Landlord moves to sell Wilmington VA clinic amidst criminal investigation

Landlord moves to sell Wilmington VA clinic amidst criminal investigation

WILMINGTON, NC (WECT) - WECT has learned the private owners of the Wilmington VA clinic are looking to sell the facility to a new buyer. These developments come just days after news first broke about a criminal investigation by the VA inspector general into the leasing procedures and bidding process used when the Wilmington VA clinic was built. The clinic opened in 2013.

In 2015, after a plumbing issue at the new clinic rendered the tap water undrinkable and suspended some patient services for an extended period of time, WECT reported the VA was paying nearly $300,000 a month in rent for the 80,000 square foot clinic. Local commercial real estate brokers told us that was more than twice the going rate to lease prime medical office space in Wilmington.

We also learned that the VA was locked into a 20-year lease at that rate, which would cost tax payers $68 million over the life of the contract.

Congressman Walter Jones saw the story, and was concerned about apparent taxpayer waste. He called for a federal investigation into the lease arrangement and bidding process. That investigation took two years, and was released to the public Sept. 12.

Among other things, the VA inspector general found the VA’s Office of Construction and Facilities Management (CFM) overpaid by millions to lease the land from the New Hanover County Airport Authority.

The appraiser CFM hired estimated the fair market rate for the airport site at $198,000 per year. For reasons that remain unclear, CFM then entered into a contract with the Airport Authority to lease the land underneath the clinic for $218,000 a year, plus a built-in annual price escalation.

“By CFM’s contracting officer entering into a lease with significantly higher costs than the prevailing market rate, CFM failed to comply with federal regulation, and the VA will pay about $2.35 million more than the appraised fair market rent over for the land over the 20-year lease,” the VA Inspector General wrote in his report, which determined the land selection was not in the best interest of the taxpayer.

Federal Aviation Administration (FAA) regulations prohibit the Airport Authority from selling its land, which is why the land for the VA clinic was leased instead of purchased. A copy of the land lease obtained by WECT shows that Jim Morton, the former airport finance director and current president of Cape Fear Community College, signed the lease on behalf of the airport.

Airport Authority Attorney Wanda Copley said Morton also negotiated the terms, and she did not know why the VA was charged more than the appraised value for the land.

“We are in the business of leasing land to benefit the Airport Authority,” Copley said, “because the Airport Authority does not receive any direct tax dollars from the county. So we do what is called a land lease and we charge for the land lease depending on the location. The FAA requires us to charge fair market value.

"Now, that fair market value doesn’t mean you give a deal to someone. They want it to be fair. Not that you can’t exceed what may be the minimum, but you can’t cut a deal for someone.”

On Wednesday night, the Airport Authority extended the clinic’s 20-year land lease under the current terms by an additional 30 years. While there were some initial concerns about the timing of this lease extension locking in the arguably inflated lease rate, Copley said the lease was being extended to accommodate a new buyer, National Government Properties.

“We checked out the background of the new landlord. They buy a lot of government properties," Copley said of the pending ownership change. "They are definitely in the market, have a good reputation, so we felt very secure in agreeing to the assignment. Either the original landlord felt that they no longer needed hold onto the property and were looking for a buyer. … We were not privy to any of that information as to why [the clinic is being sold].”

Copley said the new buyer will continue to operate the facility as a VA clinic.

While the inspector general found the VA overpaid for the land, he also found “potential fraud” involving the assignment of the lease for the building itself. CFM said it received 14 competing offers to build and lease the VA clinic, but it could only produce two of those offers for investigators, despite federal regulations requiring the company to keep copies of all offers, including unsuccessful bids.

The VA initially entered into the lease with Summit Smith Healthcare, a private company out of Wisconsin. At some point, Summit Smith transferred ownership at the Wilmington NC VA, LLC, also based out of Wisconsin.

“What happens between the VA and the original landlord, whether they were to get in some sort of disagreement, I don’t know. We would not be privy to that,” Copley said of the ongoing criminal investigation. “I just want to make sure that the folks in New Hanover County know that the Airport Authority has had nothing to do with any dealings with this investigation. No one here benefited inappropriately. All we have done is leased land. … New Hanover County is not, or the Airport Authority is not price gouging. We are not doing anything. Whatever criminal investigation is going on, we have absolutely no information on that.”

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