Two years ago, the region's most prolific developer, David Jenkins, bought the old St. Francis Hospital just east of downtown. It wasn't a surprise, because Jenkins has been focused on invigorating the downtown area, and he saw the hospital as having potential for apartments.
But the purchase price was surprising: $50,000.
For that amount, about the only property available in the metro area is a five-acre lot in Peyton or a quarter-acre lot in Woodland Park.
That's the price Jenkins and the seller, Catholic Health Initiatives Colorado, reported on the deed, filed Feb. 3, 2014 with the El Paso County Clerk and Recorder's Office, for the hospital, which sits on nine acres at 825 E. Pikes Peak Ave.
Now, sources report there was much more to the transaction than $50,000. They say Jenkins made a nearly $1 million donation to the Penrose-St. Francis Health Foundation as part of the deal. The contribution provided Jenkins a tax benefit, while the lower purchase price kept property taxes low.
One real estate attorney says the deal raises "issues," and Luis Toro, executive director of Colorado Ethics Watch, says, "If everybody did this, you could just set your own property value."
Even the former director of facilities and construction at Penrose-St. Francis Health Services looked askance at the arrangement.
"It just seems very much like three-day-old fish," says David Howard, who retired in July 2015 and answered questions about the St. Francis transaction when contacted by the Independent.
While Penrose-St. Francis Health Services and Chris Jenkins, David's son, won't discuss the donation as part of the package in response to the Indy's questions, County Assessor Steve Schleiker says new information about the building's value would prompt him to reappraise the property for tax purposes.
St. Francis Hospital, which dates to 1887, has been expanded several times over the years. The 235,666-square-foot, multi-story structure also has spacious parking lots. It closed in 2010 after St. Francis Medical Center opened at 6001 E. Woodmen Road in 2008. The Penrose-St. Francis system also operates Penrose Hospital at 2222 N. Nevada Ave. and eventually plans to build a 20-story facility on 51 acres northeast of Fillmore Street and Centennial Boulevard for which its parent agency, Catholic Health Initiatives Colorado, paid $10 million on March 10. All of the Penrose system's buildings are owned by Catholic Health Initiatives, a nonprofit that is exempt from property taxes and controls Catholic Health Initiatives Colorado.
The Assessor's Office assigned the old St. Francis Hospital a taxable market value of $1.8 million prior to Jenkins' purchase, based on the cost approach of assessment, which takes into account the replacement cost and depreciation, says Assessor's Office official Mark Flutcher via email.
Seventeen days before the 2014 sale, Jenkins created 825 East Pikes Peak LLC, listing local attorney Bruce Wright as registered agent. The Jenkins family owns Nor'wood Development Group, the most active developer in the region, and 825 East Pikes Peak LLC is the entity named on the warranty deed to which Catholic Health Initiatives Colorado transferred ownership of the hospital for $50,000 and "other good and valuable consideration." The deed contains a documentary fee notation of $5, which indicates the amount paid was $50,000. (In a companion document, Catholic Health Initiatives Colorado deeded the property's water rights to 825 East Pikes Peak LLC.)
Jenkins justified the price to then-County Assessor Mark Lowderman with a report showing the building is rife with asbestos.
"After the sale, David Jenkins came to see me with an engineer's report, detailing deficiencies with the building," Lowderman, who's now county treasurer, told the Indy last year via email. "There were some structural concerns as well as a major asbestos problem. If I recall, the 'cost to cure' was something above 2.5 million [dollars]. I did reduce the value based on the purchase price, which was based on the condition of the structure. David told me that they plan to convert the building to high end residential condos. That would require the removal, and encapsulation of the asbestos."
A summary of that report, made part of assessor records, shows that Colarelli Construction submitted an estimate on Aug. 24, 2013, showing asbestos abatement was needed in pipes, flooring, ceilings and a boiler, based on a proposal by Refine Asbestos dated March 18, 2013. The estimate, which also included $589,808 for demolition of interior finishes and the "exterior skin," totaled $1,962,601.
Lowderman then lowered the taxable value to $50,000.
Nor'wood, in a Sept. 19, 2014, news release, referred to the hospital and the former Gazette building just west of it as "venerable community assets" that the firm hoped to give "renewed life." David's son, Nor'wood president Chris Jenkins, told the Indy last fall an initial assessment suggests the building could be converted to about 160 one- and two-bedroom apartments to respond to a need for downtown residential units.
