Developers stymied by less favorable loan terms amid credit crunch

Major commercial and residential development projects with ties to Springfield are sputtering - and in many cases, stalling out - as widespread paralysis grips credit markets amid a history-making financial crisis.

The same day the U.S. House of Representatives voted down a controversial $700 billion plan to rescue some of the country's largest banking institutions from failing, Springfield City Council heard from a prominent local developer on the losing end of the lending lockdown.

John Q. Hammons Hotels & Resorts Inc. has been unable to obtain financing for a $50 million, four-star hotel in center city, said Scott Tarwater, senior vice president of development. Hammons had hoped to break ground on the 150-room hotel - situated on 1.7 acres between the Exposition Center and Jordan Valley Car Park - later this year, but an amended agreement approved by council gives him until April 1, 2010, to start construction.

"Until the market readjusts itself and the players calm down and the government figures out how to start that flow of commercial lending in those amounts ... again, then we have to sit on the sidelines," Tarwater said.

Other projects temporarily shelved by Hammons include a $50 million resort hotel and golf club planned near the Branson Airport and a $46 million convention center in Russellville, Ark. Construction on both projects was scheduled to begin this fall.

While Hammons has six fully financed construction projects under way and another three hotels scheduled to open within the next month, other developments are on hold.

"We keep a four- to five-year development pipeline full of potential projects and this will certainly ... delay some of those," Tarwater added.

Large-scale lenders still standing amid the shakeout have shifted to a new paradigm by requiring considerably larger investments from developers before approving loans at significantly higher interest rates, Tarwater said.

While financing is perhaps riskiest for hotels right now, condominiums - like those planned in the Heer's building - are not far behind, said Kevin McGowan, president and CEO of St. Louis-based Blue Urban LLC.

McGowan said global turbulence in the credit markets has derailed his plan to renovate the downtown Springfield landmark as 38 high-end, for-sale condos above a Mike Shannon's Steaks and Seafood Restaurant.

"The markets are not likely to improve for at least 12 months," McGowan said. "I think the credit crunch that we're in is going to get worse well into '09. ... What does that mean for development? Nothing but bad things."

Developer disadvantage

McGowan said he's now exploring alternate development strategies for Heer's and is in talks with a potential commercial tenant that would occupy several of the building's eight floors.

"The only thing I can say is this tenant would be outstanding for downtown," he said. "It would bring hundreds of employees. They would fill restaurants and shop in shops. They would fill parking garages. This would be a great fit for Springfield, but there's an awful lot of work to do before it happens."

McGowan said a new Heer's development concept would likely include some sort of residential component - possibly a mix of condos and apartments - and that St. Louis-based Shannon's remains committed to the project, which is again facing delays.

"The only way that Heer's - or just about any rehab project - is going to get started now or in '09, you're going to have to have all of your commercial (space) preleased for 10 years, and you're going to have to have a strong residential component and it's going to have to be backed up by a very strong appraisal," he said.

Shockwaves from Wall Street's financial meltdown and debate surrounding a multibillion-dollar congressional rescue plan for companies on the brink of collapse have prompted many lenders to return to extremely conservative financing models, McGowan said, noting that many are requiring 25 percent to 30 percent developer equity.

"That's actual hard cash," he said. "And I would say there's no developer in the country that's willing to put up 30 percent cash equity. Why? We'll all wait."

Bank of America is among the lenders now requiring borrowers - especially those wanting loans for cars and homes - to make larger down payments, said southwest Missouri Market President Jamie Esch. And while commercial loan terms are more restrictive than they were, Esch said Bank of America's pullback hasn't been as jarring as those at smaller banks with more aggressive lending practices.

"We examine all industries with a little more scrutiny now than we did ever before just because the uncertainty in the market," he said. "And right now, businesses and developers are in a holding pattern because the favorability of the loan terms isn't necessarily what it was in the past."

Retail riptide

Despite the credit chaos, Springfield developer Bill Jester is powering ahead with plans to build the $110 million Oklahoma Plaza in Claremore, Okla., - but he recently divided the 129-acre mixed-use project into four phases after consulting with his lender, Oklahoma-based SpiritBank. The phases are based on tenant demand.

"We're not stalled, but it has slowed," said Jester, president of Resource Development Inc. "There's no question about that."

Commercial developments have ironically taken a major hit as a result of a financial crisis fueled by subprime mortgage loans made to high-risk homebuyers, Jester added.

Consequently, Claremore - a growing Tulsa suburb that's losing $700 million annually in retail leakage to other markets - will now have to wait much longer for the tax-revenue benefits of Oklahoma Plaza.

"It's a torpedo blast right in the middle of our ship," Jester said.

First-phase construction activity will ramp up in the next 60 days as a contractor is lined up to build a CVS Pharmacy. Jester also is in conversations to secure Holiday and Hampton inns and four regional restaurants. Remaining phases would be staggered about 18 to 24 months apart, based on financing conditions.

Meanwhile, Jester will be working to secure larger retailers to anchor Oklahoma Plaza. Many of those retailers, however, have drastically altered the number of new stores they plan to open in coming months.

Springfield's best-known retailer, Bass Pro Shops, has consistently postponed the construction start date for an Outdoor World store in northern Alabama. In March, Bass Pro announced it would build a 144,000-square-foot store near Decatur, Ala., that was tentatively scheduled to open next spring.

Bass Pro spokesman Larry Whiteley attributed some of the holdup to the shopping center developer and city, but he suggested the store could still open in late 2009 or early 2010.

"Like any smart retailer or business of any kind, we'll keep an eye on the economic conditions and see what happens," he said.