9th Square Developer Seeks A Bail-Out
| May 9, 2013 4:13 pm
Saying it’s running out of cash, the developer of the Ninth Square downtown apartment and retail district is asking the city to forgive $9.9 million in unpaid interest and obtain another 15 years worth of tax breaks.
The city is not necessarily going to say yes. The DeStefano administration is in the midst of discussions with the developer, Yale, and the Connecticut Housing Finance Authority (CHFA) about the best approach to keeping the Ninth Square project afloat 15 years after it breathed new life into the blocks southeast of the Green.
In the Ninth Square the city used public money to help a private developer—a partnership of McCormack Baron Salazar and Related Companies—fix up historic but neglected three- and four-story brick buildings and construct some new brick ones throughout the district. The Ninth Square lies southeast of the Green and is bordered by Chapel, State, George, and Church Streets. The developer created 335 new apartments, with a mix of low-income and middle-class renters, plus 49,000 square feet of stores and restaurants and galleries. That was the start of a broader rebirth of downtown into a place where people live and hang out at night.
Now the developer says it’s in trouble. And needs more help.
The city now faces the question of whether to invest more resources in the Ninth Square, perhaps through a renegotiated deal with the developer; or to let market forces alone determine the future of the district and the survival of affordable housing there.
The developer made an ambitious request for a new deal in a memorandum last month to “all stakeholders.”
The memorandum asks all the project’s lenders (CHFA, New Haven, and Yale) to refinance a total of $86 million under a new entity created by floating a new set of state tax credits for the project.
It asks the lenders to forgive all unpaid interest accrued to date, which adds up to $9,858,936 for the city, according to calculations by the Livable City Initiative (LCI), New Haven government’s neighborhood anti-blight agency.
It also asks the city to renew a tax abatement deal. The developer had a tax abatement deal for 15 years with the city. The deal expired last year. Under the deal, the developer has paid $789,000 a year in taxes rather than the full $1.218 million it would otherwise owe. The memorandum requests that the city provide a new deal setting taxes at $750,000 a year. The memo does not mention how long the new deal it would take; city officials understand the request to last at least 15 years.
“The property is suffering from significant, accelerating and unsustainable negative cash flow,” the developer states in the memorandum. Meanwhile, the properties need “in excess of $10 million” in renovations, including “all new kitchens and bathrooms in apartments plus energy efficient upgrades.”
The developer would use new tax credits and the restructured debt to perform those renovations as part of the requested deal. (Technically, a separate tax-credit partnership owns the Ninth Square properties; the developer is the controlling partner in that partnership.)
The developer also promises as part of its requested deal to keep much of the apartments “affordable,” though not as many as now. The apartments are a mix of market-rate and subsidized; about 57 percent currently are rented to low-income families, according to LCI Executive Director Erik Johnson. The developer promised in the memorandum to keep 40 percent of the project “affordable”: 20 percent rented to “very low-income families” who are below 50 percent of area median income, and another 20 percent rented to families who earn up to 60 percent of area median income. (One requested change: Right now those tenants have “portable” federal Section 8 program vouchers that follow them if they leave the Ninth Square. The developer seeks to have the housing authority approve “project-based” Section 8 coverage that stays with the apartment no matter who lives there.)
McCormack Baron officials declined to respond to requests for comment.
“We’re wrestling with” McCormack Baron’s request, Mayor John DeStefano said in an interview. “The issue for me is even if you extend all this subordinate debt, is it ever going to be collected? I don’t know if this project will ever be able to pay off the subordinate debt” to the city. (The city is second in line after CHFA in any foreclosure. Because the project is “under water,” with debt higher than its real value, the city could not reasonably expect ever to collect any money.)
DeStefano called it a “fair statement” that after 20 years the buildings could use an upgrade. The question facing City Hall is whether refinancing and extending the debt is the best way to make that happen and keep an integral downtown development going strong—or whether allowing market forces to lead to a foreclosure of the property and a potential new owner would produce better results.
One complicating factor: Whether in these challenging fiscal times the administration can credibly bring a request to the Board of Aldermen to give a second round of long-term tax forgiveness along with debt forgiveness to a St. Louis-based developer. A second complicating factor: Allowing the Ninth Square to slip could endanger efforts to build up other nearby properties, like the former Coliseum site, at a time when the area has begun booming.
“It’s a good project. We want to promote mixed-use development in downtown,” said Downtown Alderman Doug Hausladen. “But I don’t see how in these tough times we’d be able to swallow that sort of [tax] loss without putting more strain on the neighborhoods.”
CHFA Operates In Secret
The biggest player in these negotiations is CHFA, the primary debt-holder.
Publicly, at least, CHFA expresses no reservations like DeStefano’s.
CHFA spokeswoman Lisa Kidder said CHFA is committed to coming to terms with the developer on a restructuring deal. (The decision-makers at CHFA, a quasi-public state agency, declined to be interviewed for this article.)
“Everybody feels like it’s a great project,” Kidder said. “There is a way [to a deal]. We just have to find out the way.”
