For more than two years, Real Development’s roughly $50 million downtown apartment project has been a zombie, neither completely alive nor dead.
Now, it appears ready to return to life, say its developers.
They say they’re very close to receiving a long-awaited commitment letter from the U.S. Department of Housing and Urban Development.
Everything else is in place, they say, so once they get that letter, they can start work on the project within a couple of months.
Developers’ plans call for the conversion of the vacant Exchange Place and Bitting buildings on the northern corners of Market and Douglas into 230 apartments. They also plan to build a high-tech parking garage along Douglas.
The project would be funded by a $32 million private mortgage, guaranteed by HUD; $10.3 million in tax increment financing from the City of Wichita; and tax credits and cash assembled by the developers.
As part of the application for the federal loan guarantee, Real Development’s Michael Elzufon and David Lundberg – dubbed the “Minnesota Guys” – have brought in John McWilliams of Talos Holdings of Park City, Utah, as partner. McWilliams, who has a minority stake, according to Elzufon, has long experience in developing and managing HUD-guaranteed apartment and retail projects across the country.
McWilliams said once the letter is in hand, he will take over development of the project, although Elzufon and Lundberg will continue to be associated with it.
But enthusiasm for the project’s revival may have waned.
In middle of the last decade, the under-capitalized Minnesota Guys bought about a dozen aging downtown buildings for relatively little with the intent of renovating, refinancing, and then selling or leasing them at a sizable profit.
They divided several of the buildings into office-condominiums and sold them, mostly to small California investors at a handsome profit. They largely reinvested that money.
But the credit market collapsed in 2009, shutting off the refinancing. They accumulated a long list of neglected building repairs and unpaid bills. Many of their original investors fell into foreclosure.
More recently, they have been able to secure some refinancing, pay off some outstanding debts and make some critical repairs at their biggest project, Wichita Executive Centre, such as fixing elevators and air conditioning.
But as the months have dragged on with problems at their buildings, even some of their supporters have run out of patience.
Many worry the Exchange Place project means Elzufon and Lundberg are just upping the stakes by embarking on a huge new project without successfully finishing what is now on their plates.
One-time supporter Mayor Carl Brewer said he has lost patience with Elzufon and Lundberg and believes the council should again debate the city’s financial commitment.
The $10.3 million from the city would be repaid over many years using taxes generated by the increased value of the property.
Asked whether the council has the legal authority to rescind its financial commitment, Brewer said, “we’ll just have to cross that bridge when we get to it.”
Even two years later, the council is bound to observe its agreement as long as the developers meet the conditions laid down in the 2010 agreement, said Allen Bell, the city’s director of urban development.
Those conditions include paying off all unpaid bills at the Wichita Executive Centre and the developers’ personal guarantee to cover any shortfall if the property value of their buildings fails to generate the tax revenue to pay the TIF.
The city will recalculate the value of the TIF in the next few weeks to make sure its 2010 estimate still makes sense.
On the broader question of whether the city council should pull out of the deal, Elzufon said it wasn’t the developers’ fault that HUD twice changed the rules on the application and has moved slowly.
They started the application process and first submitted in 2010, and most recently submitted paperwork in January, only to have HUD come back in April and say they needed a developer experienced in dealing with HUD.
They brought McWilliams on board soon afterward. Elzufon said the fact that McWilliams, who has experience on more than a dozen HUD projects, agreed to join them says a lot about how solid the project is.
McWilliams agreed that the project is a good one. It has been hampered by bureaucratic inertia and a flood of applicants seeking HUD financing after the private markets dried up.
It would be a big mistake for the city council to back out now, McWilliams said.
No developer using private funding would touch the project, he said. And anybody who used HUD funding and tax credits would have to start at the beginning and that would take years.
Instead of a game-changing housing project downtown, those buildings would almost certainly remain vacant, McWilliams said.
“It’s now 10 yards from the goal line,” he said. “If it were to start over, it would start back on the 1-yard line.”