CIM, which purchased the Lady Luck casino last year, wants to develop the surrounding area, which includes the parcel commonly referred to as the Post Office block, into an entertainment and retail corridor. The Post Office block is bordered by Stewart Street, Casino Center Boulevard, Fourth Street and a ramp that leads from U.S. 95 to Las Vegas Boulevard.

The disposition and development agreement approved by the council creates a public-private partnership in which the city remains responsible for the Post Office Building on Stewart Street, which is being converted to the Mob Museum. CIM would develop the surrounding parcels and, potentially, the Ogden Street Garage property located on Ogden Street at Fourth Street.

The city owns all of the land except for a small parcel adjacent to the freeway ramp owned by the Nevada Department of Transportation, which would also have to sign off on the deal.

Las Vegas city officials bristled at recent reports that the agreement amounts to a cut-rate deal for CIM.

A view looking northwest, of the Lady Luck casino under renovation in downtown Las Vegas on July 1, 2008. The mob museum will be housed in the old federal building/post office at center right. Stewart Avenue, separates the Lady Luck from the mob museum site. STEVE MARCUS / STAFF PHOTOGRAPHER

"What we've found downtown is that there's a formal set of comps (comparable sales statistics) out there that have been driven by a few closings that are keeping the values fairly high in appraisals," Adams said. "But then there is a level way lower than that which people are actually willing to trade at and purchase at."

Earlier this year, Forest City Enterprises purchased a few holdout properties on Main Street at a price well above the appraised value in order to complete its assemblage of parcels needed for its downtown project. The parcels were strategically located within the development area and Forest City had to pay a premium for them to keep the project on track.

The Forest City development includes retail and commercial office space and a transit center. It also includes a new Las Vegas City Hall, which Adams said Forest City has agreed to build essentially at cost because of the value it adds to the overall project. Ironically, this project that will ultimately benefit the city administration down the road is providing fuel for its critics now.

Jeremy Aguero, a principal at the consulting firm Applied Analysis, said it is not uncommon in a stagnant market for a few parcels purchased above the market rate to artificially inflate real estate estimates in an area.

Real estate appraisals, he explained, are determined, to some degree, by the recent prices paid for other parcels in the same geographic area. If there are not a lot of parcels changing hands, as has recently been the case in that part of downtown, parcels purchased above real market value can significantly skew estimates for the area.

More than a year ago, when the real estate market was stronger than it is today, the city began purchasing parcels across Las Vegas Boulevard from City Hall for use as a potential arena site.

Those parcels, located just a few yards from the Ogden garage and Post Office block sites, were purchased for between $75 and $100 per square foot, on average.

Now, with the market stagnant for more than a year, the appraisals for the Post Office block range from $99 to $170 per square foot, depending on whether gaming is included in a project. The Ogden garage appraisals came in recently at between $250 and $390 per square foot.

In the deal approved by the city council unanimously, CIM will pay the city $75 per square foot for the Post Office block if gaming is not part of the project and $140 per square foot if it is. CIM will also have an option to purchase the Ogden garage parcel for just over $149 per square foot, provided it pays $500,000 for site renovations.

The long-term market activity seems to provide a more accurate picture and suggests the prices in the proposal are reasonable, experts said.

As with any major development in Las Vegas, there is more here than meets the eye. There are almost always people on the periphery of a project with a separate agenda looking to stir the pot.

The Culinary Union, which wants a card check agreement with CIM for the Lady Luck, obtained e-mails from city officials through a Freedom of Information Act request and gave them to the media. The e-mails were between Adams and CIM's Jeff Rosen and Adams and other city officials. They indicated appraisals were higher than anticipated and changes needed to be made to the proposal.

Some media outlets suggested the e-mails were a smoking gun that proved the city was making a cut-rate deal.

Adams, however, said the added discrepancy was largely because the appraisals were based on gaming being part of the Post Office block development; something CIM had never indicated was in its plans. The change in the DDA merely increased the purchase price if CIM chose to include gaming as part of the project.

He dismissed the assertions by the media regarding the intent of the e-mail correspondences.

"I've been doing this for a long time," Adams said. "I don't write anything in an e-mail that I don't expect to be made public."

In fact, last year a reporter for another local publication also used a FOIA request to obtain e-mail correspondences between Adams and a different CIM official. Suggesting that Adams would subsequently use e-mail correspondences to justify a cut-rate deal with the same developer seems almost foolhardy.

Real market value, Adams said, is ultimately determined by how many groups have an interest in parcels and what they are willing to pay.

While there are differences between commercial and residential properties, anyone who has tried to sell a home in the valley recently can probably understand this explanation.

The job of the city administration is to determine not only whether estimated land values are accurate, which in this case they may not be, but also to look beyond just the numbers.

Other factors, such as the potential benefit of a proposed project to the overall redevelopment picture and the credibility of the developer must also be considered.

CIM has a proven track record of successful redevelopment projects in California and it is the fund manager for more than $4.5 billion in equity funds. Its projects include the Third Street Promenade in Santa Monica, and a host of developments in the Gaslamp District in San Diego, downtown Los Angeles and Hollywood. It has a reputation as a developer of neighborhoods, not as a single-parcel investor and its proposal here reflects a similar strategy.

Besides, there don't appear to be a lot of developers lining up to buy in that part of downtown. The $10.5 billion arena project proposed last year by Michigan based-REI is a prime example of what happens when a developer's ambition supersedes its ability to deliver. That project is essentially dead and those parcels of land will likely have to wait until the next development cycle to be renovated.

Council members Steve Wolfson from Ward 2, Ward 4's Larry Brown and Steve Ross, representing Ward 6 all spoke out in favor of the CIM project, saying the city should take the bird-in-the-hand from a proven developer.

Mayor Oscar Goodman echoed those sentiments.

"I think it's a great deal for the city in many respects," Goodman said. "This is not a wing and a prayer."

Goodman said he is confident the developer can take what he called a "blighted former casino site" in the Lady Luck and make it into a first rate hotel property with an accompanying retail, restaurant and entertainment corridor.

"This is an easy call," Goodman said. "The city doesn't give or sell anything until (CIM) performs on the Lady Luck."

The deal is contingent upon CIM meeting its targeted construction and completion dates of December 31, 2009 and December 31, 2011, respectively.

If the project is completed as presented, CIM will spend an estimated $118 million on renovations of the Lady Luck and between $317 million and $485 million on the Post Office block depending on the size of that project.

The entire CIM development, including the Lady Luck renovation, is expected to add between 2,100 and 2,500 jobs to the area and net between $34 million and $49.8 million in new taxes.

Mark Hansel covers retail and real estate for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4069 or at hansel@lasvegassun.com.