Controversial developer Franklin Haney wants to turn his dumpy Holiday Inn into a luxury hotel for the convention center. City officials aren't biting.
by Joe Tarr
When visitors begin arriving in Knoxville next summer for conventions, they'll find a sparkling new center ready for them, with shiny glass and marble cut from Tennessee's quarries. The convention center will overlook a waterfall in the World's Fair Park.
Sitting next to this convention center are two sickly yellow brick buildings, surrounded by concrete and blacktop. It's not terribly pleasant to look at. But the unsuspecting conventioneers may have a worse fate in store than merely gazing at it—they may be sleeping there, checking into a lobby that hasn't changed much in 20 years. At the gift shop, they won't be able to find a Wall Street Journal or New York Times, but some orange pennants and sweatshirts that read "Vols." Built more than 20 years ago, the Holiday Inn was never glamorous or stylish, merely functional. But as Knoxville tries to remake itself into a city that people will want to visit, the Holiday Inn is an eyesore from the early '80s standing next to the modern, inviting face the city is trying to put forth.
The owner of the hotel, Franklin Haney, has promised the city a deal that at first blush sounds pretty good. A $120 million deal that would upgrade the Holiday Inn to a luxury Crowne Plaza with 436 rooms, a roof garden overlooking the newly renovated park, a glass pavilion, a 10-screen movie theater, a sports bar and extra meeting rooms for conventions. All the city would have to do is lend its tax exempt borrowing entitlement to Haney from Empowerment Zone bonds, and help him acquire the state office building that sits next to his hotel.
The only catch is the man behind the plan. Haney has put together million-dollar deals all over the country. He's friends with Al Gore Jr. and a force in state politics. He's built hotels in every major city in Tennessee. He's currently proposing to finance toll highway in Virginia, a nuclear power plant in Alabama, and a high speed rail line in Denver. But in Knoxville, his name is mud.
His dealings with the city in the past two decades have left public officials and private developers at best leery of him. Haney wouldn't speak to Metro Pulse for this article, but his friends and supporters say the reputation is unfair. Haney is attracted to large developments and relishes the challenge of putting the financing together for difficult deals. Any developer who has made as many deals as Haney will invariably have some failures, his defenders say; still, they claim that all things considered, his track record is good.
But others think the 61-year-old developer is playing games with the city, trying to exploit the situation for as much money as he can. "My perception is he wants to get bought out, but at an unrealistically high price," says Dale Smith, CEO of the Public Building Authority.
Mayor Victor Ashe puts it more bluntly: "He has more baggage than one passenger is allowed."
A key to Haney's success over the past three-plus decades has been his partners—namely, governments. Most of his projects involve municipalities and state and federal agencies. Because of his partnerships or in spite of them, he has many friends in high places, and also a few enemies.
A native of Chattanooga, he first came to Knoxville as a UT student in the late '50s and early '60s.
After his father died in a tractor accident in 1963, Haney went to work for U.S. Sen. Herbert Walters, as an aide. As part of the arrangement, Haney had to be enrolled in law school. He had completed a year of law school at UT, but the semester had already started when he moved to Washington, according to the Chattanooga Times Free Press. But Walters was a friend of Lyndon Johnson, who helped enroll Haney in George Washington Law School, the paper reports.
Haney practiced law briefly in private practice in Cleveland, Tenn., and for the Tennessee Public Service Commission before going to work as a developer.
His first big project was developing the Haney Building in Chattanooga in the late '60s, which he was able to do by securing a 20-year lease from TVA, according to the Times Free Press. (He's had numerous other leases with TVA and recently pitched financing the restoration of one of the utility's Browns Ferry nuclear power plants. However, TVA is six months to a year away from deciding what to do with the unfinished plant, a TVA spokesman says.)
Haney's TVA deals led to other government office lease deals in Atlanta, Birmingham and Memphis during the Nixon administration. The leases were financed with tax exempt bonds, an arrangement that the IRS eventually outlawed. However, the trend of doing business with governments continued.
"Franklin is a tried and true Democrat. That's always been his political persuasion," former Knoxville mayor Randy Tyree says. "His ability to generate campaign contributions is pretty well known."
That ability landed him in criminal court two years ago.
