DTA Op-ed: David Karademas on why he’s halting his “grand plan” for downtown Aurora
Editor’s note: This is an unedited essay written and published by David Karademas to Facebook on August 14. Karademas owns three buildings in downtown Aurora: Leland Tower, Graham Building, and The Mayan. He will still own those buildings, and he is not “leaving Aurora” as reported in recent coverage. He is rather taking “exit” from the restaurant business of which he currently owns one: Leland Legends. An agreement between the city and Karademas slated that Karademas was to open a restaurant on the ground floor of The Mayan, an apartment building that he renovated last year. The views expressed in this essay are not necessarily those of Downtown Auroran Magazine.
Op-ed by David Karademas
Over the past few days the Internet has been a source of extensive rumors and commentary regarding my exit from the development scene in Aurora. For those of you willing to read this short essay, I am writing to clarify what the future holds, why I felt forced into my abrupt decision, and what I believe must be done to avoid the same fate the next time an investor falls in love with the City of Lights. Over the past few days the Internet has been a source of extensive rumors and commentary regarding my exit from the development scene in Aurora. For those of you willing to read this short essay, I am writing to clarify what the future holds, why I felt forced into my abrupt decision, and what I believe must be done to avoid the same fate the next time an investor falls in love with the City of Lights.
I am NOT selling the three buildings I own on Stolp Island, and I hope to own them and continue to improve them for the rest of my life. I do business in several cities ranging from Appleton, Wisconsin in the north to Aurora, Illinois in the south. I have an excellent management team, and most of our properties operate with little input or physical presence from me. My place is always on the battlefront, and for almost four years that battlefront has been Aurora. However, enough water has been thrown on my fire to extinguish my passions, and I am moving on in search of a city that will help me achieve my dreams rather than focusing on what can be taken from me. I will miss the many friends I have made in Aurora over the past few years, but I am moving on to greener pastures.
Although John Curley and the rest of the Building Inspection team have been wonderful throughout my time in Aurora, I have run into severe conflicts with other people within city government that I will graciously choose not to name. The final straw was minor, but after years of poking at me, that final straw was enough to break the proverbial camel’s back. The announcement of an Italian restaurant across the street from Leland Legends sounds like good news, but it was a direct contradiction to my grand plan.
I was not quiet about my restaurant development plans, and they were not as insane and foolish as they may have sounded to people that did not know the full vision. The Aurora economy cannot succeed without a vibrant downtown, but the vast majority of dollars being spent downtown are not coming from Aurora residents. Nearly all of the dollars are coming from Paramount Theater patrons, of which nearly 90% are coming from the surrounding suburbs, or at least eastern Aurorans who consider themselves to be from Naperville. Although the restaurants are packed on theater nights, it is a virtual ghost town when Paramount is not in session. Restaurants cannot succeed without customers, and the Paramount traffic is not nearly enough to sustain a downtown economy.
I customized a plan to fit these facts and showed my willingness, even eagerness, to personally finance the developments that would bring a vibrant downtown to Aurora. The Paramount Theater proved that excellence will bring people from the suburbs into downtown Aurora, and I wanted to expand on that model to make Aurora the entertainment hub for Batavia, Oswego, and the many other communities that patronize the Paramount. Their demand and their dollars would provide jobs for Aurora residents, and a successful and lively downtown would allow Aurora to attract new businesses. The strong Hispanic community already formed a ready and able workforce to attract employers, and the proximity to Chicago, O’Hare and the railyards made Aurora a prime location to locate a business, except for the lack of a safe and vibrant nightlife.
My plan to bridge that final gap was simple and logical. Leland Legends Pub and Grill was very popular with Paramount patrons and staff, and we were getting excellent reviews. Furthermore, although we had little business outside of Paramount, we were turning away more than 100 customers on nights the theater was in session. That did not even consider the “dress up” crowd that wanted something finer than a pub and grill. In short, we had extreme demand, at least on Paramount nights.