CHFA Vice-President Dara Kovel, the actual decision-maker, refused requests to answer questions from the press. Instead she issued this statement through Kidder: “Ninth Square is a cornerstone development in New Haven’s downtown with a capable, diligent owner. The Connecticut Housing Finance Authority is continuing to work with the owner, the City, Yale, and DECD/DOH [Department of Economic and Community Development/Department of Housing] to come up with the best strategy for recapitalizing the property and restructuring the financing. The financing for this property is complex and once we have a workable plan, it will be presented to CHFA’s Board of Directors for approval.”
At a Sept. 24, 2012, meeting, CHFA’s board voted unanimously to grant the developer a six-month moratorium on payments on a $13.7 million outstanding loan, with all late fees waived, while a restructuring deal is worked out. Cash flow from the project, after expenses, was put in escrow for “future debt service after the moratorium ends.”
The moratorium did end, in February. Negotiations continue. Public minutes from the Sept. 24 meeting do not mention any discussion of the issue or any sense of questions being raised about the moratorium. Kidder said the agency will not answer questions beyond what’s in the minutes.
The “Place-Making” Question
The upcoming debate over the Ninth Square will tackle questions sure to resurface in other coming development debates in town—for instance over the eventual rebuilding of the Church Street South housing complex across from the train station.
At issue is whether and how much government should contribute—and in what way—if it wants private development to accomplish public goals not supported by the market. In this case, that would mean having apartments for low-income families included in the mix.
Back when the Ninth Square deal was originally negotiated (the late 1980s and early 1990s), cities generally accomplished those goals in part with tax forgiveness, federal housing grants (in this case, an Urban Development Action Grant, or “UDAG”), and federal tax credits that get distributed through the states (in this case, through CHFA). Technically, developers in these projects borrow the money. But most policymakers don’t reasonably expect the money to be repaid—rather the debt is often extended and renegotiated a decade or two later. In part, policymakers had to offer loans rather than grants because of the way tax credit deals were structured, according to Johnson.
Mayor DeStefano argued that in the future policymakers might want to make the cost of government assistance more “transparent” up front and in the form of grants rather than unrealistic debt.
For New Haven, Ninth Square offered a second benefit beyond bringing mixed-income housing downtown. It sparked a renewal. It led to the redevelopment of other housing in the immediate area. It brought street life in the form of restaurants and gallery space. It eventually helped create a market for the construction of the 32-story 360 State apartment tower. A successful co-working space, the Grove, has popped up there; the Grove has expanded with the help of a state effort to promote urban “place-making,” the new buzzword of essentially having Connecticut cities look more like the new Ninth Square, with housing, arts, offices, street life, and an entrepreneurial environment.
“This is an opportunity to have a place-making conversation in the city,” Erik Johnson said of the coming debate over Ninth Square’s request. “What are legitimate public investments to justify place-making?”
Post a Comment
posted by: oldtimer on May 9, 2013 4:22pm
I guess that those going away presents from John to the City are starting to come in
posted by: TheMadcap on May 9, 2013 4:41pm
A lot of people are going to say let the market work out since the developer is failing at it.
A lot of these same people are going to be ones who also clamor for more affordable housing since people can not afford the rent rates in a lot of the area.
So what do we do? As I said before when it came up in the Star Supply articles, affordable housing doesn’t just magically appear out of kindness of developer’s hearts. It only ever appears if the city through its own or through federal money agrees to subsidize some of the building costs.
I do have to say though the old Coliseum site does leave us in a pickle. We are basically being blackmailed in this regard, but if 9th Square goes under, that site is going to be a heck of a lot harder to develop. It’s not good even for the whole city since we’ve spent a long time trying to showcase this as one of our flagship redevelopments, nothing like having your flagship sink. It’s also not good for the potential of a new apartment bloc behind it on State.(Whether you agree with Nicotra’s plan for his 26 story building or would prefer a much smaller one, any apartment building there period would be good)
posted by: Jones Gore on May 9, 2013 4:50pm
This is what happens when developer use public funding in order to create mixed income housing.
I think market forces should be allowed to dictate the future. Those who can’t afford to live there will just have move out.
posted by: Bill Saunders on May 9, 2013 5:03pm
Over-Subsidized Overdevelopment meets a difficult economy.
Let the chips fall.
posted by: anonymous on May 9, 2013 5:10pm
The “state effort” to do placemaking should be concentrated in New Haven. It won’t actually work in any of the other cities, other than providing window dressing. In New Haven it has the potential to create tens of thousands of jobs.
posted by: shadesofzero on May 9, 2013 6:04pm
This is an extremely interesting problem (though admittedly a difficult and frustrating one) for our city right now. New Haven has an enormous interest in this development continuing. However, does that mean we need to subsidize? Or should we hope another developer can do better, admitting that low-income housing in the heart of downtown is asking too much?
How have other, similar cities addressed this? Do we have good parallels? Because it seems that there’s a case to be made on either side. Without the NH-backed loans, the Ninth Square isn’t where it is today. Yet can we continue to build this development into our debt and therefore our tax rates?