When the sale was first reported, anti-tax activist Douglas Bruce, who was sent to prison in mid-March to serve a sentence for tax evasion, expressed astonishment at the price. A real-estate investor whose properties have been cited for code violations, Bruce officially protested the building's taxable value in May 2015, calling the sales price "scandalous" and noting: "Even if demolished, what are the bricks worth at 50 cents each?"
Responding to Bruce's protest, County Assessor Schleiker, who succeeded Lowderman, revisited the property's value and reaffirmed Lowderman's finding. In an email to the Indy in October 2015, Schleiker wrote, "It has been brought to our attention that there are environmental problems with this particular property, and the 'cost to cure,' which is the estimate of what it will cost to repair or complete the property, is estimated to be quite substantial."
Schleiker says the "real property transfer declaration" — a document filed for all property transactions and commonly called the TD1000 — reports the sale price at $50,000 and doesn't mention additional "consideration" in the transaction.
The purpose of the TD1000, as stated on the form, is to provide "essential information to the county assessor to help ensure fair and uniform assessments for all property for property tax purposes."
The form contains space to "explain any special terms, seller concessions or financing and any other information that would help the assessor understand the terms of sale." It also asks: "Did the total sale price include a trade or exchange of additional real or personal property? If yes, give the approximate value of the goods or services as of the date of closing."
Moreover, the Douglas County Assessor's Office website, in instructions for filling out the document, says, "The total sale price is the most essential item of information concerning the sale, and its accuracy is carefully scrutinized. ... The sales price usually matches the deed, but should ALWAYS reflect the amount the property was valued [at] by the parties."
The TD1000 doesn't state a penalty if the form fails to include all considerations paid.
How the deal went down is described by two sources familiar with the transaction who agreed to speak with the Indy when contacted. Howard, the former facilities and construction director who now lives out of state, says that after the St. Francis building was listed for sale, a couple of potential buyers expressed interest, but no deal emerged.
Penrose-St. Francis Health Services administrators, he says, "were the ones working the deal," not the foundation.
"The foundation ended up being the benefactor, but they [foundation officials] didn't do anything to drive the deal," he says.
Howard says he thinks Penrose-St. Francis approached Jenkins because the agency was a motivated seller.
"If you made me bet a nickel, I would bet you it was Penrose that put that deal together to get it to work," he says. "They tried their best to get that deal to work."
Howard says he never saw a sales contract and isn't sure the terms were ever put in writing. But he heard conversations about them.
"From the details I heard in meetings, it was structured so that he [Jenkins] paid an amount, $50,000, up front and then made contributions to the foundation, for what I believe was close to $1 million," Howard says, adding the donation came in two installments. "They got the deal done. They got the facility off the books, and it needed to be off the books. There's a lot of negative things in that campus — asbestos — and it's an old facility. It was also a positive that money went to the foundation."
By giving the donation to the foundation, rather than the owner of record, Catholic Health Initiatives Colorado, the money remained local and was spent locally, he says, instead of going to Catholic Health Initiatives. Based in Englewood, Catholic Health Initiatives is the nation's second-largest nonprofit health system. It operates in 19 states and comprises 103 hospitals and other facilities, including the Penrose-St. Francis system.
"The desire was for the money to remain local," Howard says of Jenkins' hefty contribution.
Howard says he doesn't know if Catholic Health Initiatives officials were aware that the donation was part of the deal. But when asked if he's ever seen similar terms involving a sale or purchase at Penrose-St. Francis, Howard says, "I certainly haven't. I'd been there 25 years. What occurred to me was, it was a pretty good tax break for the developer, because it's a write-off. I didn't feel really warm and fuzzy about that. It just, to me, had the feel of something that didn't feel upstanding to do it that way."
Howard is the first to acknowledge major problems with the old hospital, calling it "a liability" due to asbestos in floors, pipe wrappings and a boiler. But the reported price is far from what it's worth, he says.
"There's no question that the property was going to take some dollars," he says. "I'm not a developer, but I don't think that's a very viable reason to say the property it's sitting on is worth only $50,000. I find that ludicrous."
