes and construct the driving range and golf store on the site, according to Crains Detroit Business.
Next came the hotel. Opened in early 2006, the 118-room facility boasts two ballrooms, 22 meeting rooms, a breathtaking two-story glass Atrium which provides a truly unique setting for cocktails, hors doeuvres and music for up to 600 guests, and easy access to both the golf course and a heated driving range.
The conference rooms bear biblical names, with Judea and Galilee, for example, each providing more than 3,724-square-feet of meeting space. A New Testament motif is present outside: The golf courses front nine is labeled Matthew, the middle-nine Mark, and the back-nine Luke.
Maidas influence is unmistakable. The lobby of the conference center features a nearly life-size portrait of the cardinal. He celebrated the 50th anniversary of his priesthood on the site, complete with a large ice sculpture portrayal of his likeness and four-color 44-page homage to his priesthood. A refurbished apartment will serve as his retirement residence.
But theres also another hallmark of Maidas 17-year tenure in Detroit present at the Inn at St. Johns: Secrecy.
No one, save the cardinal and those he chooses to inform, knows what the development cost, whether it has proved boon or boondoggle, or even who invested in the project. The hotel project was funded entirely by private investors, who have asked to remain anonymous, Maida said in a February 2006 letter to Detroit priests. I intend to honor their request.
So what exactly is the hotels relationship to the archdiocese?
The Detroit archdiocese leased land to the entity developing the hotel, but cannot comment on the identity of the developer of the hotel or the details of the lease out of our concern for the privacy of the developer/investors, Ned McGrath, the archdioceses spokesman, said in an e-mail response to NCRs inquiries. The inn is not owned, managed or supported by the Detroit archdiocese. No archdiocesan funds were used for its construction, said McGrath.
In his February 2006 letter, Maida presented a compelling business case for the project: The revenue streams from the hotel and the previously established conference and hospitality facilities redound to the archdiocese, with the idea of making the retreat and conference center self-supporting. The total worth of this asset -- the entire complex -- is far in excess of the archdiocesan investment, said Maida.
A business no-brainer? Perhaps.
But real estate, much less the high-end hotel business, is not without risk.
The luxury hotel and the upscale segment certainly has some market pressures on it right now, Charles Skelton, president of Ann Arbor, Mich.-based Hospitality Advisors told Crains Detroit Business last year. Skelton estimated that the hotel cost $17.7 million ($150,000 per room) to construct.
A declining automotive industry has resulted in reduced hotel occupancy rates in the region, said Skelton. And thats only gotten worse in the year since the hotel opened. In January 2007, Ford announced $16 billion in losses, the greatest decline in the companys 100-year-plus history. Another major employer, Pfizer Pharmaceutical recently announced that it is cutting thousands of jobs in Michigan.
Meanwhile, Detroit-area hotel occupancy in November 2006 was down to 52.4 percent, 5.6 percent lower than the same month the previous year, according to Smith Travel Research. Detroit remained at 25th of the 25 largest metro areas in the U.S. through November, according to Smith.
As a for-profit venture, the hotel pays taxes on an assessment of $14.2 million conducted early last year when it was 90 percent complete, according to the Plymouth Township assessors office. The remainder of the taxable property (such as the golf course and driving range) is assessed at more than $10 million.
The Maida touch
Its not the first time Maida, 77, has entered the archdiocese into an imaginative real estate venture.
A year ago, Detroit Catholics opened their morning paper and discovered what many had long suspected: They were on the hook for $40 million in direct loans and guarantees provided by their church to a failing museum and think tank 525 miles beyond the archdioceses borders.
Maidas February 2006 letter explaining the rationale behind development of the Inn at St. Johns followed revelations that he, without disclosure to priests or parishioners, had authorized loans and guarantees from the Detroit archdiocese for the development and ongoing operation of the 100,000-square-foot Pope John Paul II Cultural Center in Washington.
That real estate venture has proven a bust. Once envisioned as a sort of presidential library to honor the life and thought of John Paul II, the center is now nearly dormant. Few programs or new exhibits take place, and over the past year the center has reduced its staff and operating hours dramatically.
Although the archdiocese still considers the center, for reasons previously made public, to be a worthwhile investment in building up the body of Christ, our current involvement primarily involves the development of a viable debt reduction strategy, said spokesman McGrath. Strategies of debt reduction remain under discussion both in Washington and Detroit.
