Broken dreams on Florida Boulevard

The Greater Baton Rouge Business Report
18.12.2001

By Tom Guarisco and Mukul Verma

He came with a mop of hair, wearing a cheap suit, speaking of dreams for Bon Marche. Norie Harrower's credentials included a Harvard education and turning an old Tennessee mall into a lively mix of shops and working spaces.

People in Baton Rouge began dreaming. If Harrower could work his magic on Bon Marche, the dying mall might spark life back into the downtrodden Florida Boulevard's vacant buildings, poor neighborhoods and high crime zones.

"You will not recognize it," Harrower promised as construction on the bold rehabilitation project got started.

But who could know Harrower's wealthiest partner and co-owner of Bon Carre, Reed Slatkin, was busy orchestrating what some are calling the largest Ponzi scheme in history. A popular Santa Barbara Scientologist, Slatkin took in Hollywood moguls, longtime friends, widows and venture capitalists.

And he took in Harrower, a smart and seemingly upright man who convinced Baton Rouge his investor group could breathe life into its dying urban core.

Today, $28 million later, the tony makeover at Bon Carre, is at a standstill. The mall is eerily empty during the day but for the odd shopper searching for sneakers at Foot Locker, or employees of the few large companies who moved their offices there.

Harrower's name, meanwhile, is just one of hundreds of creditors in Slatkin's pending bankruptcy. And around Baton Rouge, people are beginning to wonder if the dodgy balance sheets of a fallen California millionaire will sink the boldest urban rehab project Baton Rouge has ever seen.

'People were blown away'

Before anyone put a penny into Bon Marche, Baton Rouge real estate investor Jimmy Thompson managed to pull plenty out.

He and a group of investors bought the dying mall in mid-1998 for $4 million. He envisioned a mix of office and retail space, including the discount store Dillard's operated there.

Before his plans went far, Thompson got a call from a group of out- of-state investors. "They were high fliers. They made an offer you couldn't refuse." Thompson sold the mall for $6 million, pocketing a quick profit.

The buyer was an investor group led by Norie Harrower. His dream: remake Baton Rouge's oldest mall into a thriving urban center.

Only if he had arrived in time to snap up Bon Marche for $2 million less could he have come at a better time. When Harrower arrived, Baton Rouge was enthusiastic about the idea of rebuilding its downtown, thanks in part to community meetings that put local dreams for the city's downtown on paper for the first time.

Hosting community meetings of his own, Harrower gathered a few hundred people in the echoing emptiness of Bon March& He delivered a radical blueprint.

The new Bon Marche, dubbed Bon Carre-French for "good square"- would follow the ideals of New Urbanism, a movement that believes in clustering together offices, stores, homes and civic buildings to create communities.

Harrower and company hoped to lease cavernous spaces that were once department stores to businesses with big staffs. Hundreds of employees would eat at new Bon Carre, restaurants and spend in its shops while their children played safely in a day-care center.

Harrower would fold entertainment into the mix, then build more retail space and apartments around the property, as well as on land purchased across the street from the Florida at Lobdell complex.

The whole area would get a boost, including poor residents living in apartments behind Bon Carre. They could land some of the center's new jobs, all within easy walking distance of their homes.

Why should Baton Rouge have believed in him? Because Harrower came fresh from early success revitalizing a similar size urban mall in Chattanooga, Tenn., called Eastgate Landing, and a smaller mall in Fort Pierce, Fla.

But Bon Carre, was going to be even better, recalled Gerry Chauvin, a Californiabased independent developer who helped manage development of all three malls. He continues to work on Eastgate Landing in Tennessee.

"We were going to take it up a notch at Bon Carre. and create an upscale mixed use with a higher percentage of retail," Chauvin said.

Negotiations to land Gap, Banana Republic and Bed, Bath and Beyond were going well. "On some of them we were back and forth with letters of intent," Chauvin said.

But the retailers wanted turn-key buildout at a cost of up to $150 a square foot. And they wanted lease payments based on a percentage of sales instead of fixed figures.

Harrower's original plan was going to cost about $30 million, but a top shelf retail center would have cost more like $60 million, Chauvin said.

Banks already had pledged millions to build a center anchored with offices and large commercial tenants. But not surprisingly, they shied away from financing on the retailers' tough terms.

So Harrower and his partners went to Wall Street, pitching their business plan to various venture capitalists. They even hired a Los Angeles company to produce a slick, interactive computer and video tour of Bon Carre. for a major trade show in Las Vegas.

"People were blown away," Chauvin recalled.

Scaled-back dream

Back in Baton Rouge, construction continued on the facade and on improvements to office space within the center. Harrower and the other investors' $12 million cash, along with money from a $20 million bank credit line, kept the construction going.

