While the downtown apartment complex Alton Plaza did not make its expected first loan payment to the city of Longview this past summer, a company principal said the property is leased up and financially doing well.
Megan Lasch, president of Austin-based O-SDA Industries, said the payment will be made this coming summer with the planned next payment, as allowed in the loan agreement with the city of Longview.
Longview’s historic Petroleum Building was built in downtown Longview in 1953 as a parking garage, with offices added several years later. It eventually became vacant and languished for years as it deteriorated at its corner at Whaley and Fredonia streets in downtown Longview.
Saigebrook Development of Austin owns the building and worked in partnership with O-SDA Industries to redevelop the property, which had been in danger of being condemned and demolished. The two organizations frequently work together. The redevelopment happened through a variety of programs, including federal tax credits funneled through the Texas Department of Housing and Community Affairs that means the complex’s 48 units offer a mix of units at reduced rates for people who meet certain income requirements and market-rate rents.
The city of Longview loaned $600,000 to the project, with repayment originally scheduled to have started this past June with annual payments at 0 percent interest for two years and then 18 years at 1 percent interest.
“The way that agreement is written is that they have so much loan payment due over so many years and at the end there’s a lump sum payment, and it’s all contingent on positive cash flow,” said Michael Shirley, the city of Longview’s development services director. If the complex doesn’t have positive cash flow, the loan agreement allows the payment to roll to the next year, but with Alton Plaza responsible for the full loan repayment at the end of the loan term.
“If they don’t have positive cash flow, they’re not required to make a payment and they’re not in default,” he said.
The city of Longview sent Alton Plaza an invoice for its first payment in May. In June, Lisa Stephens, owner and president of Saigebrooke Development, responded with a letter explaining why the payment would not be made in 2021.
“Last year (2020) was the initial lease up for the property and during 2020 the property actually operated at a loss of approximately $126k,” she said. “I’ve attached the year end audit and you can see the operating loss on page 7. The property did end the year with $116k of cash but it had payables for construction costs of $144k. Due to the operational loss and the construction cost payables, there is not sufficient cash flow to make the interest payment for 2020.
“However, based on the property having achieved 100% occupancy and converting to permanent financing in May of 2021, we do expect that the property will be able to make the payment beginning next year.”
Lasch said this past week the issue really was the conversion to permanent financing per industry standards for commercial project.
“...There were no cash distributions made last year on the property because we were in the process of converting our construction loan to permanent financing....” she said in an email. “This is a standard procedure for any commercial project. The project was initially scheduled to convert earlier but due to COVID the conversion timeline was extended. This was something that many projects throughout the U.S. experienced that were in this stage when Covid hit.
“It is standard practice that cash distributions are not made until the next calendar year after the first mortgage (permanent financing) is in place. The property is now stabilized and actually out performing initial projections. It is on target to make payment to the city just as anticipated. The city loan payment will be made in June of 2022 as outlined in our agreement and will include the payment previously due in June of 2021 that was delayed due to Covid.”
Shirley said the loan to Alton Plaza isn’t something the city has typically done, but the project checked off boxes for a number of needs the city has identified. A small area plan for downtown, for instance, identified a need for more housing downtown to stimulate development there.
“There’s also a need for affordable housing and there’s also a need for redevelopment,” he said. The building’s previous owner was about to walk away from the property, he said, and the city was in the process of declaring the building a nuisance. That means the city could have ultimately become responsible for putting a lien on the property and then tearing the building down at a cost of more than $1 million.
“That’s a win-win,” Shirley said of all the needs the renovation and loan helped meet.
“At the end of the day, when the note comes due... they’re responsible for the whole amount,” he said. “It’s not a typical deal, and I know it’s not structured like a normal bank would do, but we’re looking at the benefits to the community, touching on all those points.”