PORTSMOUTH
State Sen. Louise Lucas owns all but a small percentage of a multimillion-dollar conference center she wants to build and would be the sole owner of an adjacent headquarters hotel, which could be the most profitable part of the venture.
The longtime Portsmouth leader also has appointed her daughters to help run the conference center despite the family’s lack of experience in the industry.
These and other details were provided in a “disclosure document” sent earlier this month to investors in the project. An investor provided a copy to The Virginian-Pilot. Lucas has raised more than $1.9 million from about 600 investors largely from Hampton Roads. The document was the first such disclosure sent to investors.
According to the document, Lucas bought shares in the conference center for about 2 cents each while her investors paid $1.33 each. In all, she spent about $139,000 for her 7.5 million shares, an 84 percent stake, while investors anted more than $1.9 million for the remaining 1.44 million shares, according to the investment disclosure.
Investors also have recently learned from another document that the company Lucas runs and established to build the project, Victory Conference Center LLC, was accused of violating state securities law. As part of a settlement with the State Corporation Commission, the company agreed to offer investors their money back with interest.
According to the state, Victory Conference Center LLC broke the law by offering investments when it was not registered with the commission and by employing Lucas when she had not registered as an agent.
Lucas personally was not accused of wrongdoing by the state and has not admitted to any violations. She is the chief executive officer and controlling shareholder of Victory Conference Center, according to the document.
The 16-year Democratic senator already runs several other local businesses with the help of her daughters. They include Lucas Lodge, which provides residential and daytime support for adults and adolescents, and Lucas Transportation, which offers medical transportation services.
When reached by phone, Lucas would not comment and referred calls to her attorney, Tony Basch. Basch did not respond to three messages left at his office over the past week.
When the project started, many, including Lucas, said they were tired of searching for places outside of Portsmouth to hold local sorority and fraternity events. Since then, Lucas’ vision for the project has grown.
The document makes it clear that the conference center that Lucas has been advocating for more than two years is still a concept and that the hotel is still in the preliminary stages.
She had hoped to break ground on the conference center by the end of this year and open it by the summer of 2010. Yet, she has not purchased land for the project, which she wants to build in Portsmouth’s Victory Village Business Park off Interstate 264.
And despite raising more than $1.9 million, mainly from prominent African American investors, Lucas still needs about $20 million to build the conference center. According to the document, she plans to seek government subsidies, tax credits and commercial financing.
She has gotten mixed support so far from Portsmouth leaders. This summer, the City Council voted 3-2, with two abstentions, against allowing Lucas to use up to $50 million in federal enterprise zone bonds for the hotel and conference center. The bonds, which would be backed by a bank and not the city, would allow Lucas to receive lower-cost financing.
It’s difficult to know how feasible it will be for any new project to get financing in the current economy, said Michael Dooley, who teaches corporate law at the University of Virginia School of Law.
Still, Lucas has indicated she doesn’t plan to give up. According to the disclosure document, she intends to ask council members to reconsider their votes.
The document also spells out that Lucas rejected some of the recommendations in a feasibility study that her company commissioned.
She wants to run the conference center as a for-profit venture , even though the study recommended it be run as a nonprofit. The study stated that conference centers affiliated with hotels often lose money but that such projects can obtain public funding from localities seeking to attract visitors.
The hotel portion of such ventures are more likely to generate profits, the study found.
Dooley said the disclosure statement now being distributed to investors should have been provided to them before they contributed financially.
The company “is sort of doing things in reverse now,” Dooley said.
It’s not unusual for a company’s founder to buy shares at a lower price than other investors, said Jim Wheaton, a Virginia Beach attorney who practices securities law. That’s fine as long as investors know what they’re getting into and the information is disclosed to them, he said.
According to the document, the shares issued to investors other than Lucas now have a book value of about 23 cents each because their value was diluted by the prior issuance of shares to Lucas.
“The question is, as an investor looking at it, do you like it or not?” Wheaton said.
Dooley said it’s not rare for a company’s founder to buy shares at a lower rate than other investors because the founder takes on greater risks and deserves some compensation for that.
“There’s going to be a wealth transfer from them to her,” he said.
But if investors pull out of the project and it doesn’t go forward, then Lucas could lose everything she’s invested so far, Dooley said.
According to the document, Victory Conference Center LLC has already spent about $521,000 . Nearly $129,000 has been spent on legal services, more than $173,000 for project management services, and more than $18,000 on office supplies and services.
Victory Conference Center LLC has been charged monthly lease payments of $1,227 at one of Lucas’ other businesses, the Lucas Professional Center, since June of last year. According to the document, the expenses so far have been covered by Lucas and one of her companies.
Because of the settlement with the State Corporation Commission, investors have the opportunity to get their money back.