But for all the interest among ritzy retailers, the developers couldn't get enough money to build out the space to their liking and under their lease terms. "They all dipped their toes in the water, but they were waiting for each other to go in," Chauvin said.

By the summer of 2000, Harrower and the other owners realized their high-end retail vision was not to be. It was then that local and state officials stepped in with plans to locate the state's technology incubator for small companies at Bon Carre.

The Louisiana Technology Park, with its high-tech start-up venture tenants complemented a call center and other fledgling tenants that had committed to Bon Carre. Harrower also landed call center firm Convergys, software maker Appro Systems, mortgage lender GMFS and others. He signed up US Agencies and SJB Group, an engineering outfit.

Chauvin credits local and state officials for locating the technology park at Bon Carre as a key to keeping the development alive. The high-profile new tenants kept the project moving.

Then more bad news. The technology market plummeted as dot-coms flamed day by day. Some of Bon Carre's investors lost fortunes in the stock market, Chauvin said.

With only $2 million left of the original $20 million development loan, Bon Carre's owners had to refinance the project to keep it going.

But they were no longer seeking $60 million for a bold, top- flight retail buildout. They were looking for a $38 million loan that would pay off the original loan and provide enough cash to continue construction, including a huge chunk of space for Cox Communications. The cable company had been in serious negotiations to relocate its sevenparish headquarters from just up Florida Boulevard.

Some of Bon Carre's tenants got cheap lease rates as an incentive to get them in, which meant more pressure to charge higher rents for future tenants to ensure Bon Carre. would remain afloat. Would the banks lend even more money on a project that had yet to nail down more than a few tenants?

Harrower was counting on it. He still had an ace up his sleeve- the balance sheet of one Reed Slatkin, well known high-tech multimillionaire and friend to the stars.

On paper, Slatkin had more than enough money to guaranty the loan. A cofounder of the largest dot-com smash successes, Slatkin still was the darling of wealthy California venture capitalists. And besides, Harrower's investor group had managed to lease out most of its Chattanooga mall, and more and more businesses were inquiring about Bon Carre.

"We were very good at what we were doing," Chauvin said. Harrower was even hiring more staff to put together deals to buy more struggling urban malls in California. He was spreading himself thin.

Then it all fell apart. News of Slatkin's financial woes hit the press, peppered with talk of a scam. It couldn't have been more chilling for Bon Carre.

"He was swindling hundreds of millions of dollars from church members and Tinseltown titans," the New York Post reported in May.

Harrower's group literally was on the verge of signing the paperwork for the refinancing, Chauvin said. With Slatkin in turmoil, the deal was off.

Up to that point, the partners had borrowed money for Bon Carre. "based on the financial strength of the partners and their guarantees," Chauvin said. "Slatkin was bar none the strongest."

Harrower's investor group was shot right out of the water. With the money cut off, construction stopped. Local contractors, who had designed and were refurbishing Bon Carre, filed liens for unpaid bills that today total nearly a halfmillion dollars.

Mr. Slatkin's wild ride

While Bon Carre's investors were working hard to finish the mall and find new lenders and tenants, Harrower's friend, Slatkin, was on the dramatic final phase of his financial roller coaster ride.

Harrower, who once welcomed media attention, has not returned phone calls seeking comment for this story.

But Mark O'Donnell did. He is the brother of Kevin O'Donnell, a Bon Carre investor and a principal in the firm that produced "Air Force One" and "End of Days."

Kevin O'Donnell and Harrower had been doing business since about 1980, when they met in Washington, D.C. They hooked up when O'Donnell worked for a public institution that had hired

Harrower to develop a building.

O'Donnell and Slatkin, meanwhile, had a loose business relationship, says the brother. They traded information about investments, including one to fund Earthlink, now one of the largest Internet service providers.

It was O'Donnell who introduced Slatkin to Sky Dayton, the youthful son of a friend who pitched the idea for Earthlink. Both invested.

Earthlink grew, making Slatkin wealthy. His original $75,000 investment ballooned to $122 million in February 2000. Believing that Slatkin was a financial Merlin, fellow Scientologist and Hollywood celebrities piled on, entrusting him with millions.

But when some of the investors couldn't get their money back, they started complaining. The Securities and Exchange Commission froze Slatkin's assets; a civil suit claimed that Slatkin was operating a Ponzi scheme, taking money from recent investors to pay off earlier ones.

It's uncertain how big the scheme got, but one suit claims that Ponzi losses could reach $600 million.

Harrower and O'Donnell both are listed as creditors in the bankruptcy, though how much they lost is not yet known, and they aren't telling.

"He lost more to Reed than he had invested in the project," Kevin O'Donnell said of his brother. "Kevin is a creditor, as are some 700 other people. Reed ran a Ponzi scheme and he bilked investors out of millions of dollars. That I know to be true."

