Fayette County

City paid off developer’s $600,000 loan. Then it gave her company a million-dollar contract.

The city of Lexington paid off a $600,000 loan for a Lexington developer in 2014 and then paid her more than $1 million to oversee the renovation and exterior construction of the former Fayette County courthouse, city documents show.

Artek LLC, led by developer Holly Wiedemann, received the city-backed loan in May 2006 to develop Artek Lofts, a condominium complex on Old Georgetown Street. The money flowed through the Lexington Downtown Housing Fund, which was created to help stimulate more downtown housing, according to city documents.

But eight years later, in 2014, Lexington officials agreed to pay off the $600,000 the company owed U.S. Bank, which had financed the city-backed loan, rather than risk a default that would likely hurt the city’s credit rating. The city then worked a deal with Wiedemann, allowing Artek LLC to promise to pay the city $150,000 on April 21, 2019, in exchange for canceling the debt, including any interest.

A year later, in May 2015, the city hired Wiedemann’s AU Associates, which guaranteed the Artek loan along with Wiedemann in her individual capacity, to help oversee a $32 million overhaul of the former Fayette County courthouse. Although AU Associates and Wiedemann didn’t make good on their guarantee to repay the $600,000 loan, the city decided Weidemann’s promise of a $150,000 payment cleared her of a policy that prohibits the city from doing business with companies or individuals who owe the city back taxes or have bad debts.

The city’s management contract with AU Associates and City Visions, a Louisville company, was for up to $1.2 million. It was competitively bid, according to city records.

Eventually, City Visions left the project, and AU Associates became the sole development agent, helping oversee construction and finding tenants for the courthouse. The former courthouse was empty for years before the city launched an ambitious overhaul of the building under former Mayor Jim Gray. It now houses Limestone Hall, an event space; a restaurant and bourbon bar; office spaces; and VisitLex’s visitor’s center.

AU Associates and AU Construction, another Wiedemann-owned business, made $1,093,751 on the project from June 2016 to February 2019, according to checks to AU Associates and AU Construction that the Herald-Leader obtained through an Open Records Act request. That total does not include money paid to City Visions in 2015, city officials said. City Visions was paid approximately $600,000, some of which was then paid to AU Associates.

City officials defended the hiring of AU Associates, saying the 2014 agreement to eventually pay back $150,000 of the $600,000 loan removed Wiedemann and her companies from bad standing with the city. The $150,000 payment was made to the city in late April. In addition, Artek paid the city a $20,000 “closing payment” at the time of the 2014 agreement. The agreement also says Artek may provide the city with an additional $75,000 if and when the project is refinanced at a future date.

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Alex Slitz aslitz@herald-leader.com

Sally Hamilton, chief administrative officer for Lexington, also argued that Artek LLC was the legal entity that owed the city money, not Wiedemann or AU Associates.

“These prohibitions are limited to the specific legal entity or person that owes the debt,” Hamilton said of the city policy. “In cases where a person owns several legal entities and one of those owes taxes, there is no prohibition against doing business with the other debt-free entities or with its owner.”

However, AU Associates was a co-signer of the $600,000 loan agreement and the $150,000 repayment agreement, guaranteeing payment if Artek LLC defaulted.

Wiedemann said she made all of the required payments on the Artek LLC loan prior to the city’s decision to pay it off. The Lexington-Fayette Urban County Council approved the pay-off of the loan and the $150,000 repayment agreement, she said. The repayment agreement was introduced and passed unanimously on the same day by the council on March 20, 2014, according to the legislative record. Typically, resolutions are given more than two readings and are known about for months before they are passed.

Artek Lofts is now thriving and helped jump start development along the now-bustling Jefferson Street corridor, adding millions of dollars in property value, thus increasing property taxes, in that area, she said.

In addition to being the development agent, another Wiedemann-associated business was also hired to do work on the courthouse.

AU Construction was hired to manage the exterior renovation of the courthouse after AU Associates took over as the project’s sole development agent. It received the contract to oversee the exterior renovation without submitting a bid to do the work, city officials confirmed.

“They did receive bids but those bids were not satisfactory for a variety of reasons,” said David Barberie, a lawyer for the city. City officials overseeing the courthouse project instead added oversight and management of the exterior renovation to AU’s existing contract, Barberie said.

Wiedemann said AU Construction was hired because the city had to complete the project on time in order to collect approximately $11 million in historic tax credits to fund the project. The exterior renovation had to be finished quickly in order to collect the tax credits before they expired, she said.

Wiedemann said she delivered the “project on time, on budget and had leases executed prior to construction being completed.” The courthouse renovation has won several awards from state historic preservation and architectural groups.

She said it was her extensive experience with complex public financing that helped the city secure the historic tax credits needed to complete the renovation and overhaul. AU Associates specializes in affordable housing and adaptive re-use projects.

How much AU Associates was paid has not previously been publicly disclosed because the courthouse project was overseen by Historic Courthouse LLLP, a limited liability partnership created by the city. Historic Courthouse LLLP was created so the city could get tax credits for the project, city officials said at the time.

That means many of the contracts and bills for the project were not approved by the Lexington-Fayette Urban County Council with the exception of the initial City Visions and AU contract.

City officials told the council during a council committee meeting Tuesday that the payment to AU Associates was appropriate. AU Associates secured the tenants, oversaw the renovation and had the expertise to secure federal and state tax credits, which was key to getting the project completed. To get those historic tax credits, the project had to follow strict guidelines, city officials said.

“Every single inch of the building has to be photographed and a narrative written and submitted to the state and national historic preservation offices,” said Jenifer Wuorenmaa, a senior administrator with the city. “Everything that we did was done with the historic preservation in mind... Every finish that was chosen; every thing that we did went through the development agent to make sure that we got the tax credits.”

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