Hamstrung by rule changes in the state’s administration of the tax credit program for restoring historic buildings, Perry’s local non-profit property development group, the Nudgers, asked for and received an extension of the Perry City Council’s backing of their downtown project at Monday night’s meeting.
Financing the $1.5 million restoration of the Nudgers building at 1314-1316 Second St. in downtown Perry was accomplished in May 2014 by combining state and federal restoration tax credits with a $750,000 loan from Great Western Bank.
The Nudgers project qualified for the tax credits, and the bank loan was secured on the strength of a guarantee agreement with the city of Perry, which basically pledged its own debt-financing capacity as surety for the loan.
Recent rule changes by the Iowa Department of Revenue, involving new and lengthy audits, delayed by as much as a year the anticipated harvest of the tax credits and reduced their expected value from $700,000 to about $400,000.
“In essence, what they did was change the rules in the midst of this project,” Loyd Ogle, the Nudgers’ legal and financial counsel, told the city council Monday. “This had a dramatic impact on historic rehabilitation projects across the state of Iowa. For some projects, the effects were quite severe, and for some projects the financing actually collapsed. There’s more than one project where those buildings are vacant and half-finished, and the financing is simply not in place.”
The effect on the Nudgers project was not fatal, Ogle said, largely because the property is almost completely occupied by rent-paying tenants and the restored building now has an appraised value of about $400,000, but the rule changes threatened the stability of the financing arrangements.
“The change in the rules midstream basically caused this project to lose or have a gap of about $300,000 in financing,” Ogle said. “This was a result entirely out of the hands of the Nudgers group.”
At Monday’s meeting, Nudgers President Matt McDevitt asked the city to extend its guarantee, but at the same time the city’s obligation would be reduced from $750,000 to $500,000. He said there is at present a lot of ferment in the downtown commercial property market.
“If there’s anything that I’m excited about,” McDevitt said, “it’s that we are on the cusp of some really great things, and this just happens to be one of them.”
Great Western Bank Group Manager Kirk Yung told the council the amended financial plan for the Nudgers building is feasible, and the bank is still committed to the project with the city’s extended backing. He said a further scaling back of the city’s liability would probably occur within the next year, from $500,000 to $250,000.
“We’re looking at the extension of the guarantee,” Yung said, “and more than likely, if all that comes through as we’ve planned, that reduction would happen probably within a year, so in 2017.”
Perry Mayor Jay Pattee, a member of the Nudgers group himself, strongly supported the work of the Nudgers, and he encouraged the council to approve the continuation of the guarantee agreement.
“The city is heart and soul behind this project of the Nudgers,” Pattee said at the May 2015 ribbon cutting for the property, and he showed his heart was still in the same place Monday night. “I’ve always felt the Nudgers was a good thing,” Pattee said.
The council unanimously approved the continuation of the agreement.
