City to foreclose on Heer's building

Foreclosure could mean the end of the line for Jefferson City developer Vaughn Prost, who bought the downtown building in 2004 and negotiated an agreement with the city to redevelop the former department store.

Last month, Springfield City Council approved a resolution to enter into a short-term, low-interest loan for $3.1 million with the Missouri Development Finance Board to purchase Prost’s loan from Great Southern Bank.

At the time, city officials said they would either negotiate to purchase the downtown building from Prost or foreclose on his loan, thereby taking ownership. As the building’s owner, the city would be free to pursue a development plan with any of the four developers, including Prost, who have expressed interest in renovating the vacant seven-story structure.

But the city has rejected an amended redevelopment plan submitted by Prost and announced its plans to commence foreclosure proceedings Dec. 19.

“We think it’s in the city’s best interest to foreclose at this point,” Assistant City Manager Evelyn Honea said. “Our goal is to satisfy the debt.”

City Attorney Dan Wichmer said the base point for bidding on Heer’s would be at least $3 million – the amount of debt the city assumed after buying Prost’s loan.

On Nov. 3, Prost said he received notice from the city that he had 10 days to pay off the loan. He said he responded by offering to pay the debt within 60 days if the city would agree to an amended redevelopment plan calling for more luxury condominiums but fewer rented spaces in an adjacent city-owned parking deck.

Prost originally planned to convert Heer’s into a mixed-used development with class-A office space and luxury condos on the upper floors and retail and restaurant space on the lower levels. He bought the dilapidated building for $2.2 million from Warren Davis Properties.

Prost’s revised plan would convert unleased office space on the building’s third and fourth floors into 18 condos, bringing the total number of for-sale condos to 41. But the design change requires significantly fewer rented parking spaces in the deck slated to be built behind Heer’s.

Wichmer said Prost’s new plan is essentially a deal-killer. The reconfigured design wouldn’t generate enough money to pay the debt service on the garage and would require more reserved spaces for condo residents, Wichmer said.

“It doesn’t make economic sense,” he said.

But Prost said the city shouldn’t foreclose on the property because his alternate plan calls for fewer rented parking spaces. After missing a series of financing deadlines, Prost said he now has financing commitments from Bank of America that are contingent on a continued partnership with the city.

“We’ve given them a good proposal … and they still do not want to work with me,” Prost said of the city. “If they don’t want to work with me and be my partner, it’s hard to get business done.”

But Honea said the city isn’t likely to renegotiate an agreement with Prost.

“He probably isn’t the city’s first choice,” she said. “We can’t take on any more liabilities with this project than we already have.”

Despite complications surrounding the project, city officials have said Prost is still a viable candidate to redevelop the building. But the recent move to foreclose on the loan suggests the city is preparing to replace Prost with a new developer.

Magers Management Co. of Springfield and Restoration St. Louis and McGowan & Walsh, both of St. Louis, have expressed interest in taking over the project. Wichmer said it’s “possible but not probable” that one of the development firms would attempt to purchase the building at the foreclosure auction.

Prost said there are a variety of possible outcomes, but he wouldn’t discuss his strategy in light of the city’s plans.

“We’re exploring all options, and I can’t be more specific than that,” he said. “There are numerous legal and business options available.”

Prost expressed concern about protecting his investment in the project, which amounts to $3 million beyond the outstanding loan amount, and likened the city’s actions to eminent domain.

“They’re taking something of value without compensation,” he said. “Is that a truly fair business arrangement? Is that a reasonable and fair way to treat developers?”

There’s a possibility Prost might pursue litigation to block the foreclosure proceedings or challenge a partnership between the city and another developer, Wichmer said. He added that a redevelopment agreement with a new developer would likely include an indemnity clause, protecting a developer from potential legal actions.

“For someone who wants to be a partner with city, he’s making noise like he no longer does,” Wichmer said.[[In-content Ad]]