Des Moines adopts new review policy as two downtown projects default


City of Des Moines employees implement a series of internal controls designed to mitigate risk and financial loss when partnering with private companies on new developments.

The change comes after developers of two large-scale projects in downtown Des Moines breached their development agreements, which included city tax incentives to help fill financial gaps in their construction budgets.

The new process has a built-in hiatus to allow the city manager, the mayor and some members of city council to comment on a project deemed risky or proposed by a newbie developer or with an uneven track record.

He stops before creating a list of developers the city won’t work with – a suggestion made by some council members after the city declared the developer of the downtown skyscaper project blocked The Fifth by default. Des Moines ended up spending $ 42 million to acquire the only completed part of the project, a huge 11-story parking lot on Fifth Street between Court Avenue and Walnut Street.

“Instead of having a fixed list that contains these developers and we have to say, ‘No, sorry, we have a default policy for developers, you are on the list, we are not going to work with you’, we are going to have processes along the way to have checks and balances, ”Deputy City Manager Matt Anderson said at a council workshop Monday.

The Fifth was to be a 40-story hotel and residential tower with an adjacent movie theater. Its developers, Mandelbaum Properties, are now linked in a legal row with the city over whether they are really at fault or have encountered inevitable construction delays due to the COVID-19 pandemic.

►More:How a plan for Iowa’s 3rd tallest skyscraper ended in a legal feud: What went wrong with the fifth?

The other project, 515 Walnut, was to be a 33-story residential tower built by Blackbird Investments. With no construction on the skyscraper, the city ended the deal on June 1, 2020. Its future is unclear as the development team faces lawsuits that accuse it of failing to repaying loans and, in one case, embezzlement and deception.

The building occupying the site, Kaleidoscope at the Hub, which was to be demolished, is empty of tenants.

Earlier this year, when Des Moines City Council approved the use of bonds to pay for parking at The Fifth, Councilor Joe Gatto suggested banning developers from receiving financial assistance from the city during 10 years if they do not respect their part of the agreements.

He also asked city staff to review development agreements for other projects to ensure developers are meeting their obligations.

“Someone has to pay the contractor to build a structure that will be used by the city of Des Moines,” Gatto said at the time. “Unfortunately, it’s incumbent on us as a whole that taxpayers are going to have to step in and do something like this.”

►More:Developer of “transformative” Des Moines projects, Blackbird faces a future clouded by mistrust, legal and financial problems

Staff at the city’s economic development department now operate under a new system, using an analogy of green, yellow and red lights to categorize developers and projects.

A green light would go to a developer with a long history of successful construction in Des Moines and a project that makes sense given the current state of the market. Its proposals would go through the normal rounds of approvals, ultimately culminating in a city council vote on the terms of a development agreement.

A yellow light corresponds to a project deemed to be more risky, for example a project for which the developers ask for more financial incentives than the typical 15% of the project costs. A debt review committee will look at those plans and propose changes to make the terms “more acceptable” and more likely to be approved by the city manager and city council, Anderson said.

The new parking garage on 5th and Walnut streets on Wednesday March 3, 2021, in Des Moines, IA.  The garage was originally part of a combined 40-story apartment and hotel tower, an entertainment complex and a planned parking lot for the lot.

He said that a red light developer is one who has a “dispersed history of success and failure”, such as missed deadlines, bankruptcies or defaults on contracts. A red light project is an intriguing project but “sets off too many risk alarms,” ​​and the debt review committee cannot agree on tax incentives, he said.

This new process will trigger a review committee that includes the city attorney, the director of finance, the city manager, the mayor, a member of the general council and the council member in which the project is located.

“We’re kind of proud here that we can find solutions for every project and every problem, but that doesn’t have to be the case. Sometimes a project carries too much risk for us and the taxpayers and quite frankly for the developers themselves, and maybe that shouldn’t move forward in our processes, ”said Anderson. “So that would give you that opportunity, without creating a list of default developers to take it project by project, developer by developer and help guide the staff in that back-end to help us reach a project that you’re on. comfortable with.

“And if you just can’t get comfortable with it, it just won’t see the light of day,” he said.

None of the council members opposed the changes on Monday. Anderson said the department is ready to revisit the idea of ​​a default developer list if city council concludes the new policy isn’t working.

Kim Norvell covers growth and development for the Registry. Contact her at [email protected] or 515-284-8259. Follow her on Twitter @KimNorvellDMR.

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