CEDAR RAPIDS — The Smulekoff’s building in downtown Cedar Rapids, which the city acquired in December 2014, will be sold to a private developer who plans to redevelop the 100,000-square-foot, five-story structure with retail, offices and 32 micro-unit apartments.
The Cedar Rapids City Council on Tuesday approved the sale of the building — which the city bought through the flood buyout program for $4.7 million — to a company lead by developer Steve Emerson for $415,000, with a 10-year tax rebate worth $120,000 annually.
“It seems fair,” Emerson said after the approval. “This makes sure it will continue to be a benefit for the city, and keep the downtown core prospering.”
The sale of the 1904 brick building that long offered home furnishings will be inked within about two weeks, according to city staff. Emerson said thereafter he plans to immediately begin working on redevelopment, which is expected to be a minimum $15 million investment.
Emerson also must identify a new lead tenant.
Emerson is purchasing the property under an entity called Shadow River LC, which was created by his company, Aspect LC. The city awarded the project to Aspect, which ranked highest among several competing developers, in May 2015.
Aspect had anticipated attracting an unnamed out-of-town corporation, which was disclosed to city officials, with 100 new jobs, but that deal fell through. Jennifer Pratt, Cedar Rapids community development director, said even without the employer, Aspect still scored the highest.
The second-ranked proposal was seeking more investment from the city, including covering some up front costs, she said.
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The requirement for the tax rebate is that the space employ at least 50 people by the end of 2018. The employees must be new to the city or are relocated with written consent of the existing property owner.
City officials acknowledged the wide gap between the purchase price in 2014 and the sale price now — a $4.3 million loss — would raise questions. The sale price was assessed based on a “fair market value” of $2 million, but the value dropped significantly due to restrictions on the property.
The city is requiring the parking lot and a portion of the property along the river side be deeded back to the city, Emerson’s company remove the rear loading dock, and no private access is provided to the rear of building.
The city needs land to eventually erect a removable flood wall as part of an east-bank flood protection system.
Also, the building will need to be listed on the National Register of Historic Places within one year, flood insurance will be required and utilities must be moved from the basement to somewhere higher in the building.
“The value was reduced because of some of the conditions of the sale,” Pratt said. “We had the appraisal reviewed and they supported the initial appraisal, and those were done by licensed and certified appraisers.”
The city purchased the building through the voluntary acquisition program, which allowed the property to be valued based on pre-flood conditions. The pre-flood value was much higher than when the building was purchased because it included a long-standing employer, she noted.
The city will have to return the $415,000 sale price to the federal program that helped pay for the acquisition.
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City officials were optimistic about what this project means for the post-flood rejuvenation of downtown. Populating a vacant building will be a benefit to downtown, and after Emerson’s investment the eventual property value will be $6 million, Pratt said.
“I like what is happening with this beautiful, old iconic building that sits down in the core of our community,” council member Ann Poe said. “As we continue to develop our core and look at our area of redevelopment, this is an important building and I’d like to thank the developer for stepping up on that.”
The Smulekoff’s building shares an intersection with several high-dollar projects. The $37 million CRST Tower is being erected at one corner, and the city is seeking bids at another corner where a surface parking lot mow sits.
“I think it is a wonderful project in the long run that will generate a nice taxable valuation that we can get money off to help run the city,” council member Scott Overland said.