I planned to expand one restaurant at a time. The second restaurant, a multi-million dollar Italian restaurant in the two story ballroom of Leland Tower, would only be open on theater nights, First Fridays, and for special events, assuring operational profitability. The plans envisioned a world class restaurant that would be profiled during Paramount nights but would be spectacular enough to bring those patrons back into downtown Aurora for their anniversaries and date nights and business meetings. Over time clientele would grow, and the restaurant would become strong enough to open full time. Then we would open another multi-million dollar world class restaurant amidst the incredible décor already existing on the first floor of the former Elks Club. We planned to follow the same model. We would initially open only for Paramount nights and special events, absorbing the higher levels of demand when the theater was in session. When that restaurant was strong enough to open full time we would have built another restaurant, and another, until we ran out of worthy spaces. I had concept plans for six establishments. It may have taken seven years and it may have taken twenty years, but it would have worked eventually because it allowed for natural growth at a pace measured by reality.
I had already spend $70,000 toward architectural concept designs for my world class Italian restaurant, which included a gorgeous wrought iron balcony over the river and a restoration of the grand staircase that once connected the Leland lobby to the ballroom. The government was well aware of my plans and all drawings were shared as the plan evolved for something magical to happen. However, the new Art Center across the street from Leland had 4000 square feet of space that needed a use, and the city decided in all of its wisdom to install, of all things, a full time Italian restaurant. My idea was being hijacked! In fact, if I understand correctly, the city was even willing to pay for it. I thought I had proven myself with the success Leland Legends had achieved with the Paramount crowd, and the quality of the construction at the Elks Club had proven that I liked to build extravagant things. Furthermore, the city knew I was planning a multi-million dollar investment into an Italian restaurant, and that I had a plan for a slow but sure expansion of restaurants that was allowed to set its own pace.
I was shocked that the city would undercut me, and I wrote emails to several alderman. I asked them why they would build out another prominent restaurant space when better spaces already existed on the first floor of the Terminal, the second floor of the Leland, and the first floor of the Elks Club? Why would they invest in another full time restaurant when downtown Aurora was a ghost town outside of Paramount? Their response was even more shocking than their willingness to undercut me. Not a single one of them even wrote back!!! After several years of dedicating myself to the city, I was not even worthy of a response.
A concerned Aurora resident was aware of my growing frustration, and she took it upon herself to organize a meeting between me and Mayor Irvin. The new Mayor brought several people to the meeting, and put forth a strong sales pitch for the many wonders of the City of Aurora and the bright future of the City of Lights. They insisted that more restaurants automatically meant more customers, and that Aurora had plenty of room for two Italian restaurants across the street from each other.
That moment was the death of my Aurora dream. The government clearly did not have the patience for my plan which involved a steady but measured expansion of world class restaurants over many years. They were ready to move forward with another “normal” restaurant that would be packed on Paramount nights but would not have the magic to bring those same suburbanites back into town when the Paramount was dark. Eventually it would be just another vacancy, because a restaurant cannot survive on Paramount proceeds alone. In other words, the government was not looking for Mr. Right. It was looking for Mr. Right Now. Governments struggle to see beyond the horizon of the next election.
Leland Legends was a money losing business, and I was willing to bear those losses as a cost of the grander long term vision. When the grander vision died, so did my incentive to continue shouldering those losses. Despite having invested half a million dollars into development costs and operating losses on Bluebird Beat and Leland Legends, the game was over. Within 24 hours of that Mayoral meeting I had a verbal agreement to sell Leland Legends for $1 and the rumors began to spread that I was leaving town.
While my decision may have seemed abrupt, the Italian restaurant conflict was the last chapter of several dramatic conflicts with the city government. I believe it is helpful to be honest about my experience so that my fate can be avoided the next time someone is willing to invest millions of dollars into Aurora. This is my story from beginning to end. I arrived in Aurora for the first time in October nearly four years ago, and by May I had closed on the purchase of Leland Tower and the Graham Building. Obtaining financing was very difficult, because Aurora has a dark reputation as a dead end destination. Nevertheless, I have never purchased anything that was not a significant challenge, and I have never failed to succeed with a real estate venture. I kept searching until I finally convinced First Midwest to make the loan and got the deal done.
I brought with me deep pockets, an excellent and honorable reputation, 22 years of real estate renovation experience, and most importantly, an endless supply of energy and enthusiasm. I quickly recognized that Aurora was nothing like its reputation. I immersed myself in the local culture, getting to know people and attending events like concerts at Riveredge Park. I saw with my own eyes that the community was full of incredible people, and I have never seen a town with more untapped talent and potential.
