City searches for Heer's developer

Prost missed his final deadline to secure financing Aug. 17. The next day, the city issued a request for qualifications from 11 developers who had expressed at least some level of interest in renovating the dilapidated building overlooking Park Central Square. And on Aug. 22, Prost’s redevelopment agreement with the city automatically expired.

The city had agreed to finance a 530-space parking deck connected to Heer’s, designed and built by Prost’s company, Prost Builders Inc. The city also had granted Prost tax abatements and formed a special tax district to assess a 1 percent tax on retail sales in the building.

“I think we’re all disappointed it didn’t work out with Mr. Prost,” said Louise Whall, the city’s public information director. “He was obviously very committed.”

But Prost, who still owns the seven-story structure, wants people to know he’s not out of the picture just yet.

He said he fully intends to land major tenants, obtain the necessary financing and complete the $32 million in renovations as planned.

“The key thing right now is financially sound tenants and a significant number of them,” Prost said when asked about financing obstacles.

Leases and lenders

Prost has already borrowed more than $2.8 million from Great Southern Bank to acquire the building and pay for design work, according to city records. The bank holds the deed of trust on the property, and the city expects Prost to repay the loan when he closes on a loan for exterior construction work on the building.

Citing customer confidentiality, a Great Southern spokesperson said the bank could not discuss its financing agreement with Prost, who has repeatedly pointed to the project’s complexity. Success hinges on the right mix of partners, lenders, tax credits and tax districts, he said.

Lenders have set the bar high when it comes to the percentage of leased space and financial strength of future Heer’s tenants, but Prost said commitments from three prospective tenants looking at the building – two restaurants and a retail outlet – could clinch the deal.

Generally speaking, a commercial real estate lender requires at least 25 percent equity in a project, said Commerce Bank Regional President Bob Hammerschmidt. And enough building space should be preleased to ensure a “break-even cash flow” for debt service, Hammerschmidt added.

“That may be the crux of the issue to getting the financing,” he said. “That will drive the loan.”

Real estate agents Larry Grover and Skip Liebman with CJR Commercial Group are still working on Prost’s behalf to recruit the commercial tenants needed to round out the 148,252 square feet of leaseable space in the former department store, which has been vacant since 1995.

“We’re not done by any means,” Grover said.

News reports about Prost’s inability to obtain financing for the construction phase of the project hasn’t made Grover’s job any easier, though. Landing new tenants and explaining the hold-up to existing ones has been challenging, he said.

“We’ve had calls from tenants, and we assure them Vaughn is working to meet the obligations and promises he’s made,” Grover said. “It’s just taking a little longer than we had hoped.”

The city is leasing 5,000 square feet on the first floor for TV23 and another 10,000 square feet on the lower level to house a new transportation management center in conjunction with the Missouri Department of Transportation.

The state is slated to lease 13,500 square feet of office space. The space was originally intended for the Missouri Department of Health and Senior Services, but “they keep changing it on us,” Grover said.

Commercial heavy

The city is taking steps to line up another developer if Prost’s redevelopment plan stalls out.

Prost’s plan calls for 90,000 square feet of Class A office space on the first four floors, including the mezzanine level, and 23 presold luxury condominiums on the top three floors, including a penthouse in the building’s trademark tower.

At least one developer interested in taking over the Heer’s project said Prost’s plan has some inherent flaws that are likely causing complications in the financing arena.

The lion’s share of refurbished space in the building should be used for residential purposes, said Kevin McGowan of St. Louis-based redevelopment firm McGowan & Walsh.

“Those plans were not plans we felt were viable anywhere in the state of Missouri, but especially in Springfield,” McGowan said, suggesting the plan relies too heavily on commercial space. “The primary interest and the primary method to get these projects funded in the eyes of the lender … is this renaissance to residential movement downtown.”

McGowan & Walsh is overseeing historic renovation projects in Kansas City and St. Louis that encompass more than 5 million square feet of building space, McGowan said. The company is also prepared to acquire property for similar projects in Cincinnati and Cleveland if Ohio legislators approve a historic tax-credit program like Missouri’s, he said.

