St. Louis extends federal tax credits directly to low-income developer
St. Louis officials approved using $5 million in federal tax credits to extend a loan to national low-income housing firm McCormack Baron Salazar, an unusual move the company said will help it weather the financial impact of the coronavirus pandemic.
The St. Louis Development Corporation, the city's economic development arm, allocates millions of dollars in New Markets Tax Credits to projects each year. However, it almost always directs them to real estate investments in lower income areas. It has established revolving loan funds for small businesses using the credits, but allocating them directly to one firm drew concern from board members on Thursday.
"I always thought these allocations were meant to be catalytic as opposed to sustaining," said Alderman Joe Roddy, who sits on SLDC's board. "I'm just trying to understand the rationale for how this is being used."
SLDC new markets chief Bill Seddon said the agency was "responding to an immediate need" from a "strategic partner."
A national player in low-income housing and government incentive programs for decades, St. Louis-based McCormack Baron manages over 23,000 units in more than 267 properties around the country, including some for the St. Louis Housing Authority. The company has developed over $4 billion in properties, primarily with the assistance of federal housing grants and other public incentives such as state and federal low-income housing tax credits.
McCormack Baron employs about 207 people in the St. Louis area with a local payroll of nearly $27.2 million, according to a city report.
"We want to continue our roots here," Laurel Tinsley, who heads the McCormack Baron division focused on New Markets Tax Credits, told the SLDC board Thursday. "A lot of organizations took this opportunity to cut their employee ranks and we have not done that."
The company also secured a federal Paycheck Protection Program loan, authorized by Congress to help small businesses, with fewer than 500 workers, make it through coronavirus shutdowns. McCormack Baron has 738 employees nationwide, but like other companies, qualified via an application from one of its divisions. Representatives did not have the dollar amount available Thursday; the loans can be worth up to two months of payroll, plus 25%.
"Those kinds of subsidies, they were designed for a very short term," Tinsley said in an interview. "What we're really looking at is long-term stability."
Company spokeswoman Cady Seabaugh said rent collections are down about 10% year-over-year, and expenses are up as the company works with tenants to ensure they have access to doctors, job resources and internet connectivity for school and work.
Tinsley said Thursday the firm had been discussing, even before COVID-19 hit, using the tax credits for pre-development financing, but it "became much more relevant for us given the lens of what's happening during the pandemic."
The firm's national presence made some board members concerned about whether St. Louis would get its money's worth.
Board member Matthew McBride said the new markets tax credit contract needs to require that the firm keep its local headcount steady and not leave St. Louis.
"After (Tinsley) hinted multiple times that that may not be the case," he said, "that gives me significant pause."
But Tinsley said the firm would agree in writing to use loan proceeds only for salaries and expenses in St. Louis.
Board member Mark Levison asked about the precedent.
"I'm really concerned about that message, to carve out money for one company," he said. "That tells other companies, just come on in."
SLDC Director Otis Williams said the city is working closely with the firm in the near north side neighborhoods near the planned National Geospatial Agency campus and they are instrumental in low-income developments around the city.
"If they went away, we would have multiple problems servicing some of those needs," Williams said. "They are partners with us on a number of other transactions that are imminent."
One of those near northside projects, the rehab of the 675-unit Preservation Square subsidized-housing community, has seen a four-year delay. McCormack Baron was part of a team that won a $30 million federal grant for the project in 2016. Former Missouri Gov. Eric Greitens held up low-income housing tax credits in 2017 and delayed the project, the firm said. Then it won those credits after all in 2018, worth $1.18 million annually for 10 years. Construction was supposed to have started at the end of 2019.
The firm said Thursday financing for the first phase of the project should close in two weeks.
McCormack Baron's management affiliate recently settled a wrongful death lawsuit after a young woman was shot in the Cambridge Heights community just north of downtown. The suit alleged the company didn't do enough to help residents in a complex plagued by crime. McCormack Baron withdrew as manager of the property in February.
Despite the reservations, the SLDC board approved the incentive, with some protections.