I do find it amusing that DeStefano suddenly decides on his way out we should probably be more honest about admitting the money is essentially a grant rather than an unpayable loan.
posted by: Elaine Braffman on May 9, 2013 8:32pm
Google this developer/company….their net worth is 276 million dollars.
What’s in your pocket?
posted by: AMDC on May 9, 2013 8:37pm
No more bailouts. Board of Alderman: see if you can muster up the gumption to stop the aptly named farewell gifts from the mayor to his pals and supporters. Be on guard for lots of last minute gifties. What a shame.
NO MORE BAILOUTS!!!
posted by: New Haven Taxpayer on May 9, 2013 8:53pm
No more subsidies.
They knew what they getting into, took from the public to do it, and failed.
If this is a failing business model, why should taxpayers be forced to continue it.
We tried it didn’t work, time to let someone else try to run it profitably.
My guess is there are more than a few people who have made themselves rich (or at least made a real good living)running this project to the point of bankruptcy.
An I too love the DeStefano line: “NOW is the time for transparency”. Too funny -thanks John.
posted by: Noteworthy on May 9, 2013 9:25pm
The developer should hand over the keys and a new developer should be found to take over the project. If after all this time, the developer hasn’t figured out how to make money and keep his project afloat, a project for which he has been handsomely paid, he never will. Another round of taxpayer bailouts at the expense of stressed homeowners and hard pressed businesses is not the answer. A homeowner I know recently got a notice that an underpayment of property taxes of less than $200 was going to trigger a city lein, lawyer fees and foreclosure. DeStefano can tell that homeowner the family should lose their house and this developer should keep getting breaks worth tens of millions. Wrong. Wrong. Wrong.
posted by: anonymous on May 9, 2013 10:04pm
The City itself probably can’t afford to keep subsidizing affordable housing at all, given that homeowners and renters are being evicted or foreclosed on because taxes are too high.
Although the municipal government is about to become bankrupt and can’t do anything, subsidizing affordable housing is definitely something that the State should do more of. Currently, the State and Federal Government subsidize housing for the already-wealthy (through the mortgage deduction) by at least an order of magnitude greater extent than they subsidize affordable units.
Our Legislators often give lip service to fixing this issue, but their actual record of creating affordable units is pathetic. Someone needs to call out the New Haven Delegation, particularly Looney and Harp, as well as the Governor for failing to get any meaningful results on this despite all the fancy programs that have been created and laws signed. A few hundred units in an area with more than 100,000 people living in deep poverty just doesn’t cut it.
What the City can do is create zoning incentives, if developers agree to provide units targeted to certain income levels.
In other words, the market-rate units within a development (which developers can build more of, if rules such as “parking requirements” are eliminated) can subsidize the affordable housing within that same development. The City can agree to waive parking requirements, and allow taller buildings, if a developer promises to incorporate affordable units into the project.
It’s a win-win for everyone.
I sympathize with the NIMBYs of Goatville, but economic development and affordable housing for working families are more of a citywide priority than a few people’s views or on-street parking spaces.
posted by: ccc2010 on May 9, 2013 10:49pm
Please please please get rid of the True Vote stuff. Must everything be dumbed down and gimmicky? Ugh. Give your readers some credit - we obviously do not need these things. ugh.
posted by: RevKev on May 9, 2013 11:32pm
classicism 9th Square is one of the most exciting areas of this little city. It would be a shame to see it start to deteriorate when so much effort has been put into building it up. Frankly I am surprised that they are unable to pay their bills.
I grew up in St. Louis and I remember everywhere you went where there was construction happening you’d see McCormack on the signs. For awhile I thought they were the only developers in town. I never put together their connection to 9th Square. My first reaction to this story was to save the property whatever the cost. Now that I know they are involved I still say save the property at any cost. Just make sure McCormack doesn’t make any money off it. Or walk away with any they’ve already made. In other words foreclosure should hurt them just like it does regular folks.
And for those who suggest we should not worry about making any of the homes affordable I put you in the same ‘evil greedy person’ category as I do these developers. It’s not like we’re talking ‘free’ housing. They pay just as much if not a higher percentage of their income for housing as you. Are you suggesting that they live on the streets? Or should be build ghettos or poor people’s colonies for them? Check your classicism!!!
posted by: Bill Saunders on May 10, 2013 12:57am
From what I have heard from former tenants in the development, one major ‘perception’ problem with the housing situation is the disparity in rents paid between between the subsidized and the non, and the quality of life issues created that creep in as a result.
That sounds more like a management problem.
posted by: Atwater on May 10, 2013 8:10am
What is the business model? To me it seems like more polish and paint than real substance. The ninth square is just a gentrified corner of the city that does not have the population to support meaningful growth. It should be returned, if possible, to its previous position, as a small hub of manufacturing and retail. The fact that public funds are being used to pay for the fanciful ideas of a few “new urbanists” is shocking. And, the fact that Yale is included in the discussion on how to save the floundering enterprise is sad. Are the people of New Haven expected to sell yet another section of their city to Yale Corp.? To me this is another example of the horrible mismanagement of the city and it is the consequence of the agenda of big government Democrats who seek to engineer communities and cities in order to fit their perception of what is “good” and “right” at the expense of what is fiscally sound and responsible.
posted by: robn on May 10, 2013 8:57am
So many questions…
1) Has this $10M of floating debt appeared in our budgets before, or has it been hidden from or by the BOA?