Before long the city approached me with a request to develop the former Elks Club building, which had been mostly vacant for countless decades. I was told that I could have the building for $1 if I agreed to bring it back to life. I have a very vivid imagination, and I only needed to tour that incredible property once to make my decision. Right there on the spot at the first tour and without reservation I informed the city that I would take on the challenge. Unlike other potential developers, I did not ask for any financial incentives toward construction.
At that moment in time, the sky was the limit. I had fallen in love with Aurora and its people, and I was dreaming of a renaissance that would make Aurora the avant garde capital of Illinois. I did not want to pump out cheap new apartments and first floor retail filled with dull franchise operators. I wanted magic on par with the quality of the Paramount Theater, and the Elks Club seemed like a perfect opportunity for me to show Aurora that together we could build something special that would set us apart from every other city.
The government, of course, cannot do anything simply, and conveying a building for $1 took hundreds of pages of boring legal documentation and lots of time. While that was transpiring, I got hit with devastating news. Leland Tower and the Graham Building had been reassessed for property tax purposes, literally DOUBLING my property taxes. When you purchase real estate at a 7.5% rate of return and your tax bill suddenly goes up $140,000 a year that automatically and instantly reduces the value of the properties by nearly $2 million! That made the value of the buildings less than the outstanding loan, and to avoid going into a technical default, I would have to pay the debt down by nearly $2 million. To make matters worse, I had just spent most of my liquid cash to purchase Leland and Graham, and I did not have $2 million in cash to pay down my debt!
Needless to say I was shocked, and immediately I contacted the city begging for mercy. How could I possibly rebuild downtown Aurora if they were going to destroy me financially right out of the gate? I was informed that it was a Kane County decision, and the city of Aurora took a neutral position on all increases or decreases in tax assessments. Remember that line, because it will come back later in the story. That left me in a severe financial quandary, and I wrote a letter to the city that began with, “I write this letter with a heavy heart…” I informed them that I was withdrawing from the development of the Elks Club so I could focus on mitigating the damages from the tax increase. I then hired local attorneys to save me from financial ruin, and we filed a legal objection in Kane County to the tax increase, which had set my valuation drastically higher than all of the apartment buildings around me on a per unit basis.
The Elks Club development was a key part of the city agenda, and before long they approached me with an offer I could not refuse. Although I had NOT requested any financial assistance for the Elks Club, they offered me a deal that would at least buy me some time before the tax blow would take effect. The “incentive” they offered was that they would refund any excess taxes I had to pay on Leland and Graham above the previous year taxes for a period of eight years. In short, excess taxes went 100% to the benefit of Aurora because of a TIF district, and what I paid in bonus taxes would go to them and then come back to me. That deal bought me time, giving me eight years before I had to pay my debt down. I could risk financial ruin continuing with my attorneys, or I could trust that the City of Aurora would take care of me and buy myself eight years to figure out a solution to the tax problem. The choice was easy. I took the deal, which included a promise to drop my legal objection in Kane County and that I would not file any additional legal challenges during the eight years of the deal.
Thus, when people speak of the financial incentives I received for the Mayan, it cost the city nothing. It was my own excess tax dollars coming back to me. The reality was that my taxes would be as I had originally expected for eight years, and I would complete the Mayan Building on my own without any real incentive. My dreams for downtown Aurora had survived the first attack.
Many other developers had promised to remodel the Elks Club over the years, but they had been all talk and the city was understandably suspicious that I would prove to be just another big talker. They asked me to post a half million dollar cash deposit as “good faith” that I would actually spend the $2.4 million that I projected the work would cost. I was assured that the $500,000 would be refunded to me when my promise was fulfilled. I am a trusting individual, and I gave them all of my remaining cash to assure my fidelity. My bank agreed to treat the $500,000 as my down payment on the project, and agreed to finance the $2.4 million cash estimated as the end value of the project.