Haney was accused of circumventing campaign contribution laws by channeling $62,500 to Clinton-Gore in 1992 and 1996, getting employees and acquaintances to donate money and then reimbursing them. A jury acquitted him. "It was a high profile case, but as a result of him being found innocent by a jury, that put it to rest," Tyree says. "There were so many allegations on both sides and so much going on relative to campaign financing...They went into court, it was tried and the [government] didn't carry the case."
He also drew scrutiny for paying Washington attorney and lobbyist Peter Knight $1 million right before Knight joined the Clinton-Gore campaign in 1996. Knight negotiated for Haney with the FCC, which signed a long-term lease at the Portals, Haney's Washington, D.C. office building. Gore was accused of securing the deal. Republicans cried foul, saying the lease agreement was a clear payback for Haney's financial support to the Democrats.
Haney ran for office twice early in his career—in 1966 for Congress and for governor in the 1974 Democrat primary—losing both times. In the '74 race, he ran against Ray Blanton and Jake Butcher. "I still maintain I was the better candidate," Haney told the Times Free Press. "After all, the other two ended up going to jail."
It was Jake Butcher who reportedly brought Haney to Knoxville.
When the city was scrambling to get ready for the 1982 World's Fair, Haney would ink the deal that put him—for better or worse—in the middle of Knoxville's redevelopment plans for the next two decades.
"The Hyatt Regency was the only hotel [downtown] at the time," says Tyree, who was then the city's mayor. "With the Fair and the interest that was generated, that spurred the development not only of the Holiday Inn, but the Radisson and the Hilton."
"Franklin was building hotels all around the country at the time. He was big time into hotels," says Glenn Bullock, who was the architect on the project—the only building he's built for Haney. "We knocked that out in a hurry. Seventeen months. It's a solid hotel. Back then, they all looked like that. But it can be upgraded to a quality hotel."
City officials wanted more than just a hotel on the World's Fair site, however. They wanted a permanent convention center, an office building and a parking garage, all of which would be used after the fair closed. All four were built as a package, but the ownership was split up among various public and private partnerships.
Haney built four different structures for the World's Fair, with three different partners using a variety of tax exempt loans, leases and private financing.
Haney and Memphis developer Irby Cooper built the Holiday Inn. That was originally supposed to be built via private financing, but when they couldn't secure the funds, the city's Industrial Development Board issued tax free bonds. With the late Butcher lawyer George Ridenour, Haney built the 410-space parking garage for the hotel, using $4.7 million from the city's Urban Development Action Grant, and another $1.5 million loan from the Knoxville Civic Revitalization Fund, a charitable trust established for the World's Fair. With James McAlexander, Haney built the $13 million Summit office building using private loans. And with Ridenour, he built the Summit parking garage, using a little over a $1 million loan from federal grant money (to be paid back to the city). It's hard to figure out exactly how much money Haney and his partners borrowed from the city on the projects—one newspaper put the figure at $14.5 million in UDAG funds.
"On that financing, there's a transcript that's probably 6 inches thick," says Jon Roach, who was the law director under Tyree. "I suspect they're on a shelf somewhere....A lot of them were kind of unique, they were not the garden variety."
Courtney Pearre, the city's law director under mayor Kyle Testerman, reviewed the arrangement later in the decade, when it was refinanced and there was a lease dispute with the city. The minutia extended to nooks and crannies of the building, he says.
"As I recall, the Holiday Inn owned the surface of the pool, but the convention center owned what was underneath," he says. "I always thought that was neat that you could be swimming on the surface of the pool and not be trespassing."
Haney had more development plans for the property after the World's Fair. He'd gotten approval to build 500 mid- to up-scale apartments above the Holiday Inn parking garage in 1985. But, the deal was contingent on him repaying the $645,000 in taxes and loan payments that were overdue and on collateralizing the remainder of the loan on the property. The apartments were never constructed.
His financial struggles in Knoxville continued for the rest of the decade. In 1986, the city threatened to seize the hotel's lobby if Haney didn't pay the back taxes and loan payments, which by then totaled $1.3 million.
AMBAC, the company that insured the bonds, ended up taking control of the Summit office building and garage in 1988, with Haney owing $1.4 million in city and county taxes on the property, according to newspaper reports.
