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The Lafayette - back from the brink.

New Owners Savor the Taste of a Historic $1.5 Million Deal

THOUGH THE CHAMpagne won't start flowing until a grand reopening planned for Feb. 5, the Lafayette Building's new owners marked their official one-year anniversary Dec. 18.

Partners Johnny Mitchum and Henry Nichols are still bubbling over their success at landing this $1.5 million bargain in downtown Little Rock.

The past 12 months have produced a mixture of pleasant and unwelcome developments.

Mitchum and Nichols have weathered politically charged sour grapes lobbed their way after the state government failed to strike a deal for the 127,000-SF office building.

Despite this bad publicity, they've even managed to boost the building's occupancy rate above 70 percent. The feat is more remarkable given the exodus of the Lafayette's biggest tenant through an odd twist of federal red tape.

"All the building needed was a real person who was able to make decisions on a day-to-day basis," observes a veteran of the downtown office wars.

That wasn't the case when a California thrift and the Federal Deposit Insurance Corp. were managing the Lafayette from afar.

Back in 1986, the asking price for space in the building was $12 per SF, and the occupancy rate was a dismal 13.7 percent. The going rate for space these days is $9.25 per SF, and the Lafayette is finally filling up with tenants.

"We're projecting the occupancy to be up to 90 percent by June," Mitchum says.

Plans are in the works for opening a 3,000-SF, all-events-type facility on the building's main floor. A fully-open, four-room configuration would be capable of handling 1,000 people when adding in spillover room into the lobby area.

The space may also house a New Orleans jazz and supper club. Elsewhere on the main floor, the partners will open a gift shop called La Petite Marche.

Mitchum and Nichols have commissioned a Lafayette flag designed to fly outside the building and to drape inside the lobby along with the American and Arkansas flags.

"We're going to see how marketable atmosphere is," says Candice Wood, who will operate La Petite Marche.

The marked turnaround and future plans notwithstanding, Mitchum and Nichols had thoughts about selling the historic building soon after purchasing it.

Would-be purchasers came courting with money aplenty in hopes the partners would part with the 11-story building.

"Shall we say, we've been tempted a couple of times," Mitchum says. "You can never go broke by taking a short-term profit, but we believe it's best to own the Lafayette for a long-term investment."

That wasn't the philosophy of Quapaw Investments Inc., led by Little Rock appraiser Richard Flowers. Quapaw successfully tied up the building with a $1.2 million option, which it flipped to Lafayette Partnership for a quick $300,000 profit.

"I think we closed on the last day of their option, so there was a little bit of drama to it," Mitchum says.

Bitter Bid

State Building Services looked at buying the Lafayette before and after the FDIC sale. One attempt involved the state trying to strike a deal with Flowers for $1.3 million.

Chris Burrow, director of State Building Services, couldn't be reached to add any insight on the state's unsuccessful efforts to buy the Lafayette.

"We frankly outbid the state," Mitchum says.

Gov. Jim Guy Tucker did his best while lieutenant governor to make political hay out of the deal. He made it loud and clear the state would not play party to excessive profiteering.

"Do we allow somebody to profit by a $400,000 windfall by selling to the state?" Tucker asked rhetorically in March. "The answer is not only no, but hell no."

The windfall was actually $300,000, but never mind. Tucker was on a roll. He even went so far as to suggest that the state shouldn't pay more than $1.2 million -- the so-called fair price determined by the federal government.

Others thought it would look funny if the state cut a lucrative deal with Johnny Mitchum, a former state police commissioner and brother of then-state Rep. Tommy Mitchum.

But even at $3 million, the state would have picked up the building for $23.62 per SF, a bargain rate compared to building new office space.

The state apparently had no qualms about paying $34.12 per SF to Worthen National Bank of Arkansas for the Spring Plaza Building in a $1.5 million deal. The bank acquired the 43,960-SF office building after troubled bond daddy Jim Swink defaulted on a bond issue backed by Worthen.

The whole incident highlighted the fact that the state government tried to walk away with the Lafayette for a low-ball price. When Mitchum and Nichols successfully upped the ante, bureaucrats and politicians got mad and lashed out.

However, the political fall-out didn't cloud the state's judgment to lease space in the Lafayette for various divisions of the Department of Human Services.