2) Given the supposed high occupancy and New Haven’s now historically high rents I ask, is this standalone project truly in financial trouble or has the developer been balancing the books of other developments with this projects cash flow?
3) If the stand-alone project is truly failing, why? Has the city excessively burdened it with over half affordable housing; was it mismanaged; is it just a product of the recession?
4) Is the cash flow negative over the entire history of the project, or just this year after many years of profit have been taken? (and no rainy day fund established).
5) Have the projects books been transparent to the city so they can audit the project performance?
If the answer to Q#5 is no, CHFA, our state delegation, the BOA and the Mayor had better pry open those books.
posted by: SaveOurCity on May 10, 2013 9:15am
hmmmm….so 57% of the units are rented below market value. And now, the developer, the city, and the money folks are somehow shocked that revenue isn’t covering expenses? This seems like a very clear choice - subsidize to continue to cover below market rents or move to a market value model. You can’t have it both ways.
Oh - New Haven Taxpayer - I think Johnny D was misquoted; he more likely said “The time for transparency is after I’m out of office”.
posted by: Morris Cove Mom on May 10, 2013 9:46am
This is ridiculous. Of course there should be NO BAILOUT. I can attest that they make money hand over fist. I used to work there, in the management office. We were always at 99%-100% occupancy, and since most of the renters had Section 8, we received checks on time every month. And those checks do not bounce.
It seemed to me then, as it does now, that they are mismanaging their money. I remember when the Property Manager bought over $6,000 worth of lobby furniture for 55 Crown Street from her husband’s company. And then she was upset that women would loiter all day in said lobby, so she removed the furniture. That night, someone stole the brand new rug. A lot of wasteful, impulsive stuff like that went on, all the time.
I’m not shocked by this. But I don’t think there should be any forgiveness on interest or rescheduling of payments. Perhaps there could be a restructuring, but nothing that would diminish that total owed.
It’s not the city’s fault, or the Mayor’s, that McCormick Baron and Related can’t get their act together. So for once, let’s not tramp on their reputations.
posted by: TheMadcap on May 10, 2013 9:50am
The fact someone actually thinks manufacturing is going to come back to 9th square or anywhere in the heart of the city is the shocking part.
posted by: Atwater on May 10, 2013 10:19am
That is the attitude that is destroying this country. If our economy is to endure, if New Haven, and all other eastern cities, wants to remain active and relevant and not just become plastic cities of shallow entertainment and consumerism, then we must work to restore manufacturing and industry. It is not a shocking proposition to say that this country needs jobs and those jobs will not exist until we start producing again.
But it seems that the city’s Democrats hold your view and are working to remake New Haven as a model for an unproductive, consumer driven metropolis, which is economically segregated and reliant on credit, federal financing and an unbalanced relationship with a major corporation (Yale).
This debacle in the 9th square is a clear example of the error of this way of thinking. I am stunned that the public allows its tax dollars to be wasted in such a way. Well…I’m not shocked, its par for the course in the Elm City. As long as there are bars a plenty, and plenty of minimum wage jobs and nice shiny storefronts, then the city is “vibrant”. It’s a fantasy that will implode as soon as the funding runs out.
posted by: anonymous on May 10, 2013 10:45am
“It should be returned, if possible, to its previous position, as a small hub of manufacturing and retail.”
Isn’t that essentially what it has gone back to?
Instead of manufacturing phone books and cigars, it is manufacturing websites and coffee. Instead of selling pet parrots, it is selling yoga mats.
posted by: Scot on May 10, 2013 11:15am
I think 15 years of incentives and tax breaks is enough. It’s good that they helped improve the area and provided some affordable housing, but they were compensated for that with incentives and tax breaks. After 15 years they couldn’t make it work. There could be a ton of reasons why it failed that had nothing to do with the city. Lots of real estate investments have failed over the last 15 years. I don’t see anything in the article that makes a compelling case to make another special arrangement for this company. It wouldn’t be fair to other developers who have tried and failed. Propping them up with public money for another 15 years doesn’t seem fair to other property owners who are competing to rent their units, to other developers that may want to invest in the area (and have to compete with this subsidized company), or to all the other tax payers in the city who will shoulder these subsidies. If this developer fails, it doesn’t mean the area is going to go down the tubes (in fact it could be the opposite); it simply means other developers can buy up some of the property at a lower, market corrected cost, which will give them a better chance of keeping rents affordable and still make a profit.