Haney managed to keep control of the Holiday Inn and its garage. And in the past 10 years, his record here has been clean, says Randy Vineyard, the city's finance director. "Like a lot of developers, he experienced a lot of difficulties in the '80s. But as far as I'm concerned he's in good standing with the city," Vineyard says.
The complicated financing is not unique to the Holiday Inn, several sources say. "What Franklin likes to do is find a difficult project and figure out how to finance it. He's been able to put together some interesting deals," Bullock says.
One of those was the Renaissance Hotel and office complex in Nashville. "He's very much a visionary. He knows more about creative financing than anyone I've ever met," says Ted Welch, a Nashville developer who worked with Haney on the project. "He always finds a way to get it done that seems to be in everyone's best interest. Seldom does he do traditional financing."
Vineyard isn't so enamored with Haney's approach. "He starts out with a very simple proposal—you give me x million dollars and I'll build you what you want," Vineyard says. "There's nothing wrong with that. 'Give me tax exempt financing and I'll do it for you'—to some people that may sound attractive."
Tom Ingram, a friend of Haney and president and CEO of Knoxville Area Chamber Partnership, says the developer's tactics simply scare some people. "I think Franklin is a genius. He's brilliant, he thinks out of the box, he's very creative. In the past, and currently, I've sensed that makes people nervous about dealing with him. But he's been a major player in building convention center hotels in every major city in the state."
At the moment, the Crowne Plaza isn't on Haney's front burner. He was in Colorado last week, working on his top priority—proposing to help finance a high-speed rail line from downtown Denver to that city's airport. Haney's children are getting more involved in the business, and Meg Haney is leading the Crowne Plaza project.
Bullock says Haney is negotiating with a high-profile developer to be a partner in the Knoxville project, a person of such high standing that the city could not not talk to him. ("I'm not sure there is a person you could not not talk to," Smith quips.)
If there was bad blood between Haney and the city, it got plenty worse after Worsham Watkins International made its downtown redevelopment proposal. That grandiose plan—most of which has since been scrapped—called for a new Marriott on Locust Street to be the convention center's headquarters hotel. In paving the way for the redevelopment plan, City Council voted to condemn the Holiday Inn. Officials said its demolition was needed in order to build a visitors' center. But it was clearly a move to make things more attractive for the Marriott—and in effect it would have meant condemning one private business to benefit another.
Haney vowed to fight the condemnation. And while the city valued the 293-room hotel and 410 space garage at around $13 million, Haney put it at $25 to $28 million.
Anticipating the condemnation threat, Haney promised to spend $3 million upgrading the hotel to a luxury Crowne Plaza. (He has secured a $50,000 franchise license.) The offer struck some as contemptuous, given that studies suggested such a renovation would cost more than $30 million. (And Haney's current proposal is a more ambitious $120 million upgrade.)
The city eventually backed down and ended its condemnation threat.
It's hard to quantify how much the condemnation hurt the hotel's business, but it certainly lost much in the way of banquets, weddings, parties, room reservations and staff—all exacerbated by Haney's subsequent negotiations with the city to sell the hotel.
"A group hotel books two, three, four, five years out," says Michael Gibson, the Holiday Inn's manager. "Just the threat of it all hurt our business because no one knew whether we were going to be here or not. I think anyone common-sense-wise understands it's not a good thing."
Apart from buying some new desks, the hotel hasn't started any of the $3 million renovations it promised, Gibson says. None were planned until after football season, he says, and in the wake of the Sept. 11 attacks, the upgrades could get put off even longer.
If the $3 million renovation promise was, as many observers think, a brazen negotiating tactic, who knows what to make of the current $120 million proposal. Is it another negotiating ploy or an earnest offer?
Bullock insists that Haney is serious. "What he likes is that roof garden. He likes it, the thought that it would be great thing and he'd like to do it in Knoxville."
The proposal calls for Haney to acquire use of the adjacent state office building and the city's old convention center. The office building would be turned into hotel rooms, including 30 luxury suites and 10 with balconies. This would bring the total number of rooms to 436, Bullock says. The old hotel rooms and lobby would be completely renovated and a canopy built out front. The hotel would include five meeting rooms for spillover from the new convention center—with total seating for 815 people or dining space for 405. And there would be shops and cafes on the first floor of the office building, although no commitments have been made.
The parking garage would be expanded from 410 to 1100 spaces, bringing it almost to the height of the hotel.