For the investors who choose to stay involved in the project, part of their money would go toward paying back Lucas’ start-up costs, according to the disclosure document.
“You could get a whole lot of people taking money out,” Dooley said. “And in that case, those who stay would be left with even less.”
Some of the investors contacted by The Virginian-Pilot said they are still reviewing the document.
Evelyn Lindsey of Suffolk said she plans to stick with the venture. Most investments, including in the stock market, have risks, she said, but this project would benefit Portsmouth .
Steve Luster of Chesapeake said he is considering asking for his $2,000 investment back. The decision, he said, has nothing to do with the value of the project. Luster said he recently opened a restaurant in the Deep Creek area and could use the money.
The economy was very different when people first invested their money in 2006, he said.
Jen McCaffery, (757) 446-2627, jen.mccaffery@pilotonline.com
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The Truth Is Now Known
Now we know who Senator Louise Lucas is looking out for,...It is not the 18th District she represents, not the people of Portsmouth, it is not even her own investors,.... It is herself and her family. By controlling 85% interest in the VCC project, and electing her own daughters to run the conference center, who have no experience in that type of business, she and her family are the ones who stand to profit the most, not the investors or the City of Portsmouth. If I was an investor, I would ask to see more detailed information about incidental items that were disclosed and to whom $200,000 dollars of the $2 million dollars of VCC investors money was paid to, for such things as, office rental, project management services, meetings, and office supplies and services? Sounds like only a partial disclosure to me.
The other 15% investors of the VCC project, the Citizens of Portsmouth and the Portsmouth City Council Members need to stand up and say NO to the Senator and the best time to do that is now and when she runs for reelection by removing her from office, because she no longer represents the people of the 18th District.
She is just another politician looking out for themselve
Onyx
I would have to disagree as to the justification for asking for the funds....
Your points were: (1) encourage business investment -- 600 individuals invested money for the potential to build a conference center and hotel;
Only it seems that the investors' money was intended for a conference center...which Lucas' own advisor said would be unprofitable.
(2) improve employment opportunities -- hotels and conference centers require a full time staff (i.e. new jobs);
$50M for 36 jobs doesn't seem like a good investment.
3) stimulate economic growth in certain geographical areas -- if I'm not mistaken, Portsmouth's Victory Village qualifies as a geographical area in need of economic growth.
While that is indeed true, would an unprofitable conference center stimulate economic growth? That is debatable.
Reno
From your first post I thought you were defending her. My bad.
Lucas' Investors
Jen McCaffery mentioned that Lucas would be the sole owner of the adjacent headwquarters hotel. What is the source of the money to construct this hotel? Are any of the investors money used for this purpose? Great article by Jen McCaffery. The best reporting I have seen for years in the Pilot. Thanks.
Follow up to empowerment zone.
While the project could be determined to fit in with the empowerment zone guidelines, this particular project does not do enough for the area to merit the use of these funds.
Ms. Lucas wants 50Million for her hotel. In her previous statements she has claimed this hotel/conference would provide 36 new jobs. I feel that 50 million dollars of federal tax money should provide more than 36 jobs. Jobs we now find out she has slated to give to her own family members.
This is not about race. It is about corrupt political patronage.
Fools and their money should be separated
Nobody noticed Ms. Lucas had expert advice telling her the convention center would likely NOT BE PROFITABLE, yet that is where she directed the investors' money. She kept the profitable part (the hotel) 100% for herself.
The investors did not know this before. Understandably, they trusted Ms. Lucas.
Now the jig is up. Thanks to the State Corporation Commission (who is doing its job) Lucas has been forced to make disclosures and to offer investors their money back.
My advice is recoup your money. Reinvest it later if the deal is changed for the better.
Investors who do not request their money back are, from a financial point of view, acting foolishly -- no offense is intended.
And fools and their money should be separated.
Why not VCC?
using tax incentives to encourage business investment, improve employment opportunities, and stimulate economic growth in certain geographical areas
Let's see (1) encourage business investment -- 600 individuals invested money for the potential to build a conference center and hotel; (2) improve employment opportunities -- hotels and conference centers require a full time staff (i.e. new jobs); (3) stimulate economic growth in certain geographical areas -- if I'm not mistaken, Portsmouth's Victory Village qualifies as a geographical area in need of economic growth.
Seems to me there was justification in asking for the funds.
Thank You Virginia Pilot
I have been vindicated with this top notch article! Well Done Ms. McCaffery! Ever since this story broke about this woman trying to secure "unused HUD money" I have denounced both Ms. Lucas (I prefer NOT to call her Madame Senator anymore) and the development itself. It was and is a development that is "not needed" in P-Town! I hope Ms. McCaffery and the Pilot continue this vigil on behalf of P-Town. A "sitting" State Senator has been involved in a very "questionable" and unethical business deal. I have voiced my words of disgust and contempt against P-Town and the "utter despair" that I went through trying to make a "go" at business there! My heart now goes out to the people of Portsmouth! Remember Ms. Lucas when you get to the polls in the future! She is no better than a mid-1800's traveling sales person selling the "elixir" of life! Well done Pilot and Ms. McCaffery! Well Done! Faith has been restored in your journalistic excellence!
