Las Vegas Sun

November 14, 2018

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Who is George Chanos? — The Deal

Even in a city where stratospheric profits on land deals are as common as neon, the seven-figure score that Nevada Attorney General George Chanos may soon realize on a piece of downtown property raises eyebrows.

Although the deal is a complex one, at its core it comes down to this: a two-month investment in 3.5 acres of industrial storage land may reward Chanos and several partners with a multimillion-dollar 300 percent profit.

The key transactions that raised Chanos' $2.4-million purchase price to a pending $10-million deal with a developer were made early last year when Chanos was a private citizen and lawyer.

However, the potential $7.6-million profit would come at a time when Chanos, appointed attorney general last fall by Gov. Kenny Guinn, is very much a public official.

And because in politics perception is as important as reality -- sometimes more -- Chanos goes to lengths to insist that he was able to put together the lucrative deal, not by being well connected or through inside information, but simply because he was smarter than others.

Chanos said that he pursued the land on Western Avenue southeast of Interstate 15 and Charleston Boulevard because he was convinced that its value would soar due to its proximity to the so-called 61 acres site to the north that the city intends to develop.

"I thought (that) would eventually make it very valuable to a high-rise real-estate developer," Chanos said. "I happened to see that before anyone else saw it. It was not even shrewd. Just smart."

Last February Chanos and three business partners, under the auspices of Cousins Chanos LLC, purchased two parcels of land on Western.

Two months later, Chanos said he and his partners signed an agreement with Las Vegas developer Craig Katchen under which Cousins Chanos would be paid $10 million for the two parcels once escrow closed on the deal.

That agreement, Chanos contends, is a "non-contingent contract" unaffected by an upcoming Las Vegas City Council decision that could dramatically affect the land's potential development value.

This Wednesday the council is scheduled to consider whether 7.8 acres of land -- including the Chanos parcels -- should be rezoned to accommodate a proposed high-rise project that includes 1,236 residential units and 62,417 square feet of office and retail space.

A favorable decision allowing that project to proceed would substantially increase the land's worth. Rejection of the rezoning request could create the opposite effect.

Regardless of what the council decides, however, Chanos claims his partnership will get the $10 million for the land after escrow closes the week of Feb. 3.

"The developer signed the agreement as a non-contingent contract from day one," Chanos said. "What the city does or doesn't do should be legally irrelevant to my contract."

Not so fast, says Las Vegas attorney Bob Gronauer, who represents Katchen.

Gronauer said that if the City Council denies the rezoning application, there is no guarantee that his client will close escrow.

"If they deny the project, why would he close escrow?" Gronauer said.

That could mean that Chanos and his partners would be able to keep $750,000 that they already have been paid by the developer to keep the property off the market -- but would collect nothing more from Katchen and his partners.

That difference of opinion is only one element that makes the land deal more complex than it seems on the surface.

Another is that at least a portion of the land that Chanos and neighboring landowners intend to sell to Katchen may be used by the Nevada Department of Transportation -- a client of the attorney general's office -- for a proposed fly-over connecting Industrial Road with Martin Luther King Boulevard as part of an Interstate 15 corridor plan known as Project Neon.

Chanos said he faces no conflict of interest on the possible NDOT deal because the proposed land sale to Katchen occurred before he was approached last May about becoming attorney general. And by the time NDOT completes its plans for the fly-over in 2007, Chanos said there still would not be a conflict because he would no longer be the landowner dealing with the transportation department should it need some of the Western Avenue land.

"If I would have remained as the owner, then there could have been an issue," Chanos said. "But I've sold the property. So it became a non-issue."

Something that might not be a non-issue, though, is that Chanos' land deal potentially could end up costing taxpayers -- whom he now represents -- millions of dollars if NDOT needs the property for the overpass.

When purchasing land, NDOT's policy is to pay market value based on the property's highest potential value. So NDOT likely would have to pay more for the land if its zoning is upgraded by the city, NDOT official Dan McMartin said.

The attorney general waves off that issue -- and questions about whether as a public official he is concerned about possibly costing the public more -- by emphasizing that he no longer will own the land if and when NDOT needs it. Even so, it is the land deal that Chanos set in motion that could push up the taxpayers' tab if NDOT eventually uses the property.

Chanos makes no apologies for being on the verge of turning such a large profit in such a short amount of time.

"And I didn't have to know anyone in public government to achieve it," he said.

Land values have skyrocketed throughout the valley over the past few years. According to Applied Analysis, a Las Vegas company that tracks the local economy, the average price of an acre of land -- regardless of its zoning -- shot up from $403,500 in the third quarter of 2004 to $708,000 in the same period last year.