As for affordable housing, incentives can be provided (assuming the city decides it wants to keep affordable housing in this area) to new investors that come in, so that shouldn’t be an issue with respect to the deal with the current developer. In other words, not bailing out this developer doesn’t mean the affordable housing has to disappear, that’s an independent issue.
posted by: TheMadcap on May 10, 2013 11:34am
New Haven is only unproductive if you’re stuck in the 1963 and think manufacturing is the only industry. But it’s not an idea against manufacturing, it’s the idea you think that in the 21st century any city is going to host manufacturing in its upscale downtown sections, it’s inane. The moment the trolley was invented it became inane.
9th Square is also only a debacle if you’re against any kind of public spending so you completely ignore the revitalization that has happened all around it. I don’t know about you, but I don’t want the area to go back to what it looked like 20 years ago.
posted by: TheMadcap on May 10, 2013 11:36am
SaveOurCity is correct. We can have affordable housing in the area which the city will have to subsidize as it does with all affordable housing, or we don’t. We can’t have it both ways, and a lot of people would like to have it both ways. Affordable housing doesn’t exist if you don’t subsidize it. I don’t care which side you pick, but you have to pick a side.
posted by: Atwater on May 10, 2013 12:33pm
Manufacturing is essential and therefore necessary; it is the platform upon which all other industries and trades rest, without manufacturing there would be no ipads, iphones, internet, computers, etc. And, believe it or not, there are cities in this world, in this century, which have large sectors of manufacturing. Just because global neo-liberalism has driven out most manufacturing from American cities does not mean it does not exist anywhere else. The supposition that it can never return to New Haven again is fallacious. True, it might never return, but not because the idea is inane, but because the citizenry refuse to commit to radically changing our economic paradigm so as to allow the return of manufacturing.
The revitalization that has occurred in the 9th square is superficial, its paint and new glass and refurbished brick. Just like the city’s new schools, they look nice, but they lack real substantive change or reform.
Your response says it all, “upscale downtown sections”. Upscale, as in exclusive and boutique, sections that contribute to the growing heterogeneity of the city. Unfortunately I do not think that this way of thinking is unique to New Haven, it seems to be gaining ground in cities all over the nation. It is sad because this attitude leads to the growth of division between the well- to- do and the working poor. It also contributes to the deterioration of the economy. It is not okay to say that we do not need to build anything here and that someone else, somewhere else, will build it for us. It is not okay because thousands of people languish in unemployment or in jobs that offer nothing but the minimum in pay. It is not okay because instead of giving opportunity to those who want to work, but cannot, they are ignored and only offered public housing and offered public assistance, they are reduced to wards of the state and rendered unable to control the direction of their lives.
posted by: Dwightstreeter on May 10, 2013 12:43pm
And Ninth Square is what the City Planning Commission, Office of Economic Development and Chapel West all cite as SO successful that they had to change the BD-1 zoning text to allow for up to the line building in the Dwight Chapel area.
Is it any wonder people are cynical about government?
posted by: PH on May 10, 2013 12:59pm
How much profit has the developer made on this project in the past 15 years? How much are the executives at the management company paid? Why would the city pay for bathroom and kitchen upgrades for one building when it doesn’t offer discounted rehabs to other New Haven property owners? Where does it say that every developer in New Haven should make a profit on every project? Why should other struggling property owners offset the tax costs of this project at a time when the City is projected to again raise the mill rate?
I would want some serious, clean and honest answers to these questions before everyone just starts talking about handing over more cash to a private, for-profit company.
posted by: Mark Chesler on May 10, 2013 1:12pm
Council Questions Developer’s Request To Wipe Out Debt
(WLKY 4/22/2009, 9:12 PM)
Investors Want $7 Million Forgiven In Real Estate Deal
By Mike Petchenik
LOUISVILLE, Ky.—Some Louisville Metro Council members are questioning a mayor’s administration proposal to forgive millions of dollars in loans to an out-of-town developer whose project is losing money.
In 1983, the city loaned St. Louis-based McCormack-Baron nearly $8 million to build Phoenix Place apartments on the corner of Muhammed Ali Boulevard and Clay Street. Back then, city officials said the project cost about $25 million to build, but today, they said it is only worth $9 million, so the investors are trying to get out.
“The tax credits on it have expired and they said they’ve not made money,” said Bruce Traughber, director of the Metro Louisville Economic Development Department. “The project is upside down in that they can’t sell it for the amount of money that they have in it to satisfy our mortgages and the debt that’s outstanding on the property.”
Traughber said the McCormack-Baron is planning to sell the Phoenix Place land to the University of Louisville Foundation and the apartments to local developer Brown Noltemeyer so that the complex can be turned into affordable medical student housing. But, he said, in order to make the deal work, McCormack-Baron has asked the city to forgive all but $1 million of its debts to the city…
But some Metro Council Republicans said Wednesday they feel the administration is moving to quickly without necessary information, such as the financial impact it could have on Metro Government.
“To just wipe out this debt with no strings attached seems to many of us to be a big mistake,” said Hal Heiner.
Heiner said the initial loan was made in an effort to ensure housing for low-income families on… He said forgiving the loan could take away the city’s control over the project’s future.
