ST. LOUIS — The developers behind a $300 million plan to redo the 1.2 million-square-foot Railway Exchange building downtown have another hurdle to clear in the daunting project: stay out of bankruptcy court.
Four contractors who say they’re collectively owed about $115,000 in services sued last month to force the building owner, HH St. Louis Railway LP, into involuntary bankruptcy. That action, in St. Louis bankruptcy court, comes as the Railway Exchange owner has spent much of this year in litigation with larger, secured creditors in St. Louis Circuit Court.
Hudson Holdings of Florida acquired the massive structure at 615 Olive Street and an adjacent parking garage in January 2017 about four years after Macy’s closed its downtown department store. Bordered by Sixth, Seventh, Olive and Locust streets, the Railway Exchange once housed Famous-Barr’s flagship department store and the offices of its parent company, May Department Stores, which was acquired by Macy’s parent in 2005.
Hudson has spent the last three years trying to piece together financing for the historic rehab with some success. It has secured rights to $50 million in Missouri Historic Tax Credits, federal historic tax credits likely worth another $50 million and another $50 million in tax-exempt bonds, according to a filing on Monday seeking the dismissal of the involuntary bankruptcy petition.
“However, many of these tax credit programs would be placed in jeopardy if an order for relief under the Bankruptcy Code is granted,” the response filed by David Sosne of Summers Compton Wells said.
A change in ownership would jeopardize the federal credits, and to retain the right to claim the state credits, the developers must spend at least $20.3 million on the project by July. Changes to the state program would make obtaining that many credits in the future more difficult.
Gamma Real Estate Capital LLC financed the building purchase and holds an $18.6 million secured claim. Another $2.5 million in mechanics liens from contractors are also pending and part of the litigation in state court, led by architecture firm Cannon Design, which claims it is owed over $1.7 million.
The unsecured creditors who filed the bankruptcy petition, which include St. Louis consulting firms Development Strategies and Lafser & Associates and security firm Hudson Services, are “a small fraction of the overall debt that likely exceeds” $22 million, the filing says. It accuses the unsecured firms of using bankruptcy court as a collection device.
The best chance for the unsecured creditors to be paid is if the project is successful, Sosne argued in the filing, because there is no income being generated by the building and parking garage. Meanwhile, it costs some $75,000 a month just to pay taxes, insurance and other property costs, and the parking garage needs to be demolished, the filing claims.
Recently, the Railway Exchange owners said they responded to a request for 143,000-square-feet of downtown office space from the federal General Services Administration and that they are “actively attempting to sell, market and develop the project.”
Shortly after Hudson Holdings acquired the building, a 2017 water main break did millions of dollars worth of damage to the Railway Exchange. The Railway Exchange owners last year sued Ameren, accusing the electric utility through a subcontractor of causing the break.
The Railway Exchange, completed in 1914, is the city’s second-largest building by area, just behind the AT&T Center, which is also vacant.