Asked why he was willing to discuss the sale's terms, Howard says, "It seems to me that it allows someone to gain a capital good for a private situation without going through what I consider the normal process of paying the money up front with any taxes that go with it and so forth. And a private company getting the benefit of making a contribution that truly wasn't a contribution. It was a payment for capital property.
"It smells to me. It looks bad. It's profiting a private company in dealing with a not-for-profit, and it just seems very much like three-day-old fish."
Another source confirmed many of the details as recounted by Howard. The source, who didn't want to be named due to not being authorized to discuss the matter and also fearing reprisal if identified, says the donation money was spent on medical equipment and remodeling projects within the Penrose-St. Francis system.
Penrose-St. Francis Health Services was able to convince Catholic Health Initiatives the true sales price was $50,000 because St. Francis was considered an albatross, the source says, adding Penrose-St. Francis' motive was "so the hospital could spend the money here." The source also says the tax benefit of a donation was attractive to Jenkins, who hadn't given large amounts to the foundation prior to the St. Francis sale. Jenkins isn't listed as a donor on the online "Wall of Honor" listing donations to Penrose.
Asked about the motive for discussing the matter now, the source says, "It's a Catholic faith-based corporation that isn't being as honest as it should be."
Both sources say Chris Jenkins was the primary contact during negotiations. Asked about the donation as part of the transaction, Chris Jenkins says via email, "Regarding our personal donations to philanthropic institutions, that information is private."
Catholic Health Initiatives Colorado referred questions to Penrose-St. Francis Health Services.
Chris Valentine, Penrose-St. Francis spokesman who responded via email on behalf of Penrose-St. Francis Health Foundation, declined to address the donation, saying the foundation is a private nonprofit whose policy is not to disclose donor information without the consent of the donor.
He notes the sale was "a simple real estate transaction" and that "both parties agreed to a fair price for the property." He adds that Penrose-St. Francis was paying about $1 million a year after the old hospital closed "just to keep the heat on to keep the pipes from freezing and to provide security services to prevent vandalism, etc." Hence, he adds, the value of the sale to Penrose-St. Francis "was actually in the millions of dollars."
Another result of the taxable value being lowered due to the $50,000 sales price is an annual property tax bill of $909.86. If the building's value for tax purposes was $1 million, the taxes would be $18,197.21 a year. Though that's 20 times the lower figure, it seems an unlikely motive for one of the biggest landowners in the region who Lowderman reports rarely appeals his tax bills and always pays ahead of time.
Still, Schleiker tells the Indy that new information about the sale's terms could lead him to take a second look.
"We would have to consider that, absolutely," he says in an interview. "When you look at considerations paid, we would have to look at that with regards to sale of the property."
When taxable values are changed, the Assessor's Office sends the landowner a corrected notice of value. The landowner has 30 days to appeal. If the appeal is denied, the office can seek the higher amount of taxes going back two years, Schleiker says.
Records show that David Jenkins has paid taxes on the building twice — for 2014 taxes due in 2015, and for 2015 taxes due in 2016.
Lowderman says "it's pretty rare" to see a discrepancy between a sales price and actual value. He tells the Indy of one case in which some property owners reported their lots in the Monument area sold for $200,000 each instead of $90,000 each as listed on the tax rolls. When the Assessor's Office upped the taxable value to $200,000, the owners protested, leading to the revelation the sales prices were lower than $200,000. The owners reported false values in an attempt to inflate future sales prices, he says.
The District Attorney's Office got involved "to scare" them, Lowderman says, but no criminal charges were filed as far as he knows.
When the Indy asked the DA's Office if misstating a sale price on a deed, which lowers property taxes, is legal, DA's spokeswoman Lee Richards refused to answer, saying "His [DA Dan May's] office doesn't give legal advice. I would probably ask somebody in real estate law."
L.D. Brown, an attorney in Lakewood who's practiced for 27 years and specializes in real estate transactions, said current Colorado law requires the "actual sales price" to be reported on the warranty deed.
Brown also says that although a property might sell for a certain amount, the assessor is free to revisit the value a year later or two years later to determine if the assessed value is accurate.
"From a legal perspective," he adds, "that number for which it sold may be very valid, especially [if] the property has major problems that will cause the purchaser to expend a great deal of money to make the building usable in today's world. But the real question is, does this secondary agreement [the donation] make purchase price a question worth asking?
"From a smell test point of view, there may be some issues."