“It’s not only poor business practices,” he said. “It’s poor government.”
posted by: robn on May 10, 2013 1:42pm
Another story was posted today describing unionized NHPS cafeteria servers wanting $20/hr and full benefits. These demands only now exist in the public sector and universities because they are captive employers. This is also the reason why private sector low-tech manufacturing has mostly abandoned the northeast US and it is why it will never return.
posted by: Mark Chesler on May 10, 2013 2:03pm
BANK FORECLOSES ON CANAL SQUARE
Akron Beacon Journal - Wednesday, May 15, 1996
LORNET TURNBULL/ Mary Vanac contributed to this report.
First National Bank of Ohio has filed foreclosure action against Canal Square, the landmark building of apartments and commercial space that was hailed in 1986 when it reopened as a key component of Akron’s downtown revitalization…
In the lawsuit filed in Summit County Common Pleas Court, First National claims that the property’s owners, Canal Square Rehabilitation Associates Ltd. of St. Louis, missed an April 1 mortgage payment of more than $1.6 million and stands in default.
Officials from McCormack Baron & Associates, the managing partner of the investment group, also of St. Louis, did not return calls to the Beacon Journal.
First National, holder of the property’s first mortgage, has requested that a receiver be named to maintain and manage the property.
The case has been assigned to Judge James R. Williams.
Included in the property targeted for foreclosure is the 15-story building’s 55 apartment units and 13,000 square feet of commercial space…
Tenants over the last few years have come and gone—mostly gone—and today, the Akron Health Department’s Alcohol & Drug Prevention Program is the building’s only tenant.
When the St. Louis developers bought the then-61-year-old YMCA building for $240,000 in the early 1980s, it was suffering from years of neglect. Once its $10 million makeover was completed in 1986, the reopened structure was hailed as a key component for downtown revitalization.
The city also showcased Canal Square as an example of how public and private sectors would work together…
The city of Akron spent about $930,00 for various public improvements…
The building also qualified for a $1.8 million federal Urban Development Action Grant…
But some familiar with the project say part of the problem may have been that the company tried to run the property from out of state.
posted by: Atwater on May 10, 2013 2:37pm
I agree that the unions have lost sight of the bigger picture, but I don’t agree that we should expect manufacturing to return only if we allow worker exploitation, which is why the unions exist in the first place. Perhaps we should invest public funds into public manufacturing, i.e. school furniture, road signs, etc. The point is, we need abandon the old axiom that the only viable labour is sweatshop labour. But, it seems that the people that run this city and a good percentage of the population wants things to remain as they are, or they cannot remove themselves from the very narrow myopia that restricts their viewpoint to only “what was” and “what is”. What about, “what could be”?
What is happening in the 9th square is what will happen to most of the city, the only properties that will survive the next economic collapse are those that are buoyed by Yale. Which is why Yale is buying up so much property, they don’t want the city to return to its former state because it’s bad for business. So, if New Haveners want to save their city they are going to have to think outside of the box and begin re-building sustainable manufacturing, either publicly owned, union syndicates or privately owned.
posted by: Bill Saunders on May 10, 2013 2:52pm
Maybe, with a little ‘tweaking’, TrueVOTe could become a platform for citizen referendum. Then we could get rid of the politicians, or at least hold them more accountable.
posted by: Razzie on May 10, 2013 3:25pm
First 99 Edgewood, now 9th Square. Looks like the development expertise of the DeStefano Administration is not what they claimed. It would be one thing if the financial give-aways and tax breaks were limited to one-time things. I remember the days when DeStefano cronies were satisfied with one bite of the apple (albeit a large bite). But now they seem to have morphed into a never ending renewal of requests for huge bailouts and developer perks. This has to stop!
posted by: Curious on May 10, 2013 4:31pm
No bailout, and bring in someone from outside the city to audit the books if there is evidence of wrongdoing or misuse of public funds.
Has the developer been a DeStefano campaign contributor? Have they contributed to any of the current candidates?
posted by: Jonathan Hopkins on May 10, 2013 6:56pm
The way Section 8 works is that the owner of the rental unit receives payment for the market rate value of the unit from a combination of the tenant ‘s rent (based on their income level) and the Federal government, which covers what the tenant cannot. Section 8 units have certain requirements that must be met - both minimum and maximum so that tenants are not living in substandard housing nor is the government subsidizing lavishness. I would very surprised to find out that the buildings are not generating a profit. My guess is that the developer is to blame because,
“The design incorporates precast concrete bearing walls, shear walls, and floor planks, combining those with a brick exterior that meets the locale’s historic needs. A key advantage offered by this design was the speed with which the project could be erected, cutting down on loan payments and interest. In all, some 779 precast concrete components were erected in 59 days.”
