Norfolk Southern land deal off for now
Contracts expire on planned purchase of largest development parcel in downtown Des Moines
KENT DARR Aug 25, 2015 | 9:30 pm
4 min read time
841 wordsAll Latest News, Business Record Insider, Real Estate and Development
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Contracts have expired for the purchase of the largest development parcel in downtown Des Moines as a well as a smaller, related piece of land, but the potential buyer said he still hopes a deal can be worked out, even if that takes another five years.
Rob Orton, who heads an Urbandale-based commercial and residential real estate company, said earlier this year he planned to buy about 75 acres of land from Norfolk Southern Railroad that lies along the Raccoon River in the River Point West development area.
Orton later put another four acres of land under contract in the area on a parcel that once hosted a Lumberman’s Wholesale. That land would have been wrapped into what Orton planned as a $100 million development that would include high-rise apartments, condominiums and retail establishments.
Both contracts have expired and Orton said today that he plans to meet soon with the city, environmental consultants and Norfolk Southern representatives to determine whether a land sale and development are still possible. If so, he also will renew efforts to purchase the Lumberman’s Wholesale land.
The hitch is that Orton has received estimates of between $12 million and $15 million for environmental remediation of soil in the Norfolk Southern property. Those costs, combined with a $6 million purchase price for the land, make it difficult to attract investors and pull off the development, he said.
The Norfolk Southern property is the largest development parcel in downtown Des Moines. The city of Des Moines has sought an urban village that would bring residents to the southern end of the River Point West area that is located south of Martin Luther King Jr. Parkway between Southwest Ninth and Southwest 16th streets.
Sherman Associates Inc. of Minneapolis has been the lead developer for the area, with most of the company’s focus now on property that borders Southwest Ninth between Martin Luther King Jr. Parkway and Murphy Street, and from Southwest 11th Street west and north of what will be the extension of Tuttle Street.
Sherman is building a Holiday Inn Express on the east edge of that land and has plans for two apartment buildings and an office building. In addition, a Colorado broker is marketing other properties in River Point West that have been targeted for retail and office development.
At one time Sherman planned to buy the Norfolk Southern land, but it stepped away from that deal during the downturn in the economy.
The company recently amended its development agreement with the city. Under the agreement, Sherman will transfer ownership of several parcels it acquired for the River Point West development to the parent company and out of the hands of related entities that were created for their purchase. In addition, the company will lend the city the nearly $8 million that is needed to cover a seven-year-old federal loan for the River Point West development. The city, in exchange, will no longer receive proceeds from land sales in the area.
The city has made interest payments on the loan, which was passed through to Sherman for land acquisition and infrastructure improvements. Initially, it was hoped that tax increment finance revenues from developments in River Point West could be used to repay the loan. That still would be possible with increased development activity.
Orton said earlier this year he planned a development that would “change the scenery of what’s going on downtown.”
He said today that the Norfolk Southern land would provide a gateway to the former Dico Manufacturing plant, a contaminated site that has confounded development efforts. It has been eyed as a potential home for an all-sports stadium for the Des Moines Community School District.
Orton said he would be interested in bidding out the stadium work, but does not want to be responsible for environmental cleanup.
“That’s not our main interest,” he said.
On the railroad property, a local contractor has suggested scraping 10 feet of soil, hauling it off site and burning it, then returning the soil to the site, Orton said.
“We think it would be a tragedy if we can’t get things done on site,” he said.
Orton said he could make a final decision in a week to 10 days.
“The project is not dead, but it’s not what we expected,” he said.
Iowa Commercial Realty is listing the Norfolk Southern land.
By the end of 2016, the River Point West area should have generated enough activity to enhance the development potential of the Norfolk Southern land, said Kevin Crowley, commercial sales manager for the brokerage.
He noted that Sherman has picked up activity on its land in the area, including construction of the hotel and and the extension of Tuttle. In addition, Hubbell Realty Co. is bringing commercial and residential tenants to its Cityville on 9th project along Southwest Ninth.
Orton noted that the development potential of the property could increase in another five to 10 years.
Meanwhile, another local developer is expected to tour the Norfolk Southern land.
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