A Long-Term Investment

Talk persisted that the Quapaw Investment and Lafayette Partnership transaction wasn't arm's length and that the sale was in name only, designed to drive up the price and gouge potential buyers like State Building Services.

"That couldn't be more false," Mitchum says. "There wasn't anything Machiavellian about it. We bought it for a long-term investment. But all that negative publicity sure put a weight around our necks."

The most curious aspect of the deal is how Quapaw Investments managed to lock up an option on the building for a paltry $1.2 million.

"It always baffled me how they were able to do that," says Ann Weatherford, a Little Rock property manager who handled the Lafayette for the FDIC. "I had a list of parties interested in buying the building, and we forwarded all of those to the FDIC."

Weatherford and other commercial Realtors point out that the Lafayette is easily worth three times the $1.5 million price paid by Mitchum and Nichols, let alone Quapaw's $1.2 million bid to lock up the option.

It was stranger still considering the Lafayette was in top shape from a full restoration that returned the former hotel back to its original splendor.

The key was apparently a simple bid: $1.2 million cash, with no strings attached. Others placed a variety of contingencies on their offers.

"I think |Flowers~ came along at the right time, and the FDIC was just ready to make a deal," Weatherford says. "I was told that an offer was accepted, but they wouldn't tell me who was involved.

"It was a surprise to me. They must've been in the right place at the right time."

Profitable Phone Call

Mitchum entered the picture when Flowers contacted him at his Batesville office in October 1991 after locking up an option on the Lafayette.

"I was presented with the opportunity to buy the building and saw that it was an exceptional value," says Mitchum, a certified public accountant who owns an 1,100-acre cattle ranch near Locust Grove (Independence County) among other things.

Mitchum in turn placed a call to Nichols, president of Central & Southern Cos. of North Little Rock.

The holding company has diverse interests including banking, farming, records storage, public warehousing and cotton warehousing, mostly in Arkansas with some spillover into Louisiana.

The two have known each other since August 1985 when Nichols joined the board of directors at Aberdeen Corp., a for-profit subsidiary of Arkansas College in Batesville.

Mitchum served as executive vice president for Aberdeen, which oversees Arkansas College investments.

For Nichols, the Lafayette is his most visible real estate venture since his involvement with another historic downtown structure -- the Terminal Building.

Originally a warehouse, the property was converted to an office building and is now owned by the Arkansas Democrat-Gazette, housing the newspaper's printing press.

Nichols also has served on the Arkansas Territorial Restoration board since the 1970s.

Mitchum oversees the day-to-day operations and leasing activity at the Lafayette while Nichols is content with his role as the quiet, if not silent, partner.

HUD Pullout

Mitchum and Nichols came into the deal fully aware of the pending pullout of the building's largest tenant, the Department of Housing and Urban Development.

The move was precipitated by several determinations made by the General Services Administration, the landlord for all federal agencies.

The GSA said one arm of the federal government shouldn't do business with another in the case of troubled thrift properties. This decision ultimately led to HUD moving to the TCBY Tower.

That 10-year lease will cost taxpayers $131,000 more each year than if HUD would have stayed put in the Lafayette.

For some inexplicable reason, GSA also outlined a search area that excluded the Lafayette's area of downtown Little Rock. Neal Landers, GSA realty specialist in Fort Worth, Texas, was unable to shed any light on that.

A third factor in the move was the GSA's desire to consolidate several different federal offices into one building with contiguous operation space.

This combination of decisions all but guaranteed a move to the TCBY Tower, where HUD occupies one floor and part of another instead of two floors and part of another at the Lafayette.

Even with the HUD pullout, leasing activity has improved so much over the year that the Lafayette will have 5,000 SF less vacant space than it did a year ago. And if Mitchum lands prospective tenants, that figure could top 27,000 SF.

All told, HUD is vacating 19,000 SF, of which 75 percent could be taken by a prospective commercial tenant.

"While we don't have the deal inked, we feel very confident we're going to get that company," Mitchum says.

Several law firms are looking at the Lafayette, including a Houston-based concern with substantial business interests in Arkansas.

The as-yet-unnamed firm is interested in opening as a 10-member staff occupying 2,000 SF on the seventh floor.

Lafayette Partnership is hoping to cash in on the hotel charm and historic ambience of the building. In that vein, Mitchum recovered the old bellhop stand that ended up at Antiques By The Wharf after it was auctioned off by bank regulators.

