As a trial to determine the value of a north side building developer Paul McKee once bought played out in St. Louis 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, St. Louis 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.
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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 St. Louis and McKee鈥檚 NorthSide Regeneration, the company he has used to amass hundreds of acres in north St. Louis over the last 15 years, still guides their relationship.
And St. Louis officials agreed back in 2009 to help the developer carry out his vision for redeveloping the 1,500-acre area north of downtown.
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 St. Louis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 St. Louis 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 St. Louis. 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 St. Louis 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 St. Louis.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.
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 St. Louis 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 St. Louis 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 St. Louis, 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 St. Louis 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.