Like the Inn at St. Johns complex, the John Paul II Cultural Center was Maidas inspiration. While serving as bishop of Green Bay, Wis., he proposed the idea to John Paul II. Maida established the foundation responsible for raising the funds (he continues to serve as its president) and provided key priest personnel from Detroit to administer it. More than $67 million was raised, but even that fell short of the total construction costs and, subsequently, the operating costs.
And like the inn, the center operates below the financial radar. Opened in 2001, the center has published just one public financial report -- a 2002 balance sheet showing liabilities of more than $30 million. A legally constituted board was not established until 2005.
Meanwhile, back in Detroit, McGrath referred questions about the Inn at St. Johns financial health to the private firm Hotel Investment Services that manages the facility. The inns manager, Paul Wegert, did not respond to NCRs request for comment.
Many unanswered questions remain:
And not least, as Butch said to Sundance, Who are those guys?
In a story celebrating the opening of the Inn at St. Johns, the Detroit Free Press quoted Brian Barton of the hotel management company as saying the investors have a long-standing relationship with the Catholic archdiocese. Beyond that, no ones talking.
Since it is their wish to remain anonymous as private investors, there is nothing I can or will add, said McGrath As a practice, we do not discuss or disclose publicly the terms of real estate arrangements.
The archdiocese is under no legal obligation to disclose its business dealings. As a religious entity it is exempt from regulations required of other non-profits such as filing an IRS Form 990, a public document that provides a broad overview of a charitys income and expenses. And because the hotel arrangement is a lease -- no property changed hands -- local records do not classify it as a transfer of land, which would be public information.
But in the public records of Plymouth Township and the office of the Michigan Secretary of State, there are some hints.
With an estimated net worth of $1.2 billion, William J. Pulte ranked 322 on Forbes 2006 list of the 400 wealthiest Americans. In 1950, he founded Pulte Homes, which, with sales of more than $14 billion in 2005, makes the company the nations second largest homebuilder.
So when he showed up on a chilly January evening in 2004 to argue the Detroit archdioceses case for the hotel development before the Plymouth Township Planning Commission, that bodys nine members were somewhat starstruck. They are more accustomed to dealing with a pharmacy representative seeking a zoning variance to expand a drugstore parking lot, as they also did that evening, than with the chairman of a Fortune 500 company.
Without question, recalled Jim Anulewicz, the Plymouth Township public service director, it was like the vice president [of the United States] or someone like that coming in to make a presentation.
At that meeting, according to the minutes, Pulte, on behalf of the archdiocese of Detroit, addressed the commission and answered questions. He presented plans for a proposed seven-story inn that the archdiocese intends to build on the site. Pulte, along with the archdiocese, is identified as the applicant/developer in the meeting minutes.
Key to the commission and to the community was preservation of the open space provided by the golf course and a graceful extension of a building that was a local landmark, said Jim Karell, a commission member during the time of the deliberations related to the Inn at St. Johns. From the minutes: Tim and Tonia Laughlin, residents of Northville Road, expressed their concerns regarding the possible sale of the golf course, as well as the potential of increased noise. Mr. Pulte assured them there were no plans for the sale of the golf course.
Pulte was asking the commission to rezone the property, but offered just his personal commitment that the hotel would go forward as planned, recalled Karell.
On one level, said Karell, Pultes presence was reassuring. You definitely got the feel that this was a good project, he recalled. Yet Karell was uneasy, so much so that he was the lone commissioner to vote against the hotel project.
One of the things that always scared me was you didnt know who owned it, said Karell. Pulte, said Karell, has lots more money than our whole community and I just didnt trust that if he wanted to do something other than what he said he would do it, and after the property was rezoned the commission would be powerless to prevent it.
We wouldnt do that with any other developer, so why with him and the Catholic church? asked Karell.
In fact, despite Karells reservations, the community and the planning commission were delighted with Pultes proposal. Prior to Maidas vision for the site, the community feared that the archdiocese would sell the property to the highest bidder, resulting in a new housing development that would tax local resources and destroy a neighborhood jewel.
Karell was the lone vote against the proposal, but over the next few months, once it became clear the hotel was moving forward as promised by Pulte, he joined his colleagues in subsequent votes of support. He has no regrets. I wanted to make sure it was a quality development and he did build a very beautiful building, which is definitely a plus to our community, said Karell.
What was Pultes interest in shepherding the hotel through the arcane development approval process? Was he simply offering his professional expertise for the good of the church in Detroit? Perhaps.
