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Real estate developer Kevin McGowan faced a Nov. 30 HUD deadline for a loan application to be turned in for the Heer's building project.
Real estate developer Kevin McGowan faced a Nov. 30 HUD deadline for a loan application to be turned in for the Heer's building project.

Heer's developer to pay $137K to ex-partner

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St. Louis real estate developer Kevin McGowan, who is trying to develop Springfield’s Heer’s building on the square, said a recent summary judgment against him in favor of former partner Nat Walsh shouldn’t slow the project’s progress.

Walsh was awarded a summary judgment of $137,398 on March 1, in St. Louis County Circuit Court. McGowan appealed the judgment Oct. 26 in the Missouri Court of Appeals Eastern District, and the appeal was denied the same day.

McGowan and Walsh took on the Heer’s project together in summer 2007 but dissolved their partnership later that year. In three years together, they developed some 20 historic renovation projects in St. Louis and Kansas City, totaling $300 million. After the breakup, the two agreed to a reorganization plan that split company assets and projects, but Walsh said a breach of that agreement prompted him to file suit against McGowan in October 2008. The suit sought $400,000 from McGowan, the amount of Walsh’s consulting fee on the Heer’s project.

According to the consulting agreement regarding the role Walsh would play in the Heer’s building development, Walsh was to review and consult with the owner regarding title matters and consult with the owner regarding sales and leasing efforts for the project.

Walsh alleged in his motion for summary judgment that he did not receive a payment by Oct. 1, 2008. “This petition is for the first $100,000,” Walsh said.

“I’m an interested party,” Walsh said.

Cloudy future
The future of the project remains cloudy, after a series of missed deadlines for a key U.S. Housing and Urban Development loan.

McGowan’s financial plan for the Heer’s project comprises $11.8 million in HUD funds; $5.2 million in federal historic tax credits; $4.9 million from a state historic tax credit bridge loan; $2 million from a Springfield small business development loan; and $1 million from a Missouri Development Finance Board loan through the city. He’s scheduled to contribute $4.4 million of his own money to redevelop the building into apartments, restaurant and retail.

McGowan missed an Oct. 6 HUD application deadline for insurance approval, but Berkadia, the loan company he is working with, has been granted an extension until Nov. 30.

“It has been in the hands of the broker for weeks, so we just look forward to getting in on the 30th,” McGowan said.

McGowan said the application carries a fee of $40,000, but HUD spokeswoman Dale Gray said she would not confirm that amount.

“We can’t confirm the application fee because we don’t have an application,” Gray said, noting the fee is determined after the application is received.

McGowan emphasized that he doesn’t believe another extension would be sought.

“I don’t talk with HUD. The broker does all the talking,” McGowan said. “I can’t imagine why the broker would be talking about another extension. I would be surprised to hear that there was any discussion about an extension.”

If the Nov. 30 deadline is missed, McGowan likely would have to start over in the process, Gray said.

“We would have to see if we hear from him to see if there are extenuating circumstances or issues,” Gray said.

McGowan’s legal battles
In McGowan’s appeal, he argued that the judgment should not have been issued because there were disputes over the work Walsh provided; attorneys’ fees; and whether McGowan sold 50 percent of the interest in Heer’s Building LLC.

The appeal stated that in the event that 50 percent of the building is sold, the entire consulting fee would be paid from closing proceeds. McGowan argued that Walsh failed to address the assertion in his suit. The appellate court upheld the trial court’s ruling.

“I have covered the losses – Mr. Walsh’s and mine – at McGowan/Walsh for the last three years,” McGowan said. “That certainly has impacted the financial health of Kevin McGowan.”
Amid the legal proceedings McGowan faced with his former partner, he also dealt with other legal battles.

A pair of foreclosure notices was filed by Bank of America against McGowan/Walsh projects Ballpark Lofts I and Ballpark Lofts II in St. Louis, as well as an $85,086 federal tax lien filed Sept. 10 against McGowan. A Nov. 23 foreclosure sale for the downtown loft buildings was postponed until Dec. 7.

In Springfield, McGowan said a winterization process on the Heer’s building would soon begin. Windows will be boarded up and masonry and roof repairs are to be completed before snow falls.

“We’ll basically get the thing as weather-tight as possible,” McGowan said. “Assuming that construction starts in the spring, then we’ll start. If not, that thing will be boarded up nice and tight until we figure out Plan B.”[[In-content Ad]]

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