McGowan & Walsh targets “historic high-rises” in central business districts that are between 50 and 100 years old and transforms them into high-end residential lofts. McGowan said the amount of redevelopment occurring in Springfield’s center city attracted his firm’s attention a little more than a year ago, when representatives visited downtown and toured the Heer’s building.

“That’s an exciting building for the city to have on its square,” McGowan said. “The potential is great, but the fact that it’s sitting there in that state is not good.”

In McGowan’s mind, the building’s first floor should be renovated for retail/restaurant space and the second floor should be reserved for commercial tenants. The top five floors should be strictly residential, he said.

Market-driven momentum

City officials are hopeful the Heer’s project – a critical piece of downtown Springfield’s renewal – can get back on track.

“We need to keep that momentum moving forward,” Whall said. “But we want that building redeveloped in a market-driven way.”

Those words have been uttered time and again by former city manager Tom Finnie, who is still on the city’s payroll as a consultant.

Finnie wasn’t sure if Prost’s inability to secure financing for the Heer’s project was a reflection of the market, but he said it’s certainly plausible. The city originally chose Prost to spearhead the Heer’s project because, frankly, he was the only developer with historic preservation experience who was interested, Finnie said.

Now that his agreement with the city has lapsed, Prost is on a “level playing field” with other developers who have expressed interest in the project, Finnie said.

While still on the field, it’s unclear whether Prost will walk away the winner.

To date, he’s invested more than $6 million in the Heer’s building. Much of the money has gone toward remediation work, such as asbestos and lead paint removal. Prost purchased the building from Warren Davis Properties for $2.2 million in 2004.

Realtor Grover said he’s not surprised that several developers are interested in taking over the Heer’s project with so much of the brownfield remediation out of the way.

But Prost deserves credit for taking a risk on the Heer’s when no one else was interested, Grover noted.

“No one in this town – or the area – stepped up to the plate,” Grover said. “It’s easy for someone to come in after someone else has put their time and money and effort in.”

Prost said there’s a “distant possibility” another developer could take control of the pivotal redevelopment project with his blessing.

“Obviously, it can’t go on forever,” he said. “I don’t want to stand in the way of the development. We want to see this project developed.”

The Contenders

In Springfield

• Matt Miller, Matt Miller Co.

Specialization: Downtown redevelopment

Notable projects: $15 million

Wilhoit Plaza renovation; Founders Park Lofts

• Randy Magers, Magers Management Co.

Specialization: Shopping centers

Notable projects: $3 million

Battlefield Market Place; Town & Country Shopping Center

• Craig Wagoner, Brentwood Management

Specialization: Downtown loft development

Notable projects: $2 million Lofts at the Seville; The Brentwood (former Ozark Camera building)

• Curtis Jared, Jared Enterprises

Specialization: Office space construction and renovation

Notable projects: $1.2 million former Salvation Army building renovation

Outside Springfield

• The Osborne Co., Berryton, Kan.

Specialization: Commercial construction

Notable projects: Mel Tillis Theatre, Branson

• Harris Construction, Kansas City

Specialization: Retail, office and industrial facilities

Notable projects: Caterpillar Inc., Wamego, Kan.

• McGowan & Walsh, St. Louis

Specialization: Loft revitalization projects

Notable projects: Motor Lofts and Packard Lofts, St. Louis

• Jefferson Development Group, Louisville, Ky.

Specialization: Condominium and apartment development

Notable projects: The Edgecliff, 26-story, $30 million renovation, Cincinnati

• HCW Development Co., Branson

Specialization: Hotels and large mixed-use projects

Notable projects: $420 million Branson Landing on Lake Taneycomo

• Carleton Residential Properties, Dallas

Specialization: Affordable housing

Notable projects: $9 million Renaissance Courts townhomes, Denton, Texas

• Dexter Davis, Amvest Financial, Independence

Specialization: Investment Banking

Notable projects: N/A