Heer's developer: Credit market crushes condo plan

St. Louis developer Kevin McGowan said he's exploring an alternate development plan for the Heer's building in response to a widespread unwillingness by banks to finance risky condominium projects.

McGowan, president and CEO of Blue Urban LLC, told Springfield Business Journal late Tuesday that he's in talks with a potential commercial tenant that would occupy several floors of the eight-story landmark, which he originally planned to renovate as 38 upscale condos above a Mike Shannon's Steaks and Seafood Restaurant.

"I can't talk even in general terms about (the potential tenant)," he said. "The only thing I can say is this tenant would be outstanding for downtown. 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 St. Louis-based Shannon's is still committed to occupying the ground floor of the former department store, which would likely include some sort of residential component - possibly a mix of condos and apartments.

"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 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," McGowan said.

Shockwaves from Wall Street's financial meltdown and debate surrounding a $700 billion congressional bailout plan for companies on the brink of collapse have prompted many lenders to return to extremely conservative financing models, McGowan said.

"Conventional lenders today want 25 (percent) to 30 percent developer equity in any project. ... 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."

McGowan said he anticipates future amendments to his redevelopment agreement with the city, which sold Blue Urban the dilapidated structure for $3 million in November. The following month, McGowan announced he would renovate Heer's as condos, including a $750,000 penthouse in the building's signature tower, at a cost of $26 million to $30 million.

This summer, though, Heer's renovations were put on hold after a City Council-approved redesign of Park Central Square was stymied by a Missouri State Historic Preservation Office review of the park's historical and architectural significance.

In late July, council approved an amended redevelopment agreement that eliminated a clause authorizing McGowan to sell the building back to the city if square renovations didn't start by Aug. 1. McGowan's deadline to begin work on Heer's also was pushed back to Feb. 1 in the amended agreement, but he's doubtful the timeline will stick. A mid-2009 start date would be more likely, he said.

Phil Broyles, assistant public works director for the city, said council on Monday awarded a $1.03 million contract for streetscape work - new sidewalks and lighting - around the square's outer edge to Hunter Chase & Associates, of Springfield. He said the city expects to issue a notice to proceed later this month, with construction expected to begin on the square's southwest quadrant in early November.