Three years ago, the McDaniel, Woodruff and Landmark buildings were bleak reminders of their former selves. The Vecino Group and developer Matthew Miller took notice and have since invested millions into their collective potential.
Blocks away, the Heer’s building vacant for two decades is now similarly poised for long-promised reconstruction by its Kansas City owners.
The developers forwarding fresh plans for downtown Springfield’s landmark structures point to tax credits and other local, state and federal financial assistance as linchpins to turning their enterprising pipe dreams into redevelopment reality.
Old buildings are beginning to discover new life. But it’s a complex financial maze for private developers to navigate, and the list of funding mechanisms is long: personal equity, tax-credit equity, city loans, tax abatements, bridge loans, permanent loans, facade loans, state agency loans, affordable housing financing, tax-exempt bonds, low-income tax credits and federal historic tax credits.
“There are any number of sources out there, including our own pocketbooks,” said Miller, co-owner of The Vecino Group, which recently converted the former Landmark office building to multifamily housing dubbed The Frisco. “I can promise you that none of the projects we touch would happen without some form of city, state or federal support.”
For example, low-income housing tax credits were an obvious option with The Frisco, a $9.7 million affordable housing complex now home to roughly 15 tenants.
“We won’t be satisfied until we are 100 percent leased, but so far, so good,” Miller said of the 68-unit building.
Vecino Group’s McDaniel and Woodruff buildings are currently being gutted. Miller said demolition was roughly 80 percent finished at the Woodruff, which the developers plan to turn into upscale apartments dubbed Sky Eleven by 2016.
Financing methods for the $15.5 million Sky Eleven redevelopment span a $275,000 city loan for environmental cleanup, 25 years of property tax abatements and federal historic preservation tax credits representing $12.05 million in qualified redevelopment expenses.
Vecino Group’s three downtown projects represent $32 million in development. For Miller, who declined to disclose all of the group’s funding sources, redevelopment happens only with the right projects and with a solid financing plan in place.
“Everything ends with a pro forma that works, right? And everything starts with our mission statement,” Miller said. “Every project that we enter into, we want it to address a broader issue and impact an entire community.”
From the city’s standpoint, given each project is uniquely structured, Springfield Economic Development Director Mary Lilly Smith said public incentives are guided by the Economic Development Incentives Policy Manual adopted in 2011. In recent years, she said many student-housing developers have used Chapter 99 bonds to receive a 10-year property tax abatement for improvements in blighted areas.
“Whenever I meet with someone for the first time, I’ll give them a copy of the incentives policy manual. That lays the framework for what’s available and what we’re going to consider,” Smith said. “The first time I met with the Dalmark Group, I gave them a copy, and we talked through some incentives. When we sat down to negotiate the development agreement, at the end of the day, they said, ‘We’ve looked through this policy manual – is there anything we’ve left on the table?’ So, they really used it. And that’s great. It was developed to let people know what we’d consider.”
Lee’s Summit-based Dalmark Development Group is partnering with Shawnee, Kan.-based general contractor Straub Construction to redevelop the former Heer’s department store into 87 apartments via Heer’s Luxury Living LLC. The $15.7 million project is being funded through a combination of property tax abatements on new improvements, federal historic preservation tax credits and a $750,000 small-business loan through the city. Through the National Parks Service, Heer’s Luxury Living has secured $11.7 million in estimated federal historic tax-credit expenses, though Dalmark CEO Jim Nichols said in January he expected tax-credit sales to generate roughly $5.6 million to support the redevelopment plan.
With tax credits doled out typically across a 10-year period and designed to cover only approved expenses, such as a percentage of contractor overheard, Miller said the sale of tax credits usually only generates a fraction of the government’s total estimated expenses.
“That’s a moving target,” Miller said of the $12.05 million in qualified federal historic tax credit expenses for the Sky Eleven project.
He expects Vecino to garner much less in a tax-credit sale, though he declined to make a projection.
Nichols, who has a development portfolio through Dalmark that exceeds $100 million and includes the $7.7 million renovation of the Hyde Park Hotel in midtown Kansas City, did not respond to multiple requests for comment on this story.
A longstanding debate about private developers profiting from public incentives such as tax credits and property abatements for the sake of new development continues among state legislators and has recently surfaced in Springfield City Council chambers.
Springfield Councilman Craig Hosmer has voiced concerns about real estate developers leaning too heavily on tax abatements and the effects on tax-funded services such as the school system and law enforcement.
Walt Nelson, a licensed real estate broker who teaches real estate courses at Missouri State University, also has concerns. Nelson said historic tax credits and other targeted incentives direct behaviors, but that might not be the best approach to determine project viability.
“We are killing our tax structure so we can save a few old buildings with lead paint,” Nelson said.
While he doesn’t blame developers, Nelson said public financing opportunities can create unintended consequences, and it’s surely not a silver bullet. For example, the Heer’s building has sat vacant for 20 years even with various developers creating complex financing and incentives packages.
Nelson said new developments need adequate parking more than anything, a concern he has with the four notable downtown redevelopments. Nelson said a 3-1 parking-to-retail space ratio is common.
“If you want to save the Heer’s building, you should knock down three others,” Nelson said of creating more parking spaces downtown.
As a developer with experience in the trenches, Miller contends his involvement the past two decades on downtown lofts and redevelopments, such as Wilhoit Plaza, Founders Park Lofts and MSU’s Brick City, would not be possible without the support of tax credits and government financing. The work has improved the community and deterred vagrants from occupying big, empty buildings, he said.
“As a community, we have to decide if we want these types of tax credits, if we want these types of incentives and abatements. If the answer is ‘no,’ we’re going to have buildings like the Woodruff and McDaniel sit empty. We are going to have prostitution rings in the Landmark.” Miller said.
“When I started in downtown Springfield, you could throw a rock and not worry about hitting anybody. Where it has come now is absolutely jaw-dropping.”
The Vecino Group’s next step is opening the former McDaniel building as student housing with 39 units. An estimated $7 million project, The U is expected to be complete by August, Miller said.[[In-content Ad]]
