St. Louis is filing for a divorce from developer Paul McKee.
City officials accused McKee and his NorthSide Regeneration LLC on Tuesday of violating the terms of their development agreement with St. Louis, triggering a potential default that could terminate McKee’s nearly exclusive rights to redevelop a 1,500-acre swath of north St. Louis.
The move would end a partnership between McKee and St. Louis first entered into in 2009 that was intended to spur a massive redevelopment of north St. Louis. Critics complain that McKee only acquired real estate, and development did not follow. But McKee and his allies, including U.S. Rep. William Lacy Clay, D-St. Louis, say the National Geospatial-Intelligence Agency wouldn’t be building a $1.7 billion campus in north St. Louis without McKee’s vision and land assemblage.
The city, though, says it has lost confidence in McKee’s wherewithal to develop the north side.
“It is time to face facts,” the city’s default notice states. “After a decade, the promised redevelopment has not come, nor is there any indication that it will. … It is time to allow other developers a fair chance to improve our neighborhood and the lives of fellow citizens.”
If the agreement is terminated, McKee will still own a large portion of the land in the NorthSide Regeneration footprint. However, it would free up land he doesn’t own but has development rights to and also could open the door to the city’s using eminent domain to acquire land for other developments.
Litigation is expected to challenge the city’s move to terminate McKee’s development agreement, which also promises as much as $390 million in development subsidies generated from future taxes in the footprint, known as tax increment financing, or TIF.
Darryl Piggee, one of the Stone, Leyton & Gershman lawyers who represent McKee, previously has said that “opportunists” with close ties to the city’s economic development arm are trying to take McKee’s development rights now that the NGA is secured, and that NorthSide Regeneration “will zealously guard its development rights.”
McKee and his attorneys did not respond to requests for comment Tuesday.
In its default notice, the city accuses the developer of multiple breaches of his development agreement, including the misuse of state tax credits. Questions arose last month about some of McKee’s real estate transactions using a now-defunct state tax credit program that was designed to reimburse McKee and other developers for land assemblage.
Paul McKee's relationship with the city that granted him development rights to a swath of north St. Louis has been on the rocks before. But things look worse now.
Some of those transactions triggered the issuance of state tax credits for real estate McKee did not pay for and later deeded back to the original owners. Linda Martínez, Mayor Lyda Krewson’s development czar, said the new information about the tax credit misuse, revealed in an eminent domain trial over land within the NGA footprint, had spurred the move to terminate McKee’s development rights.
“We learned things,” she said. “We got copies of documents from the state of Missouri that we did not have until late last summer, early fall.”
She said the city waited to make sure the trial — brought by a property owner seeking $5.5 million for a building the city thought was worth only $573,000 — was resolved in the city’s favor before publicizing the transactions.
The allegations came out at a trial in St. Louis Circuit Court to decide a long-running challenge to the value of a property the city acquired…
The city also cited several other breaches by McKee and NorthSide, including missed deadlines for development activity, failure to pay some property taxes, failure to demolish 123 buildings they were to tear down under the agreement and failure to notify the city of property transfers relating to the questionable tax credit transactions.
The default notice also accused McKee of not engaging co-developers and said the development agreement “was never intended to provide NorthSide a monopoly on redevelopment in the area.”
St. Louis Development Corporation chief Otis Williams insisted that the city had not talked with any developers “about taking over any parcel within” NorthSide’s footprint. Martínez said any developers who inquired with the city were sent McKee’s way because of his development agreement.
“There’s been a few folks who’ve come through, decided that they might want to redevelop, and then they began to negotiate price (with McKee) and many have just turned away,” Williams said.
McKee’s vision for the area was initially embraced by city leaders under then-Mayor Francis Slay, though some neighborhood residents complained over the years that McKee’s properties were allowed to deteriorate and further hurt already distressed neighborhoods. The city agreed in 2012 to sell 160 acres owned by its land bank and other economic development arms to McKee.
Bipartisan supporters in the Missouri Legislature also passed the Distressed Area Land Assemblage Tax Credit to subsidize his real estate purchases. McKee ultimately tapped the tax credit program for $43 million in tax credits out of the $47 million issued until the program was allowed to expire in 2013.
“You have to remember, Mr. McKee came to the city as a highly celebrated redeveloper in St. Louis County and in other locations,” Williams said. “This was the kind of thing that was exciting given there was no interest from a major redeveloper in the city.”
McKee’s TIF subsidies for the NorthSide plan, first passed in 2009, were tied up in court until a favorable Missouri Supreme Court ruling in 2013. The city was hopeful development would then follow.
It wasn’t until the city began negotiating with McKee for some of his land to assemble a site for the NGA in 2014 and 2015 “that you started to hear about his problems, his money problems,” Williams said.
When the city was negotiating with McKee for land for the NGA, an average acre of his land carried some $260,000 in debt — making it close to the price of ground in Chesterfield. His primary lender for NorthSide Regeneration, the Bank of Washington, held some $50 million of his debt as of last year.
The city never formally presented a default letter to McKee during those negotiations, Williams said, though it was held out as an option. In 2015, Bank of Washington CEO L.B. Eckelkamp Jr. threatened to sue the city should it try to yank McKee’s development rights. Eckelkamp’s assistant said he wasn’t available for comment Tuesday.
Troves of public documents recently obtained by the Post-Dispatch, and interviews, tell of a development deal that nearly came apart, but ended up keeping 3,000 jobs in the city.
Williams said the city didn’t want a drawn-out legal fight then to jeopardize its chances of winning the NGA. Now, with the NGA’s site secured, he said the move shouldn’t interfere with the federal project.
“We were months away from a decision with the NGA and we had a very competitive rival, so we needed to be sure we could deliver this site,” he said.
McKee, the successful developer of WingHaven in St. Charles County, anchored by Mastercard, and the NorthPark logistics center in St. Louis County, began this year his first project in north St. Louis: a gas station and grocery store along Tucker Boulevard. The project is already funded and wouldn’t be affected should the development agreement be voided.
That project, with a $20 million price tag, drew questions last year about the developer fee and the amount of subsidies required. But ultimately, Krewson’s administration stepped in last summer to broker a deal.
Now, Krewson says NorthSide has “not lived up to its promises.”
“The City has to take action,” she said in a statement. “We had great hopes for this redevelopment agreement, but now we have to course correct.”