Troy Strawhecker figured a plan to update a once-troubled East Village property known as the "invisible skyscraper" was a sure thing to receive state brownfield tax credits.
The Iowa Legislature and Gov. Terry Branstad, however, tossed some doubt into the financing equation for the project when they changed the law governing awarding of brownfield credits and approved other legislation that many developers believe will have an adverse impact on development in Des Moines.
The Des Moines City Council on Monday approved a development package with East Village Towers LLC, of which Strawhecker is an equity partner, for the $9.6 million redevelopment of the former Heather Manor, an 11-story building at 600 E. Fifth St.
Strawhecker thought that with a sound development plan and a proven developer, Jake Christensen, on board, his group would have little trouble gaining state approval for tax credits to help finance the planned renovation of the senior housing center into 103 market-rate residences and 9,000 square feet of commercial space targeted primarily for restaurant use. An additional future project includes building 16 townhouse units on the west side of the site along East Third Street.
New legislation caused the project to drop out of the pecking order that the state once used to allocate the funds. They were granted on a first-come, first-served basis.
With East Village Towers anxious to start construction, the group decided not to take a chance on gaining approval under the revised law, and sought changes in a development agreement with the city.
Under the agreement approved Monday, East Village Towers will receive $892,000 in tax increment financing to be paid over 10 years.
"The project is working to provide market-rate units for the downtown market without the benefit of historic tax credits or affordable housing tax credits as part of the financing structure, and faces numerous construction challenges to bring the building back into fully active use," according to a city staff report.
Strawhecker said changes to the state law have thrown additional uncertainty into an already tricky environment for securing financing.
His group acquired Heather Manor as the previous owners were entering foreclosure proceedings. East Village Towers paid off about $382,000 in delinquent property taxes and learned that it had miscalculated the payment of an additional $79,581. As a result, the taxes appeared on a list of delinquent taxes that will go on sale to investors June 16. In order to avoid the sale, the tax bill was expected to be paid off today, Strawhecker said.