Heer's plans stalled by tax credit case

Dalmark Development Group and Straub Construction are on the cusp of taking a step three previous developers never made with the Heer’s building. Dalmark and Straub are slated to begin construction on the Heer’s by April 1.

Dalmark already has signed a local leasing agent for the roughly 19,000 square feet of commercial space available – a sign of progress, but only weeks ago, carefully laid financing plans were in question.

Heer’s Luxury Living LLC co-owner Jim Nichols of Lee’s Summit-based Dalmark Development Group said construction plans were delayed by more than a month as developers of the long-vacant downtown Springfield landmark awaited an Internal Revenue Service ruling handed down in January.

“Everybody nationally had been waiting on a notice from the IRS as it relates to use of the historical tax credits, so that held us up waiting on that guidance. Now that guidance has come out, we can get back on track,” Nichols said, noting the ruling solidified the developer’s plans to generate up to $5.6 million in a historic tax credit sale for the $15.7 million Heer’s renovation.

On Jan. 9, the IRS tax court ruled a partnership to rehabilitate historic hotels in St. Louis wasn’t fully liable for taxes on $18.4 million in historic tax credit proceeds because some transfers were done within the partnership.

Gateway Hotel Partners LLC transferred the credits three times to a real estate developer, who obtained financing for a redevelopment project before moving the credits to another company under a purchase agreement. Because the initial transfers weren’t filed in tax returns, according to Law360.com, the IRS got involved. However, the court determined the tax credit transfers were done within the partnership and weren’t taxable.

Since the Heer’s developers were preparing to sell historic tax credits, Nichols said he wanted to wait for the IRS ruling before seeking an equity partner.

The developer’s plans conform to Secretary of the Interior Standards for the Treatment of Historic Properties, giving Heer’s Luxury Living the green light to sell the credits for equity, according to Nichols, who co-owns the Heer’s limited liability company with Ernie Straub of Shawnee, Kan.-based general contractor Straub Construction.

During the next several weeks, the developers will pitch potential equity partners, and once the credits are sold, construction would begin. On Jan. 22, Nichols said construction should start within 60 days and no later than April 1.

Heer’s Luxury Living plans to turn the building into a mix of 87 apartments, first-floor commercial space and luxury lofts on the upper floors. In August, the developers secured an estimated $2.3 million in property tax credits from Springfield City Council through the next 25 years, another component to the project’s viability.

The renovation plans call for converting the mezzanine and second floor into rental apartments targeting professionals and college students, while designing floors three through seven as luxury apartments with higher rent costs.

Top-floor units would include two-story lofts with rooftop patios. Rental rates range from $700 to $1,700 per month. Other planned amenities include concierge services, a clubhouse and pool on the third-floor roof deck and a fitness center.

In November, the developers hired Lee McLean III of Plaza Realty & Management Services Inc. to list the property’s commercial space. Nearly 19,150 square feet of commercial space is available for lease at $12.50 per square foot, according to LoopNet.com. An architectural rendering is posted with the online marketing materials, but the developers say revisions currently are underway.

With tenants expected to occupy at least 13,000 square feet on the first floor, McLean said he’s targeting three to six restaurant and retail tenants. He said the space can be built to tenant specifications.

“It is wide open at this point. There are some likely dividing points based upon where the common areas would be for building structure, elevators and so forth,” McLean said.

While he’s spoken with a handful of un-named parties, McLean said he gets the sense potential tenants are waiting to see renovations take place.

“I’ve begun to do some marketing. Most marketing, at this point, is direct contact with potential users – contacts that I have both locally and regionally,” McLean said. “I would expect momentum to increase once construction begins. Obviously, a lot of folks would like to see it get going before they fully commit.”

Nichols represents the fourth developer in the last 20 years to attempt to repurpose the former downtown department store. Warren Davis, Vaughn Prost and Kevin McGowan each failed to renovate the hulking, white structure that overlooks Park Central Square.

A 25-year property manager and developer, Nichols’ development portfolio through Dalmark exceeds $100 million and includes the $7.7 million renovation of the Hyde Park Hotel in midtown Kansas City.