Fayetteville’s Prince Charles Hotel conversion part of public-private partnership
The chairman of the UNC system’s Board of Governors said it will review a UNC-Chapel Hill program that helps communities redevelop distressed properties after The News & Observer reported on ways the program benefited its workers’ private business interests.
“It’s apparent that a lot of this was way across the line from a conflict of interest standpoint, and the board will be doing some further inspection and asking some questions,” said Harry Smith, the board’s chairman.
He also said he had heard concerns from several board members and other “key and critical stakeholders” in university matters after the N&O’s report.
UNC School of Government officials, in an emailed response from spokeswoman Sonja Matanovic, said they have a successful system for disclosure and review of conflicts of interest within the Development Finance Initiative.
“DFI has worked closely with the University Conflicts of Interest Office to ensure that we conduct robust conflict of interest reviews consistent with University policy, and we continue to consult with that office to assure that our conflict reviews are effective,” the officials said.
On Thursday, the N&O reported on overlap between Michael Lemanski’s role as DFI’s founding director and his work as a real-estate developer. He had stepped down as a managing partner of his struggling development business in 2011, and UNC officials in hiring him expected him to not use his university position to advance his private business.
Within five years, Lemanski had started two companies launching developments that flowed from DFI’s advice to Fayetteville and to a nonprofit in Danville, Virginia. The nonprofit and the city have made multi-million-dollar investments toward the projects to turn around their distressed areas.
The N&O also reported new details from an internal audit from May 2017 showing Lemanski had given a company owned by a business partner a no-bid contract to run the operations of DFI’s downtown Durham office. That company received more than $1.5 million over roughly three years. The audit did not find a misuse of state funds, but it said the contract represented a conflict of interest. UNC terminated the contract shortly after.
Lemanski left the position shortly after the audit was released. He could not be reached for comment by email or phone. UNC officials had redacted all names of individuals and businesses from the audit copy provided to the N&O under a public records request, but further reporting exposed Lemanski’s role.
The N&O also found two DFI advisers were using the Durham office as a point of contact for their private businesses. Those advisers are also business partners with Lemanski on the Fayetteville project, which includes rehabilitating a dilapidated hotel into apartments and constructing a new hotel and office building on top of a city-owned parking garage that is nearing completion.
Some Board of Governors members interviewed said they support the concept of a university program helping communities with distressed properties. They were concerned UNC officials allow DFI workers to seek development opportunities in communities that had received advice from DFI.
The board members also said UNC shouldn’t be allowing DFI workers to use the office address as a contact for their private businesses. UNC officials say there’s no policy against that.
“That’s totally out of the realm of what should be done,” said board member Bob Rucho, a former state senator from Mecklenburg County.
Board member Marty Kotis, a commercial real estate businessman and restaurant developer from Guilford County, said he was concerned that someone could use DFI for self-dealing.
“Based on your article, there are enough questions there that the state auditor and the UNC audit committee should investigate further,” he said.
Brad Young, a spokesman for State Auditor Beth Wood, said the office can’t confirm or deny the subjects of audits before they are released.
DFI typically charges a sliding-scale fee depending on a community’s size, though in some cases DFI will do the work for free. It has advised more than 85 communities across the state, as well as some in Virginia and South Carolina.