Brian Gordon, a principal partner at Applied Analysis, said land price increases have been particularly sharp along the Strip corridor and in areas where developers intend to build high-density residential high rises.

"The high-density aspect of a lot of these proposed developments allows developers to pay premium prices because of the financial returns of high-density developments," Gordon said.

Gronauer, whose law firm -- Kummer Kaempfer Bonner Renshaw & Ferrario -- represents many valley developers, agreed that the Las Vegas commercial real estate market is so hot that it is not unusual for someone to buy "a piece of dirt" and then at least double his money within a month.

"It's a great location for a development," Gronauer said of the Chanos land. "My clients were looking for a piece of property to develop downtown. We've already spent millions of dollars just to get where we are today."

Chanos said the land's proximity to the 61 acres that the city intends to develop for mixed uses was only one of the factors that prompted him to recognize the property's potential value.

"I also believed that there were already plans on the drawing board as part of Project Neon for the road to run through and connect Grand Central Parkway to Western," he said.

"This property is on Western. As a smart businessman I looked at that, which was part of the public record -- and I was not a public official. I was a private businessman.

"I looked at that and I said, you know something? When that happens, this area is going to grow and prosper and people will want to build there and people will want to live there."

Before the deal with Katchen surfaced, Chanos said he was planning to develop the 3.5 acres as warehouse and office space to serve the World Market Center, the furniture mart.

The two parcels that his limited liability corporation purchased last February were acquired from Western Wall Street Development Ltd. The company is managed by David Mason, who also operates a Las Vegas real estate company. Mason did not return phone calls seeking comment.

But a woman in his office who identified herself as a real estate agent said that the properties had been up for sale for six months and were listed on Property Line, a nationwide commercial real estate listing service on the Internet. She said the firm was contacted by a Chanos representative after he had seen the listing. The Chanos offer was the fourth received by the company, she said.

"We chose them over the others because they were local," she said.

The fact that the land deal is now in the news is Chanos' own doing.

Shortly after being appointed attorney general by Guinn on Oct. 31 to replace Brian Sandoval, who became a federal judge, Chanos announced that he would investigate the controversial Royal Links Golf Course land deal involving developer Bill Walters and Las Vegas City Hall.

Questions have been raised as to whether Walters, who wants to convert the golf course into a residential development, would be getting a sweetheart deal if a deed restriction on his property is lifted to allow for homes next to the city's wastewater treatment plant.

In November, Chanos -- feeling he might have a potential conflict of interest due to his own pending land deal -- decided to hire a special counsel, at a cost to taxpayers not to exceed $265,000, to investigate the Walters deal. The special counsel, Senn Meulemans LLP, will submit its report to Assistant Attorney General Randal Munn, who will decide whether any prosecutorial action is warranted.

Chanos' deal was known to city planners as far back as July, city documents show.

In August, Cousins Chanos and two other landowners with parcels directly to the north -- the Ickes Family Trust and Nevada Six Southwestern Trust -- filed six applications with the city on behalf of Katchen. In addition to asking the city to upgrade the zoning from light industrial to general commercial to allow for a mix of residential and commercial uses, they also wanted the city to vacate at no cost a portion of Wall Street that runs east of Western Avenue.

Flinn Fagg, a city planning manager, said it is not unusual for the city to vacate roads at no cost to developers if the roads are no longer needed by the city. That's because roads are typically provided by developers to the city in the first place at no cost for as long as the city needs them.

The plan was for Katchen to use the 7.8 acres from the three landowners for his project, which initially included a 950-foot high condominium tower and 3,020 residential units. But in September, Clark County aviation director Randy Walker wrote to the city expressing concerns that a tower that high would interfere with the flight paths used by helicopters for tours of the Strip and Grand Canyon.

City planners also recommended denial of the applications.

"While the properties immediately north of the subject site include retail and office uses, the development on other sides of the subject site is more industrial in character," planners wrote.

The John S. Park Neighborhood Association, which represents the area, also raised objections at a public meeting in September, pointing to potential increases in traffic and the need for schools, parks and community services to serve the project's future residents.

Joining those protests was Assemblywoman Chris Giunchigliani, D-Las Vegas, whose district includes that area.

"We are concerned about the hodge-podge of tall buildings and the fact that it didn't seem to comply with downtown redevelopment," she said. "There also haven't been any traffic studies. Why would you all of a sudden build residential units in an industrial area?"

Katchen responded to the concerns by amending his proposal to include two residential towers that would be 654 feet and 650 feet high, respectively, and reducing the number of residential units to 1,236. In October, the Federal Aviation Administration stated that a building as high as 660 feet at that location "would not be a hazard to air navigation."