PCI Northeast. “Ninth Square Garage” http://tinyurl.com/cs9gqaq
For images of the very efficient, economical and definitely not lavish apartment unit floor plans go to:
Two Bedroom A:
Two Bedroom B:
As far as I know, the Ninth Square was never a major manufacturing center. It was the commercial warehouse district for the Long Wharf in the 18th and 19th Centuries, and then a wholesale district (mostly supplied specialty food items for neighborhood groceries and deli) in the late 19th and early 20th century. I think turning it into a retail, office and residential area was a great idea. I think the area - as would most - definitely benefit from more establishments that made things (whether tangible or digital) and paid solid full-time wages, but I think overall the Ninth Square has been a great investment, but perhaps choosing this particular developer was the mistake.
posted by: tangabanga369 on May 10, 2013 7:06pm
I cant see how they want a break when every year they go up on the rent, $4,160,700 (rounded) this is a yrs worth of rent at $1035x335x12….... Do they really need a tax break? If so they should lower the rents and not have inflation every year
posted by: Elaine Braffman on May 10, 2013 7:19pm
Correction…..someone just called me and pulled up another piece of information and the developers net worth is 1.2 billion dollars….once again,what’s in your wallet?
posted by: robn on May 10, 2013 7:24pm
Unfortunately, laboring to produce manufactured goods is only worth what people are willing to pay for those goods. We can’t hope to attract manufacturing if it results in average goods that most people won’t buy because they cost more than goods produced elsewhere.
PS. I like to buy as much stuff locally as I can but that stuff is usually artisanal stuff that most people wouldn’t buy.
PPS. Even though manufacturing has declined dramatically in the US, and even though unemployment is spiked in this prolonged recession, (with the exception of the great depression) US unemployment remains historically within a narrow band from 4-10%.
posted by: Justaparent on May 10, 2013 8:24pm
Who is the developer? Duey, Cheetam, & Howe?
Why don’t they ask for 1st borns while they are it, geez-a-lou….
posted by: Mark Chesler on May 10, 2013 11:02pm
Block argues that the contracting approach taken at Holly Park was an innovative departure from other projects build under HUD’s Hope VI program. Because many big-city housing authorities are notorious for being poorly run, the feds encouraged them to award the work to major national developers through a single contract. But, SHA balked at hiring a single megacontractor when McCormack, Baron & Associates, which had completed Hope VI projects in San Francisco, St. Louis, and Atlanta, wanted a $21 million development fee on the $180 million project, plus a sweetheart deal on tax credit revenues…
Fox and other housing activists have also been sharply critical of the Hope VI program’s emphasis on tearing down public housing and replacing it with mixed-income developments. Nationally, Hope VI funds have been used almost exclusively for demolition rather than renovation, with only about 40 new units built for each 100 demolished, says Othello Poulard of Washington, DC’s Center for Community Change.
The mixed-income provisions of Hope VI also mean that public housing residents can’t afford to live in many of the replacement housing units. For example, only 30 percent of the new housing that replaced Chicago’s Cabrini Green projects is available to the very poor (another 20 percent was reserved for low-income residents who can afford to pay higher rents; the rest is market-rate housing). In Cincinnati, the 880-unit Lincoln Court will be replaced by a mixed-income development of 500 units, only half of which will be public housing. “You see the categorical injury inflicted upon low-income people,” says Poulard.
At Holly Park, city and housing authorities claim they have accomplished 1-to-1 replacement of the very low-income units at scattered sites throughout the city. Fox replies that these units were already in the pipeline, and therefore represent no increase in actual housing stock.
posted by: Stephen Harris on May 11, 2013 8:06am
The nerve of those cafeteria workers daring to lobby for higher pay and benefits! Who do they think they are? And calling universities “captive employers” is a wonderful turn of phrase. Call me a bleeding heart liberal but a unionized workforce is what created the middle class.
posted by: Mark Chesler on May 11, 2013 12:07pm
DEVELOPER IS ACCUSED OF OWING $8.3 MILLION
(St. Louis Post-Dispatch 10/21/2001)
Subcontractors who helped St. Louis developer Richard Baron transform historic Cupples Station warehouses into a downtown luxury hotel allege in court records that Baron still owes them $8.3 million.
Many of those unpaid companies say they would be reluctant to team up with Baron again on other projects like Ballpark Village, an entertainment, housing and office complex proposed in conjunction with a new Cardinals ballpark.
“If Richard Baron gave me tens and twenties in a suitcase up front, I wouldn’t do the job for him,” said Mike Mitra, president of Steel Fabrication Inc. “Would you work for him if he stiffed you for $230,000?”
Baron says the problem lies with the general contractor, Chicago-based James McHugh Construction, Co… Baron fired McHugh earlier this year and replaced the company with a local firm to finish renovations on a fourth building of the Westin Hotel complex…
But McHugh officials say Baron owes $8.3 million, according to court records. Nearly half of the 50 subcontractors McHugh hired for the project have filed liens against McHugh, and other subcontractors said they’re also planning to file liens.
Many of the subcontractors said in interviews this week that they were upset that a high-profile company like McCormack Baron & Associates is not paying its bills, especially when the $75 million project is receiving state and local tax incentives. The Department of Economic Development is withholding up to $300,000 in historic preservation tax credits from McCormack Baron until the issue is resolved.
