Heer's project total comes to $29.2 million

[cobcob]

Copied from: http://www.news-leader.com/article/20108200360

Members of Springfield City Council have much to digest before Monday, when a plan to spur renovation of the downtown Heer's building is up for public hearing.

Difficulties obtaining the final $3 million needed for the $29.2 million project have stalled developer Kevin McGowan's plans for the building, but Mayor Jim O'Neal and city staff want the city to fill the gap with a low-interest loan.

They released a proposed term sheet and financing plan outlining the deal Thursday.

Heavy with acronyms and financial lingo, the seven-page document describes how the project will be paid for -- and lenders paid back -- along with various provisions and protections requested by the parties involved.

Key to the plan is a $2 million loan from one of the city's revolving loan programs, which, combined with another $1 million the city will borrow on McGowan's behalf, could provide the final piece to the long-running puzzle.

Both loans would be paid back with revenues from a proposed Tax Increment Financing District and a Community Improvement District sales tax.

Designed to pay off the debt within 23 years, the plan includes a number of provisions to limit the city's liability.

The City's Part

Under the proposed financing plan, the city would loan McGowan a total of $3 million, with two-thirds of the money coming from the city's Small Business Development Loan program.

The other $1 million would come from the Missouri Development Finance Board -- which doles out a variety of incentives to promote economic development in the state -- with the city acting as a middleman.

The loans, which carry interest rates of 5 percent, are to be paid off with money from two sources.

A TIF district will be created that will capture:

- 100 percent of the real property tax at the site over and above current collections, referred to as PILOT payments in the documents;

- 50 percent of the new city and county sales tax revenue (state sales tax is exempt), called Economic Activity Taxes or EATs.

As part of the agreement, McGowan will agree to abide by a fixed schedule of assessed property taxes designed to cover at least 70 percent of the annual debt payments.

The remainder will come from EATs revenues and a 1-cent sales tax levied by a Heer's CID that will replace an earlier one created before McGowan bought the building.



The proposal includes several safeguards for the city, including a provision (subject to approval by the U.S. Department of Housing and Urban Development) that McGowan won't get the $3 million until construction is at least 50 percent complete.

Another clause prevents him from paying any developer fees back to himself and other investors until the TIF and CID are generating at least 110 percent of the amount of money needed to pay off the city and MDFB loans.

"He needs a success in order for him to make any money," said Mary Lilly Smith, the city's economic development director. "We've tried to tie as many strings to this as we can so the loans are covered ... before he starts drawing any profits off the deal."

Even if council approves the "framework" contained in the term sheet, it will need to vote again once the details are finalized. And the loans still could be called off if other pieces don't fall into place.

For example, McGowan must have executed leases for all of the first-floor commercial space and conduct a market study showing adequate demand for the apartments above.

The MDFB and HUD must sign off on the deal, as well.

Having sold the Heer's building to Kevin McGowan in 2007, and no longer obligated to buy it back if he fails, the city is not directly invested in the project.

That's not to say the city has no stake in the building's future.

City leaders have dubbed Heer's the city's "number one redevelopment priority" and argue its success will benefit other businesses throughout Springfield.

A St. Louis company will serve as general contractor on the redevelopment, but 82 percent of the subcontractors will be based in the Springfield area.

The renovation is expected to create 181 construction jobs, with an estimated payroll of $8.2 million, and about 60 permanent jobs when the job is done, adding another $1.7 million in local salaries.

The long-promised renovation of the iconic structure, vacant since 1995, has incurred costs, as well.



More than $1 million in improvements to Park Central Square have been completed as part of an initial deal with McGowan and more are planned.

Federal grants covered the bulk of that work, but the nearby Heer's car park has proved more costly.

As of June 30, principal and interest on the car park, due through 2027, total $8.7 million.

Built as part of the city's contract with Jefferson City developer Vaughn Prost in 2004, the car park has been a drain on the city's general fund as plans for paying off the debt with other funding have fallen through.

Although McGowan has the option to rent at least 80 spaces in the garage at $35 a month, his deal with the city does not require paying off the car park debt.

The earlier CID allocated up to $12,500 in annual tax revenues to the car park. The new deal would eliminate even that meager contribution, leaving the city to pay the debt solely from general fund.

"We always anticipated there would be some general fund exposure," said the city's economic development director Mary Lilly Smith. "We see providing parking as basic public infrastructure for downtown development."

The debt has had one benefit -- it helped convince the Missouri Development Finance Board to participate in the Heer's financing plan, Smith said.

"They wanted the city to have real skin in the game," she said. "(The car park) showed city buy-in."

[Kit]

why is this a loan if tax money is paying it back?

[cobcob]

why is this a loan if tax money is paying it back?

Yeah... I was kinda cornfuzed by the whole article too...

Not to mention that I was surprised to find that it's going to cost $29.2 million to convert that ugly old building carcass into a WalMart...

[paul06660]

They should just tear the fucking place down.
Im tired of hearing about it.

[TooMuchCoffee]

We have (had) a TIF project in Fayetteville, where the old Mountain Inn was torn down to build a new hotel. That project is has been stuck in development hell for years now.
I view the TIF idea as a scam. You have a developer who can't afford or get a loan for his project. The city gives him the money using "captured" property tax money, which is usually dedicated to silly things like the schools, library, etc. The taxes pay back the loan with the idea that the project will generate revenue later and the city doubles it's investment. It's almost a risk free deal for the developer.
Except in our case.
The developer suddenly can't afford his project and the city is stuck with the bill.

[Nicotti]

Admit it Cobbers you started this thread to piss Willard off... assuming he's still around here.