Backers of the huge building project proposed for downtown Billings will have to persuade a majority of the City Council to put up at least $30 million in public funds for the project to work.
The tougher job might be winning the support of the city’s finance director, Pat Weber, to whom a lot of council members will be looking for guidance.
He says the three out-of-state developers who are proposing the project that could cost as much as $150 million appear to be unwilling to put up more than a token amount of their own money and need far too much public funding to make the project fly.
Weber also says Greg Krueger, development director for the Downtown Billings Alliance, hasn’t done nearly enough due diligence on the developers’ backgrounds in the two years they have been working together on the deal.
The project, known as the One Big Sky Center, would include a high-rise hotel, a 160-unit apartment complex, a large conference center, a parking garage and a pedestrian mall. It is being proposed by a limited liability company known as MontDevCo, which is made up of three developers—George “Skip” Ahern and M. Burke McHugh, both of Denver, and Greg Tatham, of Phoenix, Ariz.
At a meeting with city officials, Ahern, the main developer and company spokesman, talked about the need to get strong support for the project from city administration and the City Council, Weber said.
Weber said he told Ahern, “You’ve got a long way to go before this boy’s on board.”
The City Council has already shown some support for the project. In May, it voted to allow the Downtown Billings Partnership, part of the downtown alliance, to spend $850,000 in tax increment district funds to buy a building that is part of the 70,000-square-foot project footprint at First Avenue North and North 29th Street. The plan is for the partnership to sell that building to the developers at a later date.the council approved a $250,000 loan to MontDevCo from the Downtown Revolving Loan Fund, which also uses tax increment money. The company initially applied for a $1.25 million loan, was turned down, then asked for $750,000. After being turned down again, it asked for $250,000, which it said it needed for predevelopment expenses.
Normally, the committee can make loans of no more than $250,000. If either of the larger loans had been approved, the City Council would have had to not only sign off on the loan, but change city policy as well.
On Aug. 15, the same day the project was made public at a press conference in the middle of the project site, the City Council told Krueger and Ahern that they could submit a predevelopment agreement to the council at its Sept. 12 meeting.
That document would lay out, in fairly general terms, the obligations of the city and MontDevCo if the project goes forward, with a final development plan, spelling out financial details, to be done no later than June 30, the end of the fiscal year.
That Sept. 12 date, however, has been postponed. City Administrator Tina Volek said the city’s financial adviser, Springsted Inc., has asked to see financial and legal information on the three developers before the predevelopment agreement is submitted to the council.
Ahern said in an interview with Last Best News that information would be submitted within a week, and Volek said it would take Springsted another two to three weeks to review the information. That means the predevelopment agreement would go to the council sometime in October, at the earliest, Volek said.
Weber said his overriding concern is that no one knows much about Ahern’s background, saying that like so many out-of-state developers, “you can’t find out anything on Google about any of them.”
On the resume he submitted to the city, Ahern listed four big commercial projects he worked on, three in Denver (Republic Plaza, Anaconda Tower and Bank Western and Dome Towers) and one in Phoenix (Great American Tower), but all of them appear to have been developed in the 1970s and ’80s.
A big project he is working on now is not on his resume, but he spoke of it at the press conference and in other settings. That is the Eviva Cherokee project in Denver, a 274-unit, 18-story apartment tower that Ahern said has a total price tag of $88 million—and into which EB-5 investors have sunk $22 million. That project is expected to be completed in March, he said.
He said he has been working on that project for six years. As for the gap between the 1980s and his work on this latest project, Ahern said he worked on “a whole host of small projects,” including the redevelopment of a Safeway shopping center and several projects involving the city of Denver’s urban renewal agency.
He said he is working on all aspects of the Eviva Cherokee project, including orchestrating contractors, architects and investors, just as he plans to do for the Billings project.
Still, Weber is right that independent information on Ahern is hard to come by. Katie Kruger, CEO of the Denver Metro Commercial Association of Realtors, said she hadn’t heard of Ahern, but she checked the association’s membership list and found that Ahern had not been a member since 2010.
Similarly, Ahern does not appear on the 54-page membership roster of the Denver Metro Association of Realtors. Several other people prominent in development and real estate circles in Denver said they knew nothing of Ahern, or remembered him only as a developer decades ago.