The furnishing, still bearing the burn marks from cigarettes hidden beneath the counter top by bellhops, is now used as a post for the concierge, who doubles as a blazer-clad security guard.

"We'd like to find the original phone booth," Mitchum says. "It's been a wonderful, fun-type project. We saw early on that making this project a success involved tackling a bigger problem of restoring downtown Little Rock."

The Lafayette is finally recovering after taxpayers absorbed millions lost through federal bungling on the sale and leasing activity. Little Rock residents must hope the cost won't run as high to restore other areas of downtown.

The Lafayette's Ownership Guest List

Six Decades of History Recount the Coming and Going of Faces

DURING THE PAST 67 years, 11 different groups have owned the Lafayette Building at Sixth and Louisiana streets in downtown Little Rock.

The 11-story structure was known as the Lafayette Hotel and functioned as such for most of those years.

The 1980s saw the 127,000-SF hotel converted to an office building. This changeover preserved the property and led to a physical restoration instead of an appointment with the wrecking ball, which claimed the Marion and Manning hotels on Markham Street.

The hotel-to-office building conversion was also the catalyst for nine ownership changes. Federal regulators became involved with the Lafayette when American Diversified Savings Bank of Costa Mesa, Calif., went belly up.

A subsidiary of the thrift, which held a partnership interest in the property, took it over through a deed in lieu of foreclosure in 1984.

A contributing cause to the project's death spiral was the financial crash landing of Brittenum & Associates, a major tenant of the building.

Bank regulators sold the Lafayette Building through American Diversified Capital Corp., led by Steven Carr, for about $1.2 million.

Quapaw Investments Inc., led by Little Rock appraiser Richard Flowers, locked up an option on the property and flipped it to Lafayette Partnership for $1.5 million -- a fast profit of $300,000.

The Arkansas general partnership is composed of HN Corp., led by Henry L. Nichols and his wife, Carolyn; and JBM Enterprises Inc. of Batesville, led by Johnny B. Mitchum and his wife, Carol.

The latest acquisition was financed with a $1.5 million loan from Twin City Bank of North Little Rock. The 18-month mortgage carries an interest rate of 9.5 percent.

The debt, personally guaranteed by the borrowers, is broken into two promissory notes: $1.18 million for purchasing the property and $320,000 for tenant finish-out costs.

The bank required $45,000 cash collateral for a small amount of asbestos removal from the floor tile, the boiler room, pipes and ceiling material.

American Diversified, a California corporation, gained title to the Lafayette in December 1984 following a transfer from American Diversified/Lafayette Bay. The California limited partnership bought the property for a reported purchase price of $8.5 million in October 1984.

The seller was Lafayette Limited Partnership, led by Jon Brittenum, University of Arkansas football star-turned-bond daddy. Lafayette Limited paid Brittenum $1 million for the former hotel in January 1984.

Back then, the property was tied to a $6 million first mortgage held by New World Bank For Savings of Boston and a $2.64 million second mortgage held by Admiral Insurance Co. of New Jersey.

Brittenum acquired the property for $900,000 in May 1983 from Lafayette Hotel Partnership. The investment group was composed of Clark Properties (William E. Clark), 25 percent; Robert Shell, 25 percent; Kirk Tompkins, 25 percent; W.K. Palmer, 18.75 percent; and Jan Nicholson, 6.25 percent.

Three of these investors bought into the venture during October 1981. Shell acquired the interests of Marshall and Michele Coffman (12.5 percent) and Thomas Comley (12.5 percent).

Clark picked up a 12.5 percent interest each from Nicholson and Richard Smith III. Palmer assembled his stake from Smith (12.5 percent) and Nicholson (6.25 percent).

Lafayette Hotel Co. led by Houston Burford, had sold the project for $600,000 in February 1981. The buyers were Nicholson, Smith, Tompkins, Coffman and Comley.

Title to the property was held in the name of Little Rock Hotel Co. in November 1924. At that time, John and Snow Boyle and Ike and Stella Kempner sold the downtown property for $100,000. Construction of the project was financed with a $985,000 loan from G.L. Miller & Co.
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Title Annotation:Lafayette Building
Author:Waldon, George
Publication:Arkansas Business
Date:Jan 4, 1993
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