Incoming Board of Governors chair pitched apartment deal at ECU

The likely next chairman of the University of North Carolina system's Board of Governors, already accused in a lawsuit of pushing North Carolina Central University officials toward a deal with business partners, spent months in 2016 exploring a housing deal near East Carolina University that hinged on a university policy change to help fill apartments.

The deal never went through, and Harry Smith, who was on the Board of Governors at the time and is running unopposed this month to become chairman, says he wanted ECU to take advantage of a big opportunity: a foreclosed apartment complex next to the school's intramural fields.

But Smith acknowledged Tuesday that, had the deal gone forward under one of his proposals, he likely would have been part of the purchasing group. That's borne out by emails released Tuesday by the university, which show key leaders expressing concerns about a deal they ultimately rejected.

"Harry first told me about this four to six months ago," Rick Niswander, then vice chancellor for administration and finance, wrote to Chancellor Cecil Staton in September 2016. "He was thinking that, if he could get it at a steal and have a contract with ECU to fill the beds, he would split the profits with us."

Under one of the proposals, Smith's group would own the facility and lease about half its 1,600 beds back to the university, which would then rent the units to students, according to Kieran Shanahan, chairman of the ECU Board of Trustees. Meeting demand would have meant requiring sophomores to live in university housing.

Smith said he operated in full transparency in an effort to create new revenue for the university, but he acknowledged a "lesson learned" when faced this week with the proposal's optics.

"I do agree... it’s just not a good idea to do it, and it also has perception issues for sure," Smith said. "Lesson learned, but zero maliciousness in it."

The email record shows Smith reached out to Board of Governors Chairman Lou Bissette in March 2016 about the deal, copying Niswander and Scott Lampe, who was then on the Board of Governors' Finance Committee. Smith wrote that he had been contacted by a lender offering the complex, which last sold for $58 million, at $33 million. He pitched the project either as a lease arrangement or, if the university wanted to buy the complex, said he would assign his contract to the school.

Smith said Tuesday he would have preferred the university buy the complex for itself and that he never pushed the deal, which didn't get far enough to have formal, written financial terms.

"It was a whole lot of tire-kicking," he said.

Smith said The Preiss Company, with which he co-owns off-campus student apartment complexes in Greensboro and in Georgia, approached him about the deal.N.C. Central's former finance director has accused has accused Smith, Chancellor Johnson Akinleye and fellow Board of Governors member Darrell Allison of trying to steer a university housing contract toward Preiss.

Smith has repeatedly denied the accusations in that lawsuit, as has Allison, saying the facts will come out and show they worked only for the university's good. Last week, Smith called the lawsuit, "a slanderous reach if there's ever been one in history." He and John Preiss, the company's chief investment officer, said they last invested together on the Greensboro apartments, about three years ago.

Smith joined the Board of Governors in 2013 and says his apartment investments are all off-campus.

"I have never owned an asset that had ANY support or relationship with any university," Smith said in an email to WRAL News. "Just all stand alone private housing."

Smith went back and forth with ECU officials on the Greenville apartment deal for six months. In early September 2016, he emailed Bissette and others: "I've walked away 5 times but I believe if it's negotiated correctly (it) could be a massive opportunity for ECU too."

By mid-month, with university system general counsel Tom Shanahan asking Smith via email for a sit-down on potential conflicts of interest, Smith declared the deal dead, saying he was convinced by university figures showing a lack of housing demand. Preiss said the apartment complex has since been purchased by FM Capital, a company that deals in distressed properties and hired Preiss to manage the complex.

Smith said his ECU deal would have required approval from the Board of Governors and ECU's Board of Trustees, something Tom Shanahan noted in the email chain on potential conflicts of interest. Smith said he planned to recuse himself from any votes if the deal got that far and that he wasn't trying to hide anything, as shown by repeated emails copying campus and university system officials.

“I don’t know who else I could have communicated it with except Jesus," he said.

"All somebody had to do was say, 'You can't have this conversation,' and it would have stopped," he said.

Lack of demand killed deal

Kieran Shanahan, who isn't related to Tom Shanahan, said the proposal never made business sense, sparing university officials from having to confront Smith about the potential conflict.

Niswander, ECU's finance director at the time, laid out arguments against the project in a 2016 email released Tuesday through the open records act: The Greenville apartment market was overbuilt. The complex in question was 3 miles from campus. How could the university tell parents that sophomores have to live on campus, then place them that far away?

"That is a disaster," Niswander wrote. "The project is in foreclosure for a reason, not by accident."

"There were ample business reasons," Kieran Shanahan said Tuesday, "for not doing it that didn't require us to confront Harry on the other aspects."

Shanahan said he believes Smith, who attended ECU, has the university's best interests at heart, and he chalked the apartment proposal up to a longtime businessman with a strong personality being unfamiliar with the way things work in public service.

"I would not ascribe negative motives," he said. "Maybe naive."

But Shanahan had a testy email exchange with Smith last month, after the story broke on the N.C. Central lawsuit. Staton, Niswander, Tom Shanahan and ECU Trustee Edwin Clark are copied on it, and the two go back and forth about how the 2016 talks played out.

Kieran Shanahan lays out his recollection, saying Smith made it clear ECU would have to guarantee to fill hundreds of beds to make it work.

"You were asked during the meeting about the ethics and optics of a BOG member participating in such a transaction," Shanahan wrote.

As it became clear the deal would not move forward, Smith told Niswander that one of the other members of the Board of Governors "asked that I put together the economics of what ECU walked away from." A day later, Niswander emailed Staton: "Heads up. There may be a couple of local trustees who want you to intervene in a property decision."

Months earlier, Smith had emailed Niswander seeking financial information about the intramural fields adjacent to the foreclosed complex, saying they were a bad investment for the university. Niswander said they'd been bought about 15 years previous and that students use them extensively.

"I'm not buying that," Smith responded. "I think it's a pig and we are putting lipstick on it."

"You were not 'cleared'"

Kieran Shanahan also said Smith told him and others that he'd cleared the apartments deal through Tom Shanahan as the university system's general counsel.

In an email last month, Kieran Shanahan told Smith that he asked the attorney about this and was told "it would not be proper" for a board member "to participate in a deal with the university that financially benefited them."

"So you were not 'cleared' to do the deal when we met," Kieran Shanahan told Smith via email.

Other university officials declined interview requests, with university chief communications officer Tom Eppes calling the emails self-explanatory.

Smith has publicly sparred in recent years with ECU administrators and the Board of Trustees over a $1.3 million home purchase for the chancellor, an expansion at ECU's football stadium and the 2017 decision to extend Athletic Director Jeff Compher's contract for five years.

Compher agreed to step down this year, with a $1.26 million buyout.

"I guess, when you do stuff like that, you get some haters," Smith said this week "I'm not upset at my haters, either. Life's too short for that."

Smith has given at least $96,000 to North Carolina political campaigns in the last six years, including to key Republican Senate leaders Harry Brown, Bill Rabon and Phil Berger, the Senate president pro tem responsible for appointing Smith to the Board of Governors. He's also given to campaigns for House Speaker Tim Moore and former Gov. Pat McCrory.

In the April 2018 email chain, Smith encouraged Kieran Shanahan to go back and read older emails about the apartment deal "without emotion" to see how Smith kept university officials in the loop. Every discussion was centered on building a new revenue stream for ECU, Smith wrote.

"Very very open communication," Smith wrote.

Kieran Shanahan's reply is two sentences: "I am done discussing it with you as well. I was in the meeting so I know what was said."