Council weighs in on controversial Heer's incentive

The parameters of the proposed incentive have been narrowed since Kevin McGowan with McGowan|Walsh originally pitched it to city officials earlier this summer. According to a term sheet that went to council in July, McGowan was seeking 50 percent of the city’s 5 percent hotel-motel tax generated from the redeveloped property. He also asked that the city throw its support behind a formal request to the Springfield Convention & Visitors Bureau board.

A scaled-back version of the incentive now before council would give McGowan the right to request half of the revenues from the original 2 percent hotel-motel tax levied in 1979. It also has been rewritten to state the city would “not actively oppose” McGowan’s request to the CVB board.

City consultant David Queen, an attorney with Gilmore & Bell PC in Kansas City, said McGowan|Walsh introduced the request during the negotiation process because the firm has received similar incentives in two other cities.

Springfield City Attorney Dan Wichmer said the city has calculated that the incentive, if granted, would equate to about $19,000 annually for McGowan, who plans to renovate Heer’s either as a boutique hotel or a block of high-end condominiums above a Mike Shannon’s Steaks and Seafood Restaurant.

City officials said McGowan, who could not be reached for this story, still hasn’t decided whether a hotel or condos would work best for Heer’s. McGowan has until Nov. 1 to finalize his request for incentives, and the city must enact the perks by Jan. 1 under the proposed agreement. Council is expected to vote on the proposal Aug. 27.

Met with controversy

At an Aug. 21 luncheon, council members latched on to the controversial incentive, with many suggesting it would be unfair to other hotel developers and companies that have invested in Springfield properties.

“I have a real problem giving him an unfair advantage over other hotels and motels,” said Councilman Denny Whayne.

Doug Burlison was another council member who expressed reservations.

“I (am) uncomfortable setting a precedent like this,” he said. “I think that’s a whole can of worms we shouldn’t open.”

But CVB Executive Director Tracy Kimberlin said the bureau’s executive committee has informally supported the agreement as written. Kimberlin noted that the agreement prohibits McGowan from backing out if the CVB board doesn’t grant his request.

Although some CVB representatives publicly decried McGowan’s original request, Kimberlin said the bureau wouldn’t take an official stance on the developer’s scaled-back tax break unless he formally approaches the board about the incentive. Kimberlin did, however, say that the Springfield Hotel & Motel Association remains against it.

“It’s not the amount, it’s the principle,” he said.

Kimberlin also noted that such incentives are commonly requested by developers throughout the country.

When asked whether the Heer’s project should be treated differently because of its role in downtown revitalization, Kimberlin said other developers have purchased economically depressed properties in Springfield and privately invested millions of dollars to build hotels on the sites.

Gordon Elliott, owner of Elliott Lodging, is among them. Like Councilman Burlison, Elliott thinks the city should avoid diverting hotel-motel tax revenues.

“I think it would set a bad precedent to take funds for tourism and divert them to other purposes,” Elliott said. “I just don’t think you can bend on this one.

“I’ve spent millions on developing properties in Springfield … and I’ve never asked for city dollars for a private venture,” he added, pointing to the Best Western-Rail Haven at St. Louis Street and Glenstone Avenue as an example.

Elliott also questioned whether a hotel on Park Central Square was justified, with several quality developers vying to build a convention center hotel several blocks east of Heer’s on a former arena site owned by the city.

“I think they’re pushing the development of a hotel in the square, which probably is marginally going to be successful,” he said. “I don’t see a big demand for that.”

Sale and construction terms

While McGowan’s request to divert hotel-motel tax revenue was met with opposition by the CVB and the hotel association, the rest of the terms spelled out in the proposed development agreement seem to have passed muster.

McGowan|Walsh – doing business as Heer’s Building LLC – has agreed to buy the former department store for $3 million. The sale must close within 60 days of signing the agreement, and the developer has agreed to pay the city $1,400 for each day of inactivity if construction isn’t under way by Sept. 1, 2008. The maximum penalty is $250,000.

The city has reserved the right to buy back the building if McGowan|Walsh doesn’t start construction by March 1, 2009.

Under a “put option,” the buyback price would be the purchase price, plus direct and indirect developer costs as well as overhead and markup equal to 15 percent of direct and indirect costs.

The contract stipulates that the city would receive sales tax revenue from the first $1.25 million in sales at first-floor retail establishments to pay down bond debt associated with a publicly funded parking deck currently under construction adjacent to Heer’s.

The city also has committed to a $1 million renovation of Park Central Square, with design work to be finalized by March 1 and construction under way no later than Aug. 1. McGowan|Walsh will be involved in the process, according to the agreement.

The city has owned the former department store since December, when previous owner Vaughn Prost ceded ownership and sidestepped the city’s plans to foreclose on his acquisition loan days later. Prost, of Jefferson City, had planned to redevelop the building but missed a series of construction financing deadlines.

“We have a loan that’s coming due,” attorney Queen reminded council members, “and we need to sell this building.”

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