“This was going to be one of the crown jewels of downtown,” said Dudley McCarter, an attorney representing four of the subcontractors. “Their civic pride was appealed to and that’s why they were anxious and proud to be on board.”...
Said McHugh vice president Robert Soldan: “The subcontractors performed in good faith and so did we, and we’re trying to get paid.”
posted by: robn on May 11, 2013 1:39pm
UNITE 217 has a collective bargaining unit which has failed to make a deal with city hall for several years and which is now resorting to publicity stunts like the rally at city hall (which BTW is not lobbying). Is the next step to throw their resources into winning BOA seats and just take what they want instead of bargaining? It seems to have worked for Local 34.
PS. Quakers were well ahead of labor unions in setting the foundations of the American middle class.
posted by: Stephen Harris on May 11, 2013 6:36pm
The AFL/CIO and the UAW must have been Quaker organizations.
posted by: junebugjune on May 13, 2013 11:05am
The survey included with this story only gives two potential options for what we could do here and it’s all or nothing. If the city isn’t going to collect taxes and is going to make a big investment here, why not cut out the middle man and just own the property? How can this property be “privately owned” ask for such an enormous investment to be made through tax dollars AND ask for a 15 year tax break?
I’m not sure what the solution is, but leaving the property to rot is a terrible and making unwise investments in a failing business without taking steps to turn it around and hold the owners accountable will be a financial drain the city can’t afford. It would be great to hear more stories about the different businesses, tenants, etc. and to hear a few different proposals for resolving this.
posted by: Mark Chesler on May 13, 2013 12:41pm
Complaints stacked 11 stories high
(Jersey Journal 11/21/2006)
Residents: Elevator is out, drugs, prostitutes roam
By Ali Winston
Residents of the YWCA senior citizens apartment
building on Storms Avenue in Jersey City have been
tussling with building management over an elevator
that has been out of service since Nov. 10.
Residents, some of whom are disabled or have limited
mobility, are using a service elevator that they say
functions intermittently. Yesterday, the cargo
elevator stopped working just as a reporter and
photographer from The Jersey Journal were leaving the
building. Residents also complain they have to walk
through the garbage room and outside to use that
Susan Eubank, the senior asset manager for McCormack,
Baron, and Ragan Reality, which manages the 11-story
building, said a 1,000-pound replacement part was
ordered for the elevator.
“The workers have been working furiously to retrofit
the part because of residents’ complaints,” said
Eubank. “It’s an emergency and there’s no way we could
predict this type of malfunction.”
Residents say it is difficult, especially on weekends
when there is no regular staff, for many of the
residents to manage.
“There’s no one here on the weekend,” said Theresa
Williams, a resident who is also a committeewoman in
the district. “We have people in wheelchairs on the
higher floors and others who need assistance getting
up and down the stairs when the elevator breaks.”
Residents also complained about what they said were
drug dealers and prostitutes in the building’s
hallways, as well as people who are not residents
sleeping in common areas.
“We need better security here on the weekends,” said
Douella Morris, who has difficulty walking. “Security
used to come from Friday through Sunday, but they
stopped coming sometime this summer.”...
Eubank said the apartment building is run “safely and
securely” and the company has “security at the YWCA as
we perceive it is needed.”
posted by: Noteworthy on May 14, 2013 2:06pm
This is another reason why there should be no grace given - force them to file bankruptcy or turn over the keys or both. Nothing like getting into bed with one of the biggest whores of Wall Street - the very people who helped to tank the U.S. economy. And now this unholy alliance wants to damage us even more. Write the check or get out.
GOLDMAN SACS BUYS ONE THIRD INTEREST IN MCCORMACK BARON SALAZAR
ST LOUIS BUSINESS JOURNAL MAY 16, 2010
Global investment banking and securities firm Goldman Sachs has purchased a one-third stake in St. Louis-based development firm McCormack Baron Salazar.
Terms of the deal were not disclosed.
McCormack Baron Salazar’s senior management team will remain unchanged. Richard Baron is chairman, Kevin McCormack is president and CEO, Tony Salazar is president of the company’s West Coast division, and Vince Bennett is executive vice president and COO.
The development firm’s board, made up of the four senior executives, will add two Goldman Sachs representatives: Alicia Glen, managing director and head of the Goldman Sachs Urban Investment Group, and Vice President Carrie Van Syckel.
Since it was founded in 1973, McCormack Baron Salazar has developed 15,260 affordable apartments and homes and 1.2 million square feet of commercial space.
“When combined, the strength of these two national firms will have the ability to significantly impact the revitalization of low-to-moderate income urban communities,” Goldman Sachs said in a statement.
Goldman Sachs first partnered with McCormack Baron after Hurricane Katrina in 2005. Goldman Sachs made a $56 million investment in McCormack Baron’s Harmony Oaks development to replace damaged housing in New Orleans. Residents moved into the $172 million, 460-unit development in February.
Goldman Sachs also is a $15.3 million equity investor in a $45 million McCormack Baron development that broke ground in April, the MacArthur Park Apartments in Los Angeles.