Kevin O'Donnell, Harrower and Slatkin also are partners in Eastgate Mall, which is listed as a debtor in the Slatkin bankruptcy. O'Donnell's brother says that no money was misappropriated in the projects, although Eastgate also was waiting on a refinancing package when Slatkin went belly up and drowned debt deals with banks.

Together, Slatkin, Harrower and O'Donnell, along with two brothers from Atlanta, invested $12 million in Bon Carre, including $6 million for buying the project. Hibernia National Bank, an original lender, loaned $4.5 million, but reduced its risk by passing off some of the debt to First Tennessee. The banks now are owed $18 million.

Chauvin said he still works for the investor group on Eastgate. As of late last week they were close to closing a deal.

Picking up the pieces

So what will happen to Bon Carre?

Word on the street is that local developers, some prominent, looked at purchasing it, then backed out in recent days. There's the Research Park Corp. offer, which has been rejected in the media as too low, and was set to expire Dec 14. One source says no other bidders are interested in Bon Carre, and bankers will likely foreclose on the property soon.

To some people it's a wonder no one is willing to jump in and buy it. Bob Gibbs, a top national retail expert, says Bon Carre is a plum.

He said as a property, the former Bon Marche mall is much more than yawning vacant spaces, a half-finished exterior and a nearby neighborhood racked by poverty and crime.

He still sees shiny department stores, bustling offices and alluring new apartments. He sees investors lining up with money to make the vision real, to create a place where affluent and poor people work and live-side by side.

Gibbs, a world-renowned retail consultant, was an original adviser to Harrower for the project.

He said last week that real estate brokers point businesses toward the booming southeast part of the parish, home of the newest mall and countless new subdivisions and shopping centers. But the city's urban core is full of opportunity.

Gibbs, a devotee of New Urbanism, said making Bon Carre, an inviting urban cluster of businesses, civic services, shops and homes can rekindle the inner city.

His views are winning over significant clients. His Michigan- based firm consults for several national retail chains, and recently he was hired by Prince Charles to plan urban retail revitalization in several English cities. He received an e-mail out of the blue announcing "His majesty wishes your services."

Gibbs first studied Baton Rouge when Plan Baton Rouge hired him to perform a downtown retail analysis.

Then, in 1999, Bon Carre's developers hired Gibbs Planning to examine the development's viability. "We were pretty bullish on the market."

Bon Carre's money dried up before Gibbs was paid, but he remains upbeat. "There is a very strong existing market along that corridor (Florida) and it is underretailed."

Despite the blight, the crime and all the money running to the suburbs, Gibbs' professional opinion is Bon Carre, can still work. "We think people (who live in the area) are driving beyond normal distances to do their shopping."

The Mall of Louisiana, for example, is inconvenient for shoppers living near Bon Carre, And although the Mall at Cortana is closer, its 1970s-era design no longer is in vogue, Gibbs said.

Cortana continues to thrive, but major department store chains are looking for town center style developments, Gibbs said. "We are tearing down malls like you wouldn't believe. The future of department stores is in town centers," he said.

Gibbs said Bon Carre could still become a town center. It has good access to major highways, the anchors could be saved, and the interior gutted to make room for office space and stores.

Local real estate brokers steer businesses away from Florida because there is so much activity elsewhere. "It's a self-fulfilling prophecy."

If Bon Carre's current owners can't complete the project, Gibbs said he has three clients who might be interested. He declined to name the groups, but he said they are based in New York, Chicago and San Diego. They are real estate investment trusts that invest in the rehabilitation of old urban malls into multi-use developments similar to the Bon Carre vision.

"It's a sleeper market," Gibbs said. "If they (Harrower's group) don't do it, we'd present it to some of our clients."

Local real estate experts have a more conservative vision for Bon Carre. Both Macon Callicott of Property One and Tom Cook, a veteran real estate appraiser, believe Bon Carre will work, but not as Harrower envisioned. To them, Bon Carre has a future as an office complex.

Harrower had the right idea, but not for this market. And the scale of the project was too big for Baton Rouge, Cook asserts. "I think they have to lean to office use because the retail is not there."

And of course, neither is Slatkin's money.

Bon Carre

Total space: 890,000 square feet

Total leased: 400,915 square feet (45 percent)

Key tenants

Appro Systems-Writes and sells financial institution software

Convergys Corp.-Provides call center services to clients

GMFS-Makes mortgage loans to high-risk borrowers

PreSonus Audio ElectronicsDesigns and manufactures professional audio equipment

Solid Systems Inc.-Provides data storage for clients

Louisiana Technology ParkA state business incubator managed by the Louisiana Research Park Corp.

Tekinsight-Handles software services for governments

Bon Carre has a couple of big tenants-US Agencies and SJB Group- with leases but no money to build out for the tenants.

Total occupied: 308,400 square feet (35 percent)

Available: 489,085 square feet (55 percent)