Representation of the project that was planned to replace the Public Security Building. (BizSense file)
“Insufficient due diligence,” management turnover and a “do-it-yourself attitude” were among the factors that contributed to VCU Health’s costly exit from a downtown development, according to a review of third parties that was presented today.
The boards of the health system and Virginia Commonwealth University received the findings of the review from the national law firm Saul Ewing in a closed meeting that lasted four hours. The review represents the first accounting of the project that ended up costing the health system at least $80 million, including a $73 million exit payment.
A joint task force of both boards voted to release the law firm’s presentation to the public. The report follows weeks of heightened scrutiny since VCU Health disclosed the $73 million payment, in response to Freedom of Information Act requests from Richmond BizSense.
According to a statement included with the report, the project “became unviable due to a combination of macroeconomic factors that were felt throughout the real estate sector.” The statement cited factors such as “historic levels of commercial office vacancy rates, inflation and supply chain constraints and rising interest rates.”
The health system has said it decided to abandon the project — a $325 million redevelopment of the public safety building at 500 N. 10th St. — in light of challenges that arose throughout the pandemic and resulting financial obligations of the project. . Those obligations put VCU Health on the hook for paying more than half a million dollars in rent over the course of its 25-year lease.
The report includes recommendations for handling future bids, including changing the composition of the health system’s board to include “relevant expertise, including financial expertise.” The review looked at emails and attachments between VCU and VCU Health employees involved in the deal from February 2020 to mid-2021.
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