ST. LOUIS • An old Coca-Cola plant redone as lofts held promise as a profitable way to buoy a south St. Louis neighborhood. Instead, the struggling site has embroiled the developers in a dispute over why the project defaulted on a federally insured loan.
Prominent in the controversy are a critical audit by the Department of Housing and Urban Development, a longtime St. Louis developer, a buried oil tank and a disgraced former HUD official.
In 2010, work got under way on the Temtor, the name developers gave the Coke syrup plant that they renovated as apartments and commercial space. The project has succeeded as a residential address but it also has struggled to attract and keep commercial users.
After a year of construction, the Temtor opened in 2011. The owners found renters for most of the 77 apartments and tenants for some of the commercial space. Perennial Artisan Ales, a microbrewery, is the main commercial tenant, but much of the commercial space remains vacant.
Last year, the Temtor’s developers defaulted on a $14.4 million HUD-insured loan; the Carpenters Union Pension Fund lent the original funds, but it had sold the loan to private investors before the default.
The HUD-insured loan financed more than half of the project to rehab the 93-year-old Coke plant and nine smaller buildings in the Carondelet neighborhood, at the city’s southern tip.
HUD auditors now are questioning the developers’ spending of more than $700,000 from the loan on the $27 million project. Auditors said in their report, released Aug. 8, that the spending contributed to the project’s default on its HUD-backed mortgage.
The report recommends that HUD require the developers — Steins Broadway Inc. and Rothschild Development — to return $401,705 “in ineligible disbursements” and to justify spending an additional $316,883 in “unsupported costs.”
“Temtor chose to use project funds to benefit the project owners rather than making the mortgage payment,” which contributed to the default, the report added.
But the developers say they’ve done nothing wrong, pointing to their own financial pain. They blame a sluggish economic recovery that deterred commercial leasing and what they described as bad decisions imposed by a HUD bureaucrat.
The project’s dealings with HUD was “the most awful experience,” said Pete Rothschild, who owns Rothschild Development.
Ben Simms, who had been president of Steins Broadway, said the project killed his company and its real-estate management arm, Steins Broadway Management. Both shut down at the end of last year and left him “completely insolvent,” he said.
“The last four years of my life, from a business standpoint, have been a disaster,” Simms said.
Steins Broadway had been managing the project, but Rothschild’s property management business, Red Brick Management, stepped in and began running the Temtor this year.
Rothschild disputes nearly all the audit’s claims and attributes many of the Temtor’s financial setbacks on a former HUD boss whose demands forced the owners to drain the project’s financial reserves “to zero.”
The audit contains two main findings — that Temtor owners made more than $700,000 in questionable payments from project accounts and diverted tenant security deposits.
Twice in 2012, Temtor used tenants’ security deposits to make mortgage payments, the audit report said. Money was later returned to the security deposit account, but for most of 2012 Temtor overstated the fund balance, effectively concealing the diversion, the report said.
In a lengthy response to the audit, Rothschild acknowledged that Steins Broadway Management inappropriately used security deposits “on an interim basis,” but added that the firm quickly rectified the problem.
The developer, however, insisted that most of the Temtor’s money woes resulted from disputes with the general contractor, E.M. Harris Construction, and Charles Hester, who formerly headed HUD’s St. Louis office.
Hester’s current address is the federal penitentiary in Leavenworth, Kan., where he is serving an 18-month sentence for taking a bribe. He admitted accepting $38,000 to smooth approval of funding for owners of a HUD-subsidized apartment project in Mexico, Mo. He is scheduled to be released in November 2014.
According to Rothschild, Hester required that the Temtor’s developers pay E.M. Harris “hundreds of thousands of dollars” in contract change requests or HUD would not grant the project an occupancy permit.
Rothschild also claimed that Hester demanded the developers pay E.M. Harris nearly $225,000 for removal of an oil storage tank beneath the Temtor’s parking lot even though no work was done. Rothschild said the tank remains buried.
“Even after it was determined by our environmental consultants and the state of Missouri that the storage tank did not need to be removed (and has not been removed), the former director of the St. Louis HUD office demanded that we pay the contractor for a removal which never happened,” Rothschild wrote in his audit response to HUD.
HUD officials in St. Louis declined to discuss the audit, which was done by the agency’s Office of Inspector General.
Mike Harris, the construction company’s president and chief executive, said Thursday the Temtor project harmed his company, too.
“We took a hit on that job,” he said.
Many of the difficulties resulted from Simms’ inexperience as a developer of multimillion-dollar projects, Harris said.
He said Rothschild had stayed in the background until serious problems arose, then stepped in.
“Pete has always been honorable,” Harris said. “We finally ended up shaking hands and parting ways but I don’t think either of us was happy.”
In interviews, Rothschild and Simms said the Temtor was part of a combined effort to revive Carondelet. Steins Broadway’s office was in a South Broadway building Simms rehabbed. In 2007, Rothschild converted St. Boniface Catholic Church, five blocks north of the Temtor, into the Ivory Theatre.
Rothschild said he is still proud of the Temtor project.
Simms said: “We thought we were making some changes down there.”