John Winslow was typical of those people. Winslow has been an active real estate researcher and analyst in Denver since 1973, and he remembered Ahern as a “pretty heavy hitter” in the 1970s and ’80s.
“I don’t think I’ve seen or talked to Skip Ahern in 15 years,” he said.
Last Best News called other people involved in the Eviva Cherokee development, hoping to determine the level of Ahern’s involvement in that project, but none of those calls was returned.
Weber doesn’t think Krueger, the downtown alliance’s development director, did enough background checking on Ahern, or his associates.
“Greg claims to have vetted these guys,” Weber said. “I don’t buy that. Greg wants this project to go through so bad he’s throwing caution to the wind.”
Krueger’s response to that was, “That’s bullshit, and you can put that in as my quote.” He said he has no personal stake in the project. “My salary doesn’t change depending on whether we get this project or not.”
Even so, he said he has not seen any documents on Ahern’s finances, though he said he did see McHugh’s tax returns, since he was the one who put up the money for the parking lot purchase. Krueger also asserted that looking into the background of the developers was not his job.
“I think the due diligence end of it is the city’s responsibility,” he said. “My role is to bring them ideas and projects.”
He said he has been to Denver and looked at projects Ahern said he worked on. Furthermore, he said, the downtown alliance has been involved in the two-year process of lining this project up, and the alliance “has enough experience behind them collectively that we’re not going to buy a pig in a poke.”
Krueger insisted that the city is not exposing itself to any risk, since it “is not going to sell a single bond” until all the financing is in place for the project.
This is a rare opportunity to work with big-city developers who are accustomed to projects the likes of which haven’t been done in Billings before, he said.
“We have to bring outside developers into this city or we’ll just continue spinning our wheels,” he said.
Krueger also said that when McHugh first bought the parking lot at First and 29th two years ago, it was with the idea that he and Tatham, the third member of MontDevCo, would build a rather modest development on the site. It was only after meeting with members of the downtown alliance and hearing of the need for more parking, a conference center and a downtown greenspace, Krueger said, that McHugh and Tatham invited Ahern into the project, because of his experience.
Regardless of how the project came about, Weber said he also is concerned about the financing the developers are willing to provide.
The building the DBA bought houses Yesteryear Antiques, at 102 N. 29th St., and Weber said that purchase means the city “has more equity than the developers” do in the project. He said the developers’ only contribution so far has been the purchase of the parking lot at First and 29th, for which they paid $840,000.
“They don’t plan on putting any more of their own money into the project than the parking lot,” Weber said. “They’re pretty clear about that.”
Ahern said that is not true. He said he and his partners have already put up nearly $1.35 million, including what he said was $880,000 for the parking lot. The balance was spent on architectural work, legal fees and other expenses. He said that might seem like little to Weber, who oversees the city’s multimillion-dollar budget, “but when you’re an individual, that’s a lot of money.”
What is more important, Ahern said, is that the developers plan to raise $15 million to $25 million in “pure equity” to fund the One Big Sky Center, whose price tag has been estimated at $120 million to $150 million.
Weber countered: “I don’t know where that equity is coming from. They’re pretty vague on this whole thing.”
Ahern said Weber and others sound as though they “are expecting us to have everything ready now,” but that’s not how big, complex projects like this work. He said all the funding sources for the project have to be developed simultaneously, each source dependent to some extent on the other sources.
The “pure equity,” he said, would come from the developers and other investors. He said he couldn’t estimate how much he and his partners will ultimately invest in the project.
“How much more will it be? I don’t know,” he said. “We will raise the amount of equity needed to make this happen. … The equity will be there or the deal won’t be done.”
Besides the equity infusion, the partners have said they will seek a traditional bank loan for 55 to 60 percent of total project costs and $30 million to $32 million from foreigners taking advantage of the IRS-administered EB5 Immigrant Investor Program.
That program virtually guarantees that foreigners who invest at least $500,000 in U.S. projects and create or preserve at least 10 jobs will obtain green cards for permanent residency for themselves, their spouses and children under 21.
The last piece of funding, which Ahern described as “crucial,” would be the city’s grant of tax increment financing dollars—estimated by Krueger at $30 million to $35 million—to build three parts of the project: the parking garage, conference center and pedestrian mall, which would be built on 29th Street. The city would first have to close 29th between First and Second avenues.