The Pulte family -- he has 14 children -- are active Catholic fundraisers. Pultes son, Robert, and the CEO of Pulte Homes, Richard Dugas, are, for example, among the Detroit area Catholic business leaders heading the Fishermans Fund, an effort to reduce tuition expenses for seminary students.
Documents filed with the Michigan secretary of states office list Pulte as resident agent of the Inn at St. Johns LLC, a limited liability corporation. Is the investor group behind the hotel? Such state filings do not require any detail on the nature of the partnership and Pulte declined to talk to NCR, referring questions about the inn to archdiocesan spokesman McGrath.
Can you provide any insight into who this group is and what their function is? NCR asked McGrath by e-mail.
I have to repeat my earlier answer, responded McGrath. The archdiocese does not own the inn and I would not presume to speak for it.
Pulte does have ties to the company hired to manage the Inn at St. Johns. He is personally listed as a client of Hotel Investment Services on the companys Web site for a golf resort -- The Inn at Yarrow -- in Southwest Michigan. Jon Ervin serves as director of golf at both facilities.
Meanwhile, under church law, there are few constraints limiting an archbishops ability to enter into such transactions. Dioceses must have a finance council, appointed by the bishop, which is required to give approval to alienation of property valued at more than $1 million in larger dioceses and to any transaction that worsens the financial condition of the diocese. Whether the hotel lease agreement met those tests is unclear because the archdiocese continues to own the land and Maida maintains that the deal has had a beneficial effect on the dioceses financial condition.
Did Maida consult with his finance council? Hard to say.
Prior to the 1994 announcement, its opening in 1996, and subsequently, there have been a number of people -- clergy and laity -- consulted regarding the center, its mission, its management and its structure, said McGrath. The nature and process of those consultations varied depending on the matters involved.
Villanovas Zech and West recommend that dioceses require finance board members to abide by conflict of interest guidelines. Further, said Zech and West, the names and professional affiliations of finance board members should be made public. The Detroit archdioceses compliance with the spirit of those recommendations was heralded in a recent article in the churchs newspaper, The Michigan Catholic.
Still, the names and affiliations of the Detroit Archdiocese Finance Board are a closely held secret. The members include active and retired individuals from positions of business and commerce in southeast Michigan, according to McGraths e-mail. Without the expressed permission from each and every member, I would not release the names at this time or in this manner.
Zech and West note, Many dioceses provide parishioners with an annual financial and administrative newsletter which provides a highly summarized view of the cash flows for the year and the results of social and spiritual programs offered by the diocese. Thats the case in the Detroit archdiocese, where a review of annual financial statements is more likely to confuse than clarify. The archdioceses annual reports, according to a financial analyst hired by the Catholic activist group Call to Action, do not quantify the cost of dealing with the clergy sex-abuse crisis and include numerous transfers between financial entities that make it difficult to follow [the] flow of funds.
And it doesnt necessarily help if the information-seeker wears a Roman collar. Following the John Paul II Center revelations, two Detroit archdiocese priests, Frs. Tom Lumpkin and Gerry Bechard, wrote the president of the Presbyteral Council, Fr. William Tindall.
Cardinal Maidas recent letter to the presbyterate disclosing the archdioceses financial commitments to the John Paul II Center and [the Inn] at St. Johns was most welcome, wrote the two priests. However, its timing (issued just before an NCR article) gives the unfortunate impression that it was motivated more by a corporate-like concern for damage control than by a sense of fraternal sharing.
The two priests, representatives of a group called Elephants in the Living Room (discussing what needs to be discussed) urged members of the Presbyteral Council to encourage the cardinal toward even fuller financial disclosure.
Among their questions:
We are convinced that openness and transparency in archdiocesan financial matters is far preferable to guardedness and secrecy and, in the long run, is more appropriate to who we are as church, wrote the priests.
More than two months later, Tindall responded.
First, while it is true that financial discussions have taken place under executive session, the cardinal has explained his reasoning for this practice and there is no attempt at guardedness and secrecy, to use your words, wrote Tindall. Secondly, the questions raised in your ... letter of Feb. 9 are not pertinent to the work of the Presbyteral Council.
Joe Feuerherd is NCR Washington correspondent. His e-mail address is firstname.lastname@example.org.
National Catholic Reporter, March 9, 2007 [corrected 03/16/2007]
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