I grew up cheering for Chicago sports teams. Which means even when we’re up by seven in the ninth inning – just for example – I’m holding my breath, ready for my team to blow it. Springfield residents, if you think about it, you’ve walked in my shoes. Consider the redevelopment of the Heer’s building.
Every time an announcement is made about Heer’s moving forward, it seems as if most people in Springfield are pointedly holding their breath. At the Aug. 23 City Council meeting, developer Kevin McGowan outlined what could be the final, $3 million, hole in the Heer’s financing package. Another timeline also was given: McGowan has until Oct. 6 to file an application for an U.S. Department of Housing and Urban Development-backed loan. This time, the players involved say, it’s serious.
According to HUD spokeswoman Dale Gray, the agency is tightening the underwriting standards for its Federal Housing Administration insurance program, which McGowan is relying on to secure $11.8 million in funding for his $29.3 million project. For developers, Gray says, the bottom line is that hit has the effect of a price increase. Not only does the debt service ratio increase, but loan to value drops to 83 percent from 90 percent, she says. To apply under the new underwriting standards, McGowan estimated the project would see a shortfall of about $300,000.
It’s important to note that the new standards aren’t specific to Heer’s. They apply to all new applications, and for the most part, they take effect Sept. 6. During an Aug. 26 interview – which also happened to be a Thursday, or the day we send SBJ to press – Gray said as far as she knew, the Heer’s project would need to file by Sept. 6 or apply under the new underwriting requirements. That would have thrown a big monkey wrench into McGowan’s plans, since he’s relying on a $1 million loan from the Missouri Development Finance Board, which won’t even be considered until the board’s Sept. 21 meeting. The good news is, Gray confirmed yesterday that the Heer’s developer does have until Oct. 6 to submit its application.
For now, I guess that means, we can breathe again.
Five Things You Didn’t Know about the Heer’s Deal
• Companies are interested in Heer’s for executive housing.
McGowan says he’s been approached by business leaders who have indicated an interest in corporate housing at Heer’s when it’s complete. He notes a lot of companies want to put their best foot forward when they interview, for example. And an apartment at Heer’s not only stands out in comparison with a hotel room, it also shows off the city.
• City officials have considered condemning and demolishing the Heer’s building – in a way.
During the Aug. 23 council meeting, Mayor Jim O’Neal asked Economic Development Director Mary Lilly Smith to answer a question that has often been asked: Why not tear it down?
Because McGowan owns the building, Smith says, it would not be the city’s decision unless the city regained control of the property.
“If you just think about that, if you have this building that Mr. McGowan paid $3 million for, and I’m sure he’s got a bank loan on that, so there would be a lien against the property,” she said at the meeting. “If we were to pursue demolition of it, and we placed another lien on it, then you have this tract of land that has millions of dollars of liens against it. How are you ever going to get that developed? Who’s going to be able to bear that cost and develop something new on it?”
Other important reasons O’Neal noted: the city also would have to shoulder the costs of demolition and disposal, not to mention an unknown impact on economic development.
• The city stipulates that Mike Shannon, the St. Louis Cardinals’ TV/radio broadcaster and McGowan’s father-in-law, maintain majority ownership in Heer’s Building LLC.
The Heer’s developers are Kevin and Erin McGowan and Shannon. Shannon has a 59 percent ownership in the project, according to Smith.
• Success may lead McGowan to renovate the Woodruff and McDaniel buildings.
McGowan says if all goes well at Heer’s, he would definitely consider redeveloping the Woodruff or McDaniel buildings in downtown Springfield.
• McGowan isn’t expecting a single penny in recouped costs for at least 10 years.
McGowan says he’s promised the city that he wouldn’t reimburse himself for predevelopment and holding costs – which he estimates at upwards of $6 million – until rents generate a positive cash flow. For the first few years of the building’s existence, he says, rent money will repay loans. He isn’t expecting to recover that $6 million “and change” for well past 10 years, he says.