After McKee revelations, can City Hall and the developer work it out?

Jacob Barker

As a trial to determine the value of a north side building developer Paul McKee once bought played out in 蜜芽传媒 Circuit Court this month, never-before-aired details about some of the developer鈥檚 transactions raised new questions about his future relationship with City Hall.

were that McKee was awarded Distressed Area Land Assemblage tax credits for purchases attorneys for the city alleged were 鈥渟hams鈥� because no money changed hands. The Missouri Department of Economic Development flagged some of the 鈥渟ales鈥� as improper. In 2013, it blocked one and clawed back tax credits awarded for another by reducing the amount awarded to McKee on future transactions.

Since the trial aired those details, 蜜芽传媒 Mayor Lyda Krewson has called for an internal investigation. . The Department of Economic Development is now aware of a McKee transaction similar to others it deemed improper where the developer was awarded $2.5 million in tax credits that the department never clawed back.

鈥淭he Department is very concerned regarding the issues raised during the trial and will be working with the necessary parties to further ensure the protection of taxpayer dollars,鈥� the department said in a statement Friday.

Whatever action city leaders want to take, a development agreement between 蜜芽传媒 and McKee鈥檚 NorthSide Regeneration, the company he has used to amass hundreds of acres in north 蜜芽传媒 over the last 15 years, still guides their relationship.

And 蜜芽传媒 officials agreed back in 2009 to help the developer carry out his vision for redeveloping the 1,500-acre area north of downtown.

McKee got $2.5 million in tax credits for a 蜜芽传媒 building he didn't pay for

McKee used state tax credits to pay his company and his attorneys thousands of dollars in fees.聽

鈥淵ou have to live with the agreement you鈥檝e negotiated,鈥� 蜜芽传媒鈥� economic development chief, Otis Williams, testified at the trial.

the city acquired from Jim Osher through eminent domain while it was assembling a site for the National Geospatial-Intelligence Agency. Osher had once sold the site to McKee for $3.75 million, though the transaction was unwound and deeded back to Osher once the city made it clear it needed to buy the property for the NGA.

The McKee sale let city lawyers battling Osher access documents from McKee鈥檚 companies, which it used to argue the sale was a sham with an inflated price tag meant to secure more tax credits from the state, which the two sides split.

McKee was awarded some $43 million through the program to offset his land purchases 鈥� almost all of the $47 million the Distressed Area Land Assemblage tax credit program ultimately awarded before the state legislature allowed it to expire in 2013.

On at least one transaction from 2011, McKee planned to use proceeds from the sale of tax credits to pay thousands of dollars in fees to his former real estate company, McEagle, to associates for loan placement fees and to his lawyers.

McKee鈥檚 lawyer, Darryl Piggee, previously told the Post-Dispatch that McKee 鈥渕ade applications for credits regarding more than 750 purchases, and only three or four of them were denied. Two of the denials related to seller financed sale-leaseback acquisitions. The transactions were not 鈥榮ham鈥� transactions.鈥�

Asked at the trial whether the city has considered severing ties with McKee鈥檚 NorthSide Regeneration, Williams, the 蜜芽传媒 Development Corporation chief, demurred. 鈥淭hat鈥檚 not something I can discuss at this point.鈥�

Osher鈥檚 lawyer, Tracy Gilroy, asked whether she could take that as a no. Williams responded: 鈥淵es. Take that as a no.鈥�

Messy divorce?

Getting out of its development agreement with McKee would mean declaring a default.

, which depended in part on McKee鈥檚 cooperation, City Hall may be more willing to take a hard line with the controversial developer.

The city had backed off its confrontational stance with McKee while negotiations were playing out three years ago in 蜜芽传媒. McKee wanted to sell back land he had bought from the city for the project at a price city leaders first balked at.

Officials eventually worked out an agreement with the developer, with Williams at one point imploring his cohorts to 鈥渟top rattling the cages and figure out how to get this deal done.鈥�

Now, though, City Hall may be getting impatient. When it promised the federal government 100 acres for its new NGA facility, it also promised to redevelop the blighted area of north 蜜芽传媒 surrounding the planned campus.

鈥淲e have others who want to redevelop and do not necessarily have the permission of Mr. McKee,鈥� Williams, the SLDC chief, testified at the trial.

McKee, though, argues that without his efforts assembling land, the city wouldn鈥檛 have had enough of a site to eventually secure the NGA鈥檚 move to the north side. And McKee points out he made the initial pitch to the federal government for the area before the city eventually took on the task of assembling the remaining land and repurchased some acreage it had sold to McKee.

Piggee, one of the Stone, Leyton & Gershman lawyers who represents McKee, said in an email Friday that NorthSide Regeneration 鈥渨ill zealously guard its development rights.鈥�

鈥淣ow that NSR has done the heavy lifting, and has infused value into the long-suffering NorthSide by delivering NGA and other projects, it is not surprising that opportunists, with close ties to SLDC, would like to try to embarrass Paul McKee so that they might take (NorthSide Regeneration鈥檚) development rights, and the hard fought development opportunities that go with them,鈥� Piggee wrote. 鈥淣SR intends to move forward with its projects and looks forward to working with the State and the City to resolve any issues or concerns. But make no mistake, Paul McKee and NSR remain committed to keeping its promises to the citizens of North 蜜芽传媒.鈥�

Even with the NGA project, some residents and city leaders have complained for years about the lack of progress in McKee鈥檚 development footprint.