I got down to work on the development, and it was a disaster from the beginning. Many of the city’s assurances about the quality of the building proved to be untrue. The “solid” concrete floors began to crumble once we began demolition, and I had to replace the entire concrete floor on all of the upper levels. The “newer” roof turned out to be rotten underneath, and I had to start from scratch with an entirely new roof. Everything that could go wrong was going wrong, but I kept on working with a smile on my face. Furthermore, I needed the building to become my resume, showing all of Aurora that we could create something special that would set us apart as an incredible and unique city. We used Marvin windows, granite countertops, and architectural wrought iron decorations. The hallways looked so authentic that people wondered if it was original. The kitchens and bathrooms were entirely ceramic. No expenses were spared, and the costs of that quality were staggering. The bank funds ran out when the job was only half complete, and thereafter I had to scramble month after month to come up with the cash to keep the project going. By the time we were finally finished I had spent a little more than $4.7 million!!!
Despite the heavy investment in the Elks Club, the end project was incredible and the Aurora community welcomed it with great fanfare. Although the property was only worth $2.4 million, I was confident that as the downtown renaissance took hold, the value would increase and after a few years the value would rise. I immediately began lobbying for another building project on similar terms so that the renaissance could continue. I wanted to take on the Terminal Building next, and I also made an informal proposal for the Hobbes Building that if the city would fix the structure I would take care of the interior to the same quality as the Elks Club.
My enthusiasm was well documented in the newspapers, including my desire to jump into the Terminal Building project, and the energy of the community was matching my own. The renaissance of downtown Aurora had really begun, and the future was in our own hands. That marked the high point of my Aurora adventure. Shortly thereafter, my real estate assessment jumped another 15%. Our deal had forbade any legal challenges, but that did not stop me from having a verbal conversation with the tax assessor.
Although the City of Aurora had earlier assured me of their “neutral” position on tax assessments, that turned out to be a neutrality that only applied to tax increases. When the extra 15% bump was removed, the City was anything but neutral. They had the nerve to actually hire an attorney to formally and legally object to the new assessment and attempt to recover that 15% bump!
To make matters worse, when I asked for a refund of my $500,000 “good faith” deposit, the city refused to give it back!!! They argued that my verbal conversation with the tax assessor constituted a “legal challenge” to my taxes and therefore I had “breached” our contract for the Elks Club and the $500,000 was no longer due to me. Many of you were reading the positive newspaper articles at that time, and I am sure you can imagine how I felt being accused of breach of contract after pouring my heart into the project. Those were fighting words, and I am a fighter. My “Karademas Management” letterhead got set aside and my “Karademas Law Offices” letterhead came out, and I went to war.
It did not take long to dismantle the city’s case against me. A “Legal Objection” means filing paperwork in Kane County, not speaking with the assessor. They knew that they were not going to win that argument, and they withdrew their objection over the real estate taxes. Nevertheless, they had city bureaucrats go through our endless boring legal agreement nit picking for any other reason to hold me in breach of contract. They found only one technical issue. My $2.4 million proposed budget, which had been based entirely on the wild guesses of a development amateur, had included $150,000 toward work on the first floor which remained vacant. Even though I had spent $4.7 million on the overall project without complaint, the city demanded that I leave $150,000 with them until I spent it on restaurant development on the first floor. I needed the other $350,000, and I was planning to spend the money on restaurant development anyway, so I acquiesced and left the $150,000 in escrow.
I am not sure what will happen with what remains of my deposit for restaurant development now that I am no longer planning to build restaurants. Hopefully they will allow me to spend the money on other physical improvements. No other restaurant is willing to invest in downtown Aurora until there is more than just the Paramount Theater, and I am no longer willing to personally finance a renaissance with a city government that will not support me and constantly picks fights with me. All I know is that I have given my heart to the city, and the government seems unable to help itself from seeking ways to take from me rather than help me to build a dream around what the Paramount has already started. I told Denise Crosby that leaving Aurora was a like a bad romantic breakup. I was in love, but I was receiving nothing back except financial and emotional abuse. Can you blame me for walking away?
My opinion of the Aurora community has not changed. The untapped talent and potential is still humming right below the surface. I leave it to the people of Aurora to rise on their own and take an active role in the governing of their city to make sure that it does not continue to live up to its reputation as a government that always manages to shoot itself in the foot.
Editor’s note: On Aug. 15, Karademas added to a Facebook post: “I would like to emphasize one important point. This is not Mayor Irvin’s fault. The battles I have fought with city government were before he took office, and he inherited the Art Center project. As Denise Crosby quoted me saying, it was not any particular person, just government being government.”
The views expressed in op-ed pieces are not necessarily those held by Downtown Auroran Magazine. If you have a view to share, please contact us.