Woodruff developers change plans, amend abatements

The Woodruff building developers scrapped their original financing plans, prompting a Jan. 26 return to City Council to amend the 25-year tax abatement plan.

The Vecino Group now is using traditional financing for the project dubbed Sky Eleven, 331 Park Central East, after a U.S. Housing and Urban Development loan fell through. Springfield Director of Planning and Development Mary Lilly Smith introduced a new plan on behalf of the development group, which had been approved for Chapter 353 tax abatements in May 2013.

“The developers at that time anticipated being able to take advantage of a very favorable HUD loan guarantee program – a 40-year fixed rate,” Smith said. “They were unable to secure that financing – it’s a very difficult process – and instead went for traditional financing. So, their borrowing costs increased significantly. In order to maintain feasibility, they had to reconfigure their project.”

If approved, the roughly $13 million redevelopment of the 100-year-old building would net an estimated $2.17 million in tax abatements, Smith said. Because of the new business model, however, she said improvements would increase additional taxes associated with the property to $839,000 over 25 years from $396,000 previously.

The developers now are pursuing a 90-unit apartment complex with a pay-per-bed lease arrangement model. Lease income and up-front expenses both have increased compared to Vecino Group’s initial proposal of 96 market-rate apartments with first-floor commercial space. As an added amenity, they also now are planning a pool, which increases the original planned redevelopment area by six-hundredths of an acre, Smith said. Because the previously secured abatement was tied to the original plan, Smith said the developers needed to request a new abatement.

“This is just an amendment to the one that was previously approved,” said Tim Roth, who is leading the renovation plans, after the meeting.

He said the project still meets the requirements needed to secure a 25-year abatement. “Based on that, there should not be any problems. I hope the city would rather see the project completed rather than a vacant building at the end of the square,” he said.

Roth said HUD interest rates were based on Treasury bills rates, which climbed higher than they had projected. When it became clear the loan was in jeopardy, Roth said he and co-developer Matthew Miller of the Vecino Group began to consider other options.  
They ultimately were approved for a construction loan through Bank of Missouri.

“It was either that or bail on the project and have it become another Heer’s story,” Roth said.

Under the new plan, he said lease payments would range from $600 to $895 per bed.

According to information submitted to council, amortization went to 25 years from 40 years and the interest rate increased to 4.75 percent from 3.55 percent.

To secure the Chapter 353 abatement, the development group has to show the project would not move forward “but for” the help of the tax abatement.  

Citing the plan, Smith said Vecino’s return on investment would be 4.84 percent without the abatement. With the tax break, the return is estimated to be 10.26 percent.

“At that point, it makes financial sense for them to invest their money in this project rather than putting their money in some other project,” she said during the meeting.

Under Chapter 353 of state statutes, redevelopment in blighted areas can be eligible for up to 25 years of tax abatements on new improvements with property taxes frozen at current levels for the first 10 years and reductions on 50 percent of improvements in years 11-25.

The proposal is expected to receive a second reading and vote at the Feb. 9 council meeting.

Abatements approved
Council approved three requests for tax abatements tied to center city student-housing projects, but the votes were not unanimous.

Council members Craig Hosmer and Cindy Rushefsky voted against all three, but seven of their peers chose to support the Chapter 99 tax breaks available in blighted areas. Since early 2013, council now has approved tax abatements for 13 redevelopment projects in areas with unsafe or unsanitary structures.

Matt E. Miller of Miller Commerce and Larry Snyder & Co. President Dusty Emmert are the developers behind the three proposals. Miller’s two projects are near Missouri State University, and Emmert’s is close to Ozarks Technical Community College.

Collectively, the projects could be in line to save up to $900,000 in property taxes over 10 years, according to estimates provided by a developer’s representative during a Jan. 12 public hearing.

Emmert is developing Greenway Studios in midtown, west of Silver Springs Park. His plans call for two- to three-story apartments with 84 microefficiency units. The construction budget is around $3.9 million and an abatement on improvements would save the developer $350,000 to $400,000 over 10 years.

Miller, who also has developed student apartments Deep Elm, The Monroe and The Jefferson with the help of Chapter 99 tax abatements, was approved to move forward with So-El District Lofts at 430-444 E. Elm St., and One House apartments at 405-415 E. Madison St. At So-El, Miller plans to build up to 50 units targeting MSU students and would earn an abatement estimated to save $250,000 to $300,000 in property taxes over 10 years. With One House, which would garner roughly $150,000 to $200,000 in tax abatements, Miller’s plan calls for two, four-story buildings. Each building would hold six units and accommodate up to 36 residents.