McKee points out he had to go all the way to the Missouri Supreme Court to ensure his tax increment financing district, which promises future tax revenue to subsidize development, was legal. Thus, a major part of his financing package was in legal limbo until 2013. The NGA jockeying started shortly thereafter and continued until mid-2016.

Tug-of-war nearly derailed NGA's move to north city

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.

But McKee鈥檚 land is heavily indebted, which could be an obstacle to development. Bank of Washington, his lender, is a co-signer with McKee on several agreements with 蜜芽传媒 Development Corp. entities related to the NGA transaction. Documents as of last year showed it held some $50 million of his debt. When negotiations with the city over the NGA were underway, an average acre of McKee鈥檚 NorthSide land was encumbered with $260,000 worth of debt 鈥� making it close to the price of ground in Chesterfield.

McKee鈥檚 first project in the development footprint, a gas station and grocery store,

Williams testified at the trial that the city has heard many 鈥渟triking鈥� ideas from McKee over the years but that a number of the developer鈥檚 proposed projects have not closed and the financing did not come to fruition.

鈥淭he assumption you could make from the lack of closing was there was not enough money to make it happen,鈥� Williams said.

. A health campus planned on the former Pruitt-Igoe public housing site across Cass Avenue from the NGA site that McKee bought in 2016 is still in the works, .

When the city last looked at threatening McKee with defaulting under its development agreement, some deadlines set for him to commence construction by the end of 2014 were part of the provisions it considered accusing him of violating. At the time, in 2015, he hadn鈥檛 started development.

As the city hammered out an agreement with McKee over the NGA site, the 蜜芽传媒 Land Clearance for Redevelopment Authority, which handled the land assembly, agreed to push those deadlines back. When the city needed McKee鈥檚 cooperation for the failed effort to build a Major League Soccer stadium, it pushed them back again, to the end 2018.

. That deal required additional incentives from 蜜芽传媒, which had been in jeopardy until Krewson鈥檚 development director, .

Even then, financing for the project only came together a few days before an end-of-2017 deadline set by the city. The first bank that was going to finance it dropped out and a new lender was brought on board.

Financing problems or not, the gas station and grocery store could be enough activity to cover McKee鈥檚 development obligations under his agreement with the city for at least a year.

There could be other provisions in the city鈥檚 agreements with McKee that 蜜芽传媒 officials could invoke should it choose to sever ties with a developer that has grown even more politically toxic in recent days. But it鈥檚 not yet clear what those are nor what City Hall鈥檚鈥� or McKee鈥檚鈥� next move is.

And it鈥檚 not only city officials who are taking a new look at the developer.

Through much of the trial over the last two weeks, an FBI agent sat in the courtroom, watching.

Robert Patrick of the Post-Dispatch contributed to this report.

For Your Information

A trial over the last two weeks shed new light on a Missouri tax credit program that, when it was active, many saw as written for one man: developer Paul McKee and his purchase of land in North 蜜芽传媒.

The trial itself was about the value of a building the city had acquired through eminent domain to assemble a site for the future western headquarters of the National Geospatial Intelligence Agency.

But because the building鈥檚 former owner, Jim Osher, had pointed to a 2011 sale of the building to McKee for $3.75 million, it opened McKee鈥檚 companies up to discovery for the trial. Attorneys for the city used documents obtained from McKee鈥檚 companies to argue the sale had been a 鈥渟ham鈥� where no money changed hands and inflated the building鈥檚 value to procure more state tax credits, which the two sides split.

The Distressed Area Land Assemblage Program ultimately issued some $43 million of its credits to McKee鈥檚 Northside Regeneration, the company McKee has used to assemble hundreds of acres in North 蜜芽传媒. In all, it issued only $47 million during its existence from 2007 to 2013.

Like most state tax credit programs, the credits are sold to raise money for developers. In the case of the land assemblage credit, it was typically sold for around 90 cents on the dollar.

McKee could claim the credits for up to half the value of land purchases and for other costs, including brokerage fees and interest. Once they were issued by the Missouri Department of Economic Development, he would sell them at a discount from their face value to banks and other entities who used them to cover income taxes they would otherwise have owed to the state.

The concept is much the same for other Missouri tax credit programs, which developers use to help finance their projects. Historic tax credits are issued to developers based on 25 percent of eligible expenses after they finish a rehab of a historic building. Low income housing tax credits worth 9 percent of the value of a project are given over a period of 10 years for new housing with rents meeting certain guidelines.

Those programs, which are the state鈥檚 biggest and issue tens of millions more credits than the land assemblage program, have also been controversial. The low-income housing tax credit is often criticized because its credits, because of how they can be redeemed, often result in only 42 cents housing for each dollar of state tax credit. The remaining value goes to financiers and other costs.

Often, tax credits are criticized because of the sheer cost to state coffers and because it鈥檚 impossible to know when they will be redeemed, making crafting the state budget all the more difficult. Missouri has been the biggest user in the country of historic tax credits and, until last year, also had one of the most generous low-income housing tax credit programs in the country.聽

The land assemblage credit used by McKee subsidized his purchase of acreage in a blighted area. While it had been controversial from the beginning, new details in the trial showed DED had raised red flags about some transactions where McKee apparently only paid sellers out of tax credits and later deeded the real estate back to them.

In one instance, McKee only owned a building for a few months before giving it back to the seller, who had financed it. Even so, he was issued $2.5 million in tax credits on its purchase.