Future path unclear on stalled downtown housing project

Funding, legal problems involving city, developer halted work at former DDN site.

The scene has been largely frozen in time for nearly two years — rubble throughout, gaping holes in the ground partially filled with concrete debris and rusted metal.

It is the birthplace of the Dayton Daily News, and the original newspaper building at Fourth and Ludlow streets in downtown Dayton — built in 1908 and listed on the National Register of Historic Places — still stands on the southeast corner of the parcel.

A once promising project to build an $18 million apartment complex on the site and possibly revive a troubled section of the downtown is in limbo, and it’s not clear what the path forward will be.

Student Suites Dayton LLC, the Missouri-based developer that bought the property, has incurred nearly $1 million in liens and property tax debts on the project, according to Montgomery County records.

The city of Dayton, which owned the former Schwind building next door and agreed to have it demolished despite a deed restriction and lien on the property, now admits that was a mistake.

The lien from the U.S. Department of Housing and Urban Development remains in place, though Aaron Sorrell, the city’s Director of Planning and Urban Development, said he expects HUD to remove the lien, allowing redevelopment to move ahead.

But it’s not clear when that will happen or where the money for the development will come from.

City of Dayton officials say they are seeking a new developer and investors for the site, which sits across from the long vacant Arcade complex and near the sprawling campus of Sinclair Community College.

Meanwhile, demolition contractor Steve Rauch said he is owed nearly $1 million by Student Suites for his work on the site, and filed a lawsuit Oct. 22 against the LLC seeking payment. Property records also show that Student Suites owes $122,730 in back taxes.

Student Suites LLC executives Steve Papa and Dick Davis have not responded to requests for comment.

As part of the 2013 sale of the property to Student Suites, Cox Media Group Ohio — the division that operates Cox’s media properties in the state — provided $1 million to the LLC toward preservation of the historic newspaper building and redevelopment of the site for housing.

A breakdown of city of Dayton expenditures also shows the city has spent $938,591 on the project. That doesn’t include $420,000 the city spent to pay off liens on the Schwind building, which has been torn down.

More city spending could follow. Dayton Interim City Manager Shelly Dickstein is concerned that another round of winter weather could damage the historic former newspaper building.

“We’ve looked at the cost to fill the hole so it’s not sitting there blighting the community and so that the building could be buttoned up and not exposed,” Dickstein said.

Rauch estimates the cost to finish the demolition would be $500,000 — to remove basement walls and fill in holes.

Financing elusive

Student Suites has told city officials that financing remains elusive for the project, and only months ago asked the city to guarantee up to $6 million of the $18 million it could borrow for the project — part of the latest attempt to finance the deal.

“They asked us to guarantee a $6 million loan,” said Sorrell. “If the project didn’t perform and the loan were to default, then the city would be obligated to pay out those funds.”

The city declined.

Jerry Brunswick, President of the Dayton-Montgomery County Port Authority, said in the early stages of the project the plan was for the authority to issue tax-exempt bonds to finance up to $15 million. The bonds would be sold through an investment banker.

“I never heard that the (banker’s) investment committee approved it,” Brunswick said. “And we asked. We were told they never approved it. If there was a lien in front of the property, it would certainly impede a positive credit decision.”

He added: “A lien in front of you is not a great way to sell a project. The project still makes sense. We’d like to issue the bonds and we have a new program that can be a part of this.”

It’s unclear what happens next. The historic 1908 building sits alone on a fenced-in site, its walls exposed and unsightly, bracketed by a big hole and disagreement over why the project has stumbled so badly.

Charles Jones, who passes the unfinished site daily as he walks to his downtown Dayton law office, said he’s saddened by what he sees.

“I’ve been walking past this building all my life,” the 60-year-old Dayton resident said. “I hate to see historical buildings go to shambles. When we see buildings sit stagnant and projects not being done, it’s like, ‘where is the money?’”

‘Great location’

The stalled state of the project is a stark contrast to the excitement that accompanied the original announcement from Cox Media Group that “a preliminary plan has been agreed upon for the sale and revitalization of the vacant historic Dayton Daily News building and adjacent property.”

“In addition to the sale of the historic Dayton Daily News’ building and property, Cox Media Group Ohio is contributing $1 million to restore and protect the legacy of the historic building,” the April 2013 announcement said.

Cox moved the newspaper in 2007 to a consolidated print, broadcast and digital facility at 1611 S. Main St. in Dayton.

Julia Wallace, Market Vice President for Cox Media Group Ohio, said Cox no longer has a financial interest in the property but hopes the situation can be resolved and the project move forward.

“It’s a great location in downtown,” she said. “To encourage development in that area would be great for the community and we want to preserve the 1908 building for its historical value. That is the outcome we obviously want.”

In the 2013 announcement, CMGO said it had been working with the city of Dayton, Student Suites and a California-based nonprofit, United Housing and Community Services Corporation, to finalize a plan to build an $18 million multi-purpose complex on the property. Sinclair was not involved, but once the project was completed its students would have access to housing just a short walk from their classes.

United Housing would own the project “once it was leased up,” said Sorrell.

Attempts to reach United Housing were unsuccessful and there was no listing for the non-profit in a statewide telephone directory.

In a bond document on file with the city of Dayton, United Housing was listed as the borrower of the proceeds of the bonds issued by the port authority.

Student Suites, the document said, “gathers a team of architects, local contractors and financial experts to provide a completely finished project.”

‘It’s been a struggle’

Student Suites has a long history with student housing ventures, having done projects or formed LLCs in Ohio and other states that include Kansas, Virginia and Texas. At the time of the project’s launch here, Student Suites’ Davis cited work the company had done at Wilberforce and Central State universities.