As for the bank loan, Ahern said he met Tuesday afternoon with an unnamed “major international bank” that expressed an interest in funding the construction loan.
He acknowledged that he had less luck with banks in Billings when he applied for a bridge loan to cover predevelopment costs.
Krueger said the developers “went to every single bank in this town. They were turned down by every bank they talked to.”
Krueger made that remark in explaining why the developers ended up going to the Downtown Revolving Loan Fund for a bridge loan. Krueger said the lack of interest on the part of local banks “says something about our city.”
Ahern made a similar comment, saying banks in Billings weren’t interested because he’s from Denver and banks in Denver weren’t interested because the project is in Billings.
“I think it’s more a reflection on the banks than it is on us,” he said.
The money that would be raised through the EB-5 program, meanwhile, is not a sure thing. The program, which was begun in 1990 to stimulate foreign investment in the United States, will sunset next month unless it is reauthorized by Congress.
Most stories in the financial press lean toward the view that it will survive at least another year, though there may be efforts to rein in parts of the program that have led to fraud and other abuses.
Ahern said the experts he’s spoken to believe that Congress, particularly since it’s an election year, “may kick the can down the road” and allow the program to stay afloat for at least another year, which is what happened last September.
He said another distinct possibility is that Congress will raise the minimum investment from $500,000 to $800,000, which would help the One Big Sky Center project because the developers would need to round up fewer foreign investors.
And the program has certainly been popular. After languishing for several years, the EB-5 program attracted 10,000 investors— the maximum number allowed annually—in 2014 and again in 2015. The surge in numbers at was due largely to a flood of Chinese investors, who made up about 90 percent of all investors both years.
All of those funding sources, however, will be of little use if the developers fail to obtain the financial involvement of the city of Billings.
Many downtown projects have relied to some extent on tax increment financing, including the Northern Hotel, the Empire Parking Garage on Montana Avenue and the renovated Babcock Theatre and associated properties.
That money begins to build up after an area is designated as a tax increment district. The taxes on any new development within such a district, after creation of the district, are set aside for future development projects, rather than flowing into the city treasury and that of the county, school district and other taxing entities.
It is not yet clear how much tax increment financing the One Big Sky project will need—Weber said Krueger has thrown out estimates of up to $40 million—but the minimum appears to be $30 million.
Weber at first said the city had enough bonding capacity to cover a tax increment grant of no more than $20 million, but said later, after speaking with Springsted, the city’s financial adviser, that the city could have up to $29 million bonding capacity.
Whatever that figure might be, Weber said, “there’s no way” the city would fund everything the developers are asking for.
“Tina has no intention of paying to build the conference center at this point,” he said, referring to Volek, the city administrator.
Volek said that wasn’t quite accurate. That is a decision the council must make, she said, though she did acknowledge that she has said she would not recommend that the city run a conference center because such centers are usually not self-sustaining.
However, she added, “I believe proponents of this project have recommended that the hotel in the building run the center.”
Financing remains the biggest concern for some City Council members. Mayor Tom Hanel, a voting member of the council, said there are so many ripple effects of the project—starting with the relocation of existing businesses and the closing of a downtown street—that the developers need “more skin in the game” if it is to proceed.
“The bottom line is, they’re going to have to put some money on the table,” Hanel said.
Councilman Brent Cromley said a lot of people are skeptical because so many other big projects have been announced over the years and then have gone nowhere. At this point, he said, the One Big Sky Center backers have submitted “a lot of kind of general stuff without a lot of specifics.”
Councilman Dick Clark said he had some concerns about the funding of the project, too, but he was encouraged that MontDevCo has spent a fair amount of money already, which was not always the case with previous development proposals.
“I’m hoping this one will be different because at least they’ve put up some money,” he said.
One more aspect of the project that has raised questions is the involvement of Swank Enterprises, a general contracting company that recently moved into a renovated building at 30th Street and First Avenue, which is within the project footprint.
At the press conference last week, Ahern said Swank would be the lead contractor of the project. Ahern said he has since learned that because public money would be used on the project, a contract could not be awarded to any builder without competitive bidding.
Ahern said he has been in talks with Swank about what role the contractor might play in the project, but nothing has been decided.