The old convention center would be converted for four uses. The loading dock area near the L&N Station would become a children's area, with playground, party rooms and perhaps daycare. The north end of the building would be a 10-screen cineplex. With a number of theater companies declaring bankruptcy, it's hard to imagine one of them taking up this project. However, Bullock says a number of movie companies say they'd operate the facility if it is built for them. The south end of the convention center would be split into a sports bar and restaurant and banquet rooms. (Bullock adds that if the city ever does get a tourist attraction—such as the long rumored HGTV center—the convention center could be used for that instead of the cinema and sports bar.)
The roof would be turned into a garden, including a 500-seat glass pavilion.
All of this would probably be done in stages. If things move quickly, construction could start next year, with some improvements made by summer or fall of 2003, Bullock says. He warns that its important for convention planners to see construction work underway.
"When they come in here and find nothing going on, we're going to have a hard time getting them to come back," he says.
There are a few ifs to this plan, the biggest being the acquisition of the state office building. The city would have to intercede to help acquire the office building from the state. (If sold outright, the state is required to put it up for competitive bid.) The city has so far given no indication it's willing to play such a role.
Dale Smith of the PBA says the state has expressed a willingness to consolidate its Knoxville offices, and do it downtown. "But the state doesn't have any money to contribute," he says, referring to the current budget crisis. "So it's very hard to make the economics work without any money from the state."
There are also mixed reports about whether the garage can actually be expanded, Smith says.
Vineyard says Haney's proposal isn't one that makes sense for the city. Pointing to the Urban Land Institute report, he says development needs to happen on the other side of Henley Street, to draw people into downtown. "[His plan] doesn't exactly address the development issues in a fashion that we feel is prudent....At this point, it's not something we're willing to recommend to City Council."
Kyle Testerman, mayor during Haney's toughest times in Knoxville, also warned about getting involved with the developer. "I'd be skeptical unless you could get the deal in firm legal terms. You can do a lot of window dressing to existing facilities that makes it sounds like you're doing a great deal...but you're not putting up a lot of money up front," he says. "History would indicate that [Haney's] past experiences, at least with this community, of doing things he said he would do fell a bit short."
Even Ingram isn't sure that his friend's plan is the best for the city. "What every consultant and expert told us is that wherever you build [the convention center], build it so you can double it. If you take that advice seriously, the Holiday Inn is the footprint for the ultimate expansion of the convention center. That may surprise some people but you have to think ahead," Ingram says. "There should be serious conversation on the subject. Even if we decided today to build a new hotel, it won't be open for a couple of years. So I think the Holiday Inn and the other hotels continue to play a role for some time."
Gibson says personality conflicts rather than good business sense seem to be guiding the city. "It seems to me as if it's more personality issues than [looking for] a sound development plan for the area around the center. Glenn Bullock's group put together a pretty sound plan that made as much sense as any other," he says. "The venues around the convention center are very important, because the conventioneers don't want to get out as much as you'd think....You'd like to have a convenience zone of activities that doesn't influence the flow while they're at a convention."
Whatever the case, no one from the city seems to be too concerned about what happens with the Holiday Inn.
"In near term, I don't think Haney has the city over any kind of barrel. In meantime, I think other hotels downtown have some options," Smith says, predicting that the Hyatt, Radisson and Hilton all might undergo renovations. After the Sept. 11 attack, financing a major new hotel is unlikely anyway.
"Hotels before Sept. 11 were already the hardest thing to get financed. Now they're almost impossible," Smith says, noting that prestigious Starwood recently failed to get financing for a new hotel in Boston. "I'd be very surprised if the Hilton did not go through a major renovation and expansion, once they know they're not going to have a Marriott staring in their face.
"My sense is that ultimately the city needs to look at the existing exhibition center, the Holiday Inn, and the state office building as an area that cries out for a redevelopment plan, with a [request for proposals] process," he adds.
Bullock says that Haney's proposal is for a limited time only. The deadline is coming later this year.
"It's no threat, but you've got to move your money," Bullock says. "You've got to get a feeling if [the city] is interested or not. If [it's not], we'll move on.
"No one's ever given him an answer," he says.
November 8, 2001 * Vol. 11, No. 45
© 2001 Metro Pulse
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