The prolem is proper use of government funds....not race.
I frankly do not care about the race of the person sponsoring this project. My objection is the project itself and the use of government funds. No, it is not local money being asked for by Ms. Lucas, it is federal enterprise zone money.
Here is the definition of what these funds are suppose to be used for: The main ideas behind empowerment zones—using tax incentives to encourage business investment, improve employment opportunities, and stimulate economic growth in certain geographical areas.In order to encourage investment in the zones, the act allowed businesses to exclude from taxation 50 percent of any capital gains from such investments. It also provided tax-exempt bond financing for the purchase of certain properties within the zones, and increased the allowance for depreciating such properties by $10,000 to $20,000 in the first year (which had the effect of reducing taxes)
Math>>
Ererr... Reno...
The investots did not MAKE 23 cents on the dollar, they LOST over 1 dollar per share as their invest of $1.30 plus cents is now only worth 23 cents, meaning they are taking more than a $1.00 loss per share. NOT what I want to do with my limited money.
Take off the onyx colored glasses....
And stop playing the race card, Onyx. Lucas' lengthy political career means nothing about her character -- George Wallace had a thirty year political career, and was a racist for most of it. Her race has nothing to do with the disapproval in the comments here -- her bad judgement and potentially illegal investment solicitation are what are at issue. It has nothing to do with a "fear of a Black person becoming empowered" -- if it did, then William Fuller and Bruce Smith wouldn't be the successful and respected developers that they are. Lucas tried to use her political clout as "sweat equity" -- getting the P'Town council to supply government money in lieu of her invested capital. She was ripping her investors off and breaking the law, got caught, and now you are defending the indefensible.
So stop the use of the race card. Your resentment and ill founded accusations of phantom racism adds nothing to the debate.
face the truth
It's always about race for some folks...
Face the Truth
What could possibly breed so much hatred and distrust of one person? One would think that "If" Senator Lucas were as BAD a person as the posters claim, that she would not have been able to have a 16 year political career. God forbid a black person (let alone a Black Woman) do anything to improve their personal status. The nerve of "THEM" to learn and exercise some of the same business tactics that white men have used to get ahead for years. I mean really, what would become of many of you who post here. Seriously, 600 BLACK people united for one cause [not to build a BLACKS ONLY hotel and convention center, but a BLACK OWNED hotel and convention center -- there's a difference ... about 40+ years]. First it will be investment property, next it'll be local government, then what ...
The issue here is not the project itself, or even the fact that Senator Lucas is directly involved. The is
this is sad
Seriously....this is very bad Ms Lucas. How do you fix your hair in the morning looking in the mirror knowing what you have done? Quite comfortably I assume!! Good job Pilot for bringing out this information. I just hope she's called on the carpet.
Good work Jen!
But don't stop now- keep digging! Can anyone tell me the qualifications to be a Senator? Maybe I will run against her next time around!
northendlocal
Might not have put a gun to any investors head, but certainly didn't disclose the things she should have either, which is the problem. Not ethical for either side of the aisle and if it were Palin, the dems would be screaming louder than anyone has on this issue and the media would be using it as a lead in story.
Thanks new friend Dave.
Thanks new friend Dave. Correction: I meant to say the investors shares were diluted in value to 23 cents per share from an original cost of $1.33. (The investors equity was diluted because Lucas gave herself 7.5 million shares for a minimal investment.)I do not know what I was thinking.
RENO
Reno, have you always seen things through rose-colored glasses. You obviously have no financial background.
Your friend,
CPA David
See a pattern here?
See a pattern here? Lucas invests $139,000. Project management costs are $173,000. How much of the $173,000 was paid to Lucas? Has she already “earned” her investment back? I bet the deeper one digs the smeller this whole thing gets.
LUCAS' VICTIMS
You could look at Senator Lucas’ involvement of 600 predominantly African-American “investors” as her way of ensuring that Council would not turn down her bid for as much as $60-million in bond guarantees out of fear that they would be branded “racist”. Fortunately, Council members Psimas, Smith, and Moody didn’t cave to Lucas’ tactics.
I wonder how most of the “invictims” feel about being used to enrich Lucas and her family at a cost of $1.10 per share? I wonder if any solicitation or payment for the un-registered securities was done via e-mail or US Mail? Could 600 Federal counts of Mail Fraud could be coming?
Jen McCaffery should keep digging.....