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Mutual Building Redevelopment Deal Restructured, High Hopes for Impact

The Mutual Building in Covington was once the center of commercial activity in a thriving downtown. It was home to the area's original Chamber of Commerce, restaurants, and a jewelry store.

The intersection of Pike Street and Madison Avenue is where the city's two most historically significant streets collide, and the Mutual Building looms at its southwest corner.

In recent years it's been a monument to a decaying downtown, almost entirely vacant for a generation, sitting sadly without its once proud cornice crown.

A return to glory for the nearly 100-year old structure may be imminent, however, as a local developer with more than one residential development trophy on its mantle sets its sights upon it.

That part of this story is now relatively old news. Bill Kreutzjans was to acquire the building from the City of Covington for $450,000 in a deal that was announced last June. Plans called for fifteen luxury rental units on the second and third floors and re-imagined commercial opportunities at street-level.

What's new are the terms of the deal approved by the Covington City Commission on Tuesday night as Kreutzjans, through the assistance of the Catalytic Fund, restructured the financing plan.

When the plans were originally announced last summer, it was reported that Kreutzjans, the developer behind the Reserve residential development in Downtown Cincinnati and the St. Anthony Lofts in Bellevue among others, would purchase the building for $450,000. He would receive $10,000 per residential unit in city grant money for residential rehab work for a total of $150,000. There would also be parking spaces available in the Covington-owned Center City Garage leased at market rate.

The more than $2.6 million development had a $600,000 funding gap at the time of that announcement and since then additional gaps have been identified.

Originally, there were plans to use funds from the City's tax increment financing (TIF) district in which a percentage of property taxes collected in a designated area are used solely to reinvest in that immediate area.

Trouble is, since the City adopted the TIF there haven't been any proceeds into the fund.

Jeanne Schroer, president of the Catalytic Fund, an organization facilitating hundreds of millions of dollars worth of residential developments in Northern Kentucky's urban core, spoke on Tuesday night of the significance of the Mutual Building project.

"I think the business district can thrive again and this building is an important part of that revival," Schroer said. "The City recognizes how important this building is to the revitalization of our historic city center."

As explained by Schroer, the city commission was asked to approve new terms for the deal that would include making the City holder of a third mortgage worth $450,000. The developer would repay the loan over a twenty year period at an interest rate of 1 to 1.5%, though interest would only be paid during the construction process.

That changes the original plan of the City having the cash up front. Upon repayment of the second mortgage to the Catalytic Fund, the City would be in second position to the primary lender.

Additionally, the project would benefit from a five-year vacant property tax moratorium.

Finally, the commission was asked to provide a $125,000 forgivable construction loan through funds from Community & Economic Development Associates (CEDA).

The city commission approved the changes unanimously and now the project is funded like this:

Private investment:

  • Primary loan $1.35 million
  • Catalytic Fund loan $361,000
  • Developer cash $177,000
  • Duke Energy grant $63,500
  • TOTAL PRIVATE: $1,951,500

 

Public investment:

  • City grants $275,000
  • City loan $450,000
  • TOTAL PUBLIC: $725,000
  • TOTAL PROJECT COST: $2,676,000

 

Project viewed as catalyst for Downtown revival

"This is in a prime location that will create a critical mass where other things are happening such as the Hotel Covington, Gateway (Community & Technical College) and other projects such as UpTech, Covington City Hall," Schroer said. "To me, this is Covington's number one spot for investment."

However, The Hotel Covington project recently returned to City Hall to restructure its own deal and there is no indication that Gateway's hopes for funding of its planned urban campus will arrive by way of a General Assembly currently in session under a shoestring budget.

But, Schroer said, the project accomplishes many of the goals outlined in 2012's Center City Action Plan: it attracts jobs, supports existing businesses, cultivates retail, employs historic preservation, is a public and private partnership, its aim is to keep young talent in the city, it makes Madison Avenue more inviting, and offers new, affordable housing options, she said.

"This is a very high priority project for the Catalytic Fund and I know it is for the City as well," Schroer said. "I have been enthused about this project for years and I just can't wait until we have the groundbreaking party for it. It will be a big party for this."
 
Schroer made the case for the restructuring of the deal through a presentation that included facts about the current economic climate for such a project.
 
She said that it received the largest grant awarded by the Duke Foundation last year. "They thought it was the highest priority project in the region," Schroer said.
 
But, "There has to be a reason to invest in a building other than 'it's a pretty building'," she said. "We have to at least be able to expect that if we invest this money that the project would be successful."
 
The primary reason Schroer predicts success at the Mutual Building is that the apartment market across Greater Cincinnati is "very strong", "Specifically in the areas of Over-the-Rhine, Downtown (Cincinnati), and in Covington and Newport," she said.
 
The Catalytic Fund conducted a detailed market study of apartment units in that area. Out of 2,481 apartment units, she said only fifty were vacant. "That is telling us there are demands for apartments in these locations," Schroer said.
 
She also believes that the developer is being conservative on the anticipated charge for rent. The pro forma rent for the Mutual Building is at ninety cents per square foot compared to $1.14 to $1.27 per square foot across Greater Cincinnati urban core for 2-bedroom, 1-bedroom, and studio units.
 
The commercial spaces are priced with a calculation for risk, she said. There will be 11,000 square feet of commercial space available for uses such as restaurants, retail, or office. The price of $12.50 per square foot calculates a possible 25% occupancy rate, "more than adequate cushion for risk", Schroer's analysis showed.
 
Though Downtown Covington is chock full of vacant spaces and storefronts, the idea of creating new ones is appealing because so few of the existing ones are move-in ready, Schroer said.
 
City could see big return on investment
 
According to Schroer, the current value of the Mutual Building is listed at $430,000 by the Kenton County Property Value Administrator. Following the renovation, it will be worth $2 million, she said.
 
"There is no tax revenue coming from that (building) whatsoever because the City owns it, so right now you are generating zero dollars," she said. Following the increase in value and when the building returns to the tax rolls, the City would collect roughly $6,000 annually and the school district would collect $22,000.
 
"We also know when people invest in property, not only does that building's value increase, but there is what is called a catalytic increase," Schroer said. "So, we can determine that properties around the project will increase in value."
 
A ten percent increase in the cumulative value of all the surrounding properties would change the worth from $82 million to around $90 million.
 
Additional catalytic effects that Schroer outlined included the number of new residents and employees who would spend money in the area every day. Combined, new residents and employees could increase local spending by more than half a million annually.
 
The City could also collect more than $140,000 in possible payroll tax revenue based on the possible jobs created on the street level which Schroer expects to be office-oriented until the area can better support thriving retail.
 
But that's what will happen she said: other businesses will follow.
 
Having the apartments and the people are a prerequisite for some businesses looking to make a move. "Businesses want to be located where there are apartments that will attract employees within walking or biking distance," she said. "It's important to build a critical mass of activities."

The Mutual Building has long been spied as a possible site for redevelopment but until now no one has gotten this close to swinging some hammers.

"Several folks have gone through it," Assistant City Manager Larisa Sims said. "Parking is a challenge, the rehab is a challenge. There are a lot of challenges associated with this project. It's not an easy project but with the partnerships a lot of folks see a lot of good from the project."

Kreutzjans also assured Commissioner Chuck Eilerman that the plans for the building's facade include a restoration of its now missing cornice, what could be a proper crown for a new jewel Downtown.

Written by Michael Monks, editor & publisher of The River City News

Photo: Mutual Building/RCN file