The Missouri-based company also oversaw the design and construction of a $10 million, 200-bed dormitory project, completed in August, at Jackson College in Michigan, the Jackson Citizen Patriot reported.

In the bond document spelling out the finance terms, the company was described as being in business since 1996 and having experience with projects ranging in size from 64 beds to 840 beds. “Student Suites creates innovative student housing that offers unique solutions for each project, including: cost control and quality, guaranteed maximum price and completion date, 100% financing, use of local labor/community and project turnaround within 9-12 months,” the document states.

But the Dayton project proved to be problematic, though the officials involved periodically provided public assurances that plans would go forward. The most recent statement to this newspaper came from Student Suites’ Papa in January when he said he was confident financing would be arranged within weeks.

Papa at the time said that once work resumed in the first quarter of this year, construction should finish by the fall of 2016. By the second quarter of 2015, he said, two underground tanks would be removed and bulldozers should be preparing the site and cleaning it up.

“It’s been a struggle, but it’s going to happen,” Papa said in the January interview.

The most recent sit-down Student Suites had in Dayton was July 31, when Dick Davis met with city representatives. including Dickstein and Mayor Nan Whaley, and Cox Media Group Ohio Vice President and CFO Bob Zikias.

“Part of the conversation that occurred with Cox and the developer is how we can be helpful to secure financing,” recalled Dickstein.“The developer wanted guarantees from the city and asked for $6 million. We don’t have the resources, nor do we want to set a precedent.”

Sorrell still believes Student Suites would like to continue the development. The city too wants to find a way forward to create housing on the site.

But, said Whaley, “I don’t think the developer chosen will work.”

Dickstein said the city has had discussions with potential investors and other developers. “Conversations are ongoing,” she said.

Lien hurdle

With the long-shuttered Arcade across the street, the Student Suites project was seen as a ray of hope for that part of downtown and possibly a catalyst for future development. Then came a snag.

A major legal hurdle involved the deed restriction and lien on the Schwind building, which was imploded as part of the development plan. HUD had imposed the restriction after funding a previous owner’s plan to put low-income housing there.

Records show the Schwind had a rough history. The city originally acquired the building from HUD in 2003 after the owner defaulted on a HUD-insured mortgage. The city transferred the building to Rain & Associates in July 2004, but the building then went into foreclosure and was sold in 2007 through a foreclosure sale to the Schwind Building Restoration Project. The city re-acquired the building in August 2013 as part of the Student Suites project.

Constructed of reinforced concrete in 1913 — the year of the Great Flood — the Schwind building had at times been known as the Gibbons Hotel Annex, Ludlow Manor Apartments, and Moraine Apartments. It housed the Moraine Embassy restaurant on the ground floor, a longtime bar and eatery frequented by attorneys, police, public officials and newspaper staffers.

It was demolished before the city cleared matters with HUD.

The city has obtained HUD approval to transfer the deed restriction to the Lakewood Apartments at 980 Wilmington Ave., the former AFL-CIO residential high-rise, Sorrell said.

The lien from HUD remains in place, but Sorrell says he expects the lien to be removed, though the time frame is unclear. HUD spokesman Brian Sullivan said the agency is still working with the city to make that happen.

One of the hangups occurred when HUD temporarily lost authority to approve the deed transfer, Sorrell said. It regained it with the passage of a congressional funding bill in 2014.

Sorrell acknowledges that the lien and deed restriction were raised by Student Suites as a hurdle to financing, but he said the developer redesigned the project to make the Schwind site part of a second phase that would kick in when the lien was removed.

“We’ll take responsibility for the HUD lien,” Sorrell said. “But the developer has struggled to find financing.”

Dickstein too acknowledged the city made mistakes. “Looking in the rear view mirror, the project moved forward without financing in place,” she said. “In hindsight, we would change things.”

‘It’s a big mess’

Rauch can’t conceal his impatience with how the project has played out. He says he’d like to get paid for all the demolition work.

A demolition contract between Student Suites Dayton LLC and Steve R. Rauch Inc. specifies a payment of $1.292 million. Rauch said he stopped working on the project when the billing cost for his work hit $869,000 and he still hadn’t been paid.

“The total job was $1.6 million,” he said. “They have never paid one dime. That’s the reason I left it the way it is. It’s a big mess.”

A contract between Student Suites and the city required Student Suites to provide the city “with a fully executed copy of a payment and performance bond issued by a surety authorized to do business in Ohio and acceptable to the city…which bond will guarantee completion of the developer’s obligations under this agreement and payment in full of all contractors, material suppliers and others who contribute to the design and construction of the project.”

Student Suites has not provided proof of the performance bond, Sorrell said, although it did pay to insure the demolition activities.

The city’s Housing Inspection Division last year issued a violation to Students Suites ordering the LLC to remove trash and debris from the area. The city says there was no response to the order, which was sent by registered mail to Student Suites’ Independence, Mo., offices.

‘Important project’

Dayton officials are now working to see how they can at least secure the building from the weather before winter arrives.

“We are very concerned about getting it done in the next month or so,” Dickstein said. “With the freeze and rain there is exposure on the historic building. It’s an important project and we want to see it be successful.”

If no one comes to the table, Dickstein said, “We will explore our abilities to move forward with enforcement action on the historic building and move forward to preserve the building and remove the blight and fill in the hole in the ground.”

The site is just a block from City Hall, which has tried to spearhead a renaissance of housing in the downtown area.

“Every day the project is in limbo,” said Dickstein, “it’s a blight on the work we are trying to do.”

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