The revised plan went before the Las Vegas Planning Commission on Dec. 1. The commission recommended approval of five of the six applications by votes of 3-2, with one abstention and one absence. But by the same 3-2 vote, the other application -- a proposed amendment to the city's general plan to allow for the rezoning -- failed, falling short of the super-majority of four votes needed to approve a general plan amendment.

In a Dec. 28 letter, planning commission Chairman Richard Truesdell wrote to Assistant City Attorney Brian Scott to complain about a Dec. 3 phone call that Truesdell said he received from attorney Alan Sklar, a manager of Cousins Chanos.

Truesdell wrote that he was told by Sklar that Chanos had divested his interest in the property through a blind trust and had "no interest in the property."

"This is a gross misstatement," Truesdell wrote. "Mr. Chanos as manager is still the person of record at the time of the filing and at the time of all hearings, according to the backup that was provided to the planning commission.

"A call of this nature trying to point out the fact that Mr. Chanos has nothing to do with the property was a lie if not at the very least a gross misstatement. I was offended by the tenor of the call, as well as Mr. Sklar requesting that I should make sure all the rest of the commissioners knew that Mr. Chanos wasn't involved in this zoning item."

Sklar told Sun columnist Jon Ralston in a column published last Sunday that he was outraged by the letter, saying he made no such representations to Truesdell.

The planning commission recommendations were forwarded to the City Council, which on Jan. 4 decided to delay the matter until this Wednesday. Meantime, the city has asked for an ethics opinion to determine whether there are any problems with approving a rezoning request that could make Chanos' land more valuable.

The Nevada Department of Transportation's plans also could boost the property's value.

In late 2003, NDOT unveiled Project Neon, a proposed $600-million widening of Interstate 15 from Sahara Avenue to the Spaghetti Bowl. Part of that plan involves upgrading the interchange at I-15 and Charleston Boulevard -- directly northeast of the Chanos property -- with a northbound off-ramp.

"When I owned the land early on I was aware that there was a beltway plan for that area, as anybody would be," Chanos said. "I was not aware that I had any prospect of becoming attorney general. I was a private individual, owning some land.

"Acting as a private citizen, I did do a couple of things. Number one, I let the people know at NDOT that I expected that if they built that road through my property that I would expect to be compensated and that it would damage me. And number two, I also bought a piece of property next to that to facilitate that road being able to go unimpeded and allowing NDOT to not have to pay a lot of money for their right of way."

Project Neon director McMartin of NDOT said the proposed Charleston off-ramp likely would be built west of Western Avenue and would not involve any of the land Chanos and neighboring landowners are selling to Katchen.

But there also is a proposal to connect Industrial Road with Martin Luther King Boulevard via an overpass over I-15 just south of Charleston.

McMartin said that that may require NDOT to purchase some portion of the land being sold to Katchen. And that cost, McMartin said, could range from zero to millions of dollars, depending on how much land is needed.

McMartin said Katchen has expressed a willingness to cooperate, a fact confirmed by Gronauer.

"We have already designed the project around that issue," Gronauer said of the NDOT plans.

It will not be known until at least the summer of 2007 how much, if any, of the land NDOT will have to purchase because of an ongoing environmental impact study.

Chanos said that Counsins Chanos LLC, formed in May 2004, splits its proceeds by giving 50 percent to Chanos, with the remaining 50 percent divided among his cousin, James S. Chanos of New York, Las Vegas accountant Robert Meyers and Las Vegas Dr. Anthony Pollard.

James Chanos is founder and president of Kynikos Associates, an investment house that specializes in identifying overvalued companies. He was among the first investment specialists to recognize that former energy giant Enron was in trouble.

As part of his desire to remove all potential conflicts, George Chanos put his share in a blind trust that he said remains in effect until the property is sold.

The blind trust, which is managed by three trustees -- Sklar, Scott Butera of Las Vegas and Lynn Myer of Henderson -- means that Chanos will not have any direct role in the land deal until it is completed, when he may collect his share of the proceeds.

"The blind trust is active until I no longer have an economic interest in a matter that is before the City Council," Chanos said.

Cousins Chanos also purchased an adjoining .35-acre parcel to the south of the other parcels in July 2005 for $420,000 from the MHL Family Limited Partnership of Las Vegas, named after Mildred H. Leavitt. That parcel is not included in the rezoning application and Chanos said there are no current plans to sell it.

"I've always said that if NDOT wants to run their bridge over that little piece, they're welcome to," Chanos said. "They'll just have to pay fair market value and I won't contest it."

Steve Kanigher can be reached at 259-4075 or at [email protected]

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