Mounting legal and financial pressures have thrown a key East Village housing project into limbo, with one developer scrambling to meet a spending deadline and another standing back to see what happens next.

Neighborhood Investment Corp., a joint venture formed by Jack Hatch, and Knapp Properties Inc., last summer announced a housing project to be located at East Fourth and Court on the former site of the Dewey Ford automobile dealership. A year later, NIC’s effort remains tangled in an injunction obtained by developer James Conlin this past spring — even though Conlin recently let several other projects off the hook.

The injunction stems from a lawsuit Conlin filed against the Iowa Finance Authority, in which he contends that the agency improperly turned down Conlin Properties Inc.’s request for tax credits that would apply to four of its proposed building projects. The resulting injunction has held up the distribution of tax-credit funds to the NIC project.

In an IFA hearing in April, Conlin’s side not only criticized the procedure used to award the crucial tax credits, but also launched an attack on NIC’s East Village proposal, calling the financial figures used on its application “questionable.” In an interview last week, Conlin said, “We have uncovered documents that seriously question the financial viability of (Hatch’s) project.”

On a tape recording of the April 5 hearing, Conlin’s representatives can be heard comparing the East Village project with a Court Avenue proposal of nearly identical scale, and questioning the dollar figures listed on NIC’s project budget for items such as onsite management fees, advertising costs and expected property taxes.

Hatch still hopes to construct an apartment building, but he said that until the issue is resolved, his hands are tied. The delay creates an increasingly urgent legal problem as time passes. As one of the requirements for receiving tax credits, NIC is obligated to spend 10 percent of its $13 million project budget, $1.3 million, by the end of 2004. “Clearly, the Conlin lawsuit is affecting that timetable,” Hatch said.

“One of the biggest ways we would use the money is to have an architect draw up plans. But at this point I’m not going spend $300,000 to $400,000 on plans to submit for our loan, and (Conlin) knows that.

“With a lawsuit hanging over us, why would a prudent businessman spend any more money?” said Hatch, who also serves in the Iowa Senate. “(Conlin) is trying to make it difficult for downtown housing.”

Knapp Properties purchased the land for the project, intending to construct a separate building that would house condominiums and commercial space to complement the apartments. However, said Knapp President Gerry Neugent, “we’ve gone back to the drawing board. We’re staying in as co-developers to help Jack’s project get started, but we’ve told the city we’re not moving ahead with our part right now. We would not build on the basis of the current economics of the project.”

Neugent cited the lawsuit, increased costs for the project — especially for the planned underground parking area — and the fact that the state did not receive expected “new market” tax credits as reasons for his company’s hesitation.

A hearing on Conlin’s lawsuit is scheduled for July 9 in Polk County District Court. Roxanne Conlin, who replaced Doug Gross as the attorney representing Conlin Properties in the case, said she expects a quick resolution of the injunction. “The evidence will be that the project cannot service its debt,” she said. “The question of our projects being funded will be set for another time.”

“We were planning on securing our loan this summer, but now that’s impossible,” Hatch said. “If the judge rules against Conlin, I’ll be able to release dollars to get the plans drawn, but that’s a four-month process. The earliest we could start construction would be in the spring of 2005.”

The city also is expected to put money into the project, and Hatch said he plans to bring the issue before the City Council soon.