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Named after a La Porte, Ind.-based threshing-machine manufacturer, the Rumely Building has housed a coin-operated vending machine maker, a repository for business files and a pioneer in Iowa’s wholesale pharmaceuticals industry.

Fast-forward a century and you’ll find at least three developers in as many years who proposed remodeling the historic property into affordable housing units, including the Minneapolis-based company that is moving the project forward.

On Sept. 1, Sherman Associates Inc. closed on the purchase and financing of its Rumely Lofts LP enterprise at 104 S.W. Fourth St. At a cost of nearly $17 million, Sherman plans to convert the six-story building into 66 low-income apartments and 4,500 square feet of retail space.

Sherman had hoped to begin the build-out this spring. But the inability to immediately secure an investor to purchase more than $13 million in low-income housing tax credits (LIHTC) awarded to the project by the Iowa Finance Authority (IFA) delayed the venture by more than six months. In June, the developer tapped Irvine, Calif.-based tax syndicator WNC & Associates Inc. to purchase the tax credits, clearing the way for the project to advance.

Back story

In 2005, Terrus Real Estate Group considered converting the Rumely Building into a multi-tenant office space and moving its headquarters there, said Randy Minear, the company’s president.

But a backlog in the number or projects vying for state historic tax credits at the time gave Terrus pause. Minear said that at the time it might have taken 20 years to realize the actual benefit of the tax credits, causing the firm to reconsider its proposal. The credits “didn’t produce enough current value when extended out that far,” Minear said. “That was a pretty meaningful gap-filler for us.”

Between 2006 and 2008, Dick Sontgerath of Seattle’s Heritage Affordable Housing and Chicago developer Jay Trevor of J & T Development Inc. each presented similar proposals for the site, but were stopped short when they couldn’t pull off the financing.

Finding a financier

It has been a tough couple of years for developers hoping to sell tax credits, as traditional financiers, struggling with decreased profits or even losses in a down economy, have less need to offset taxable income by purchasing the credits.

Tax credit syndicators “started driving the boat” about two years ago, said Jackie Nickolaus, Sherman’s vice president of development, around the time that Freddie Mac and Fannie Mae pulled out of the credit market. As the credit markets tightened and the number of available financing choices dwindled, “investors and lenders have been much more particular about whom they enter into deals with,” she said.

Nickolaus said in today’s economic climate it’s not uncommon to hear of an investor or syndicator pulling out of a project shortly before closing, sometimes within a matter of weeks.

“I think that is what happened to Jay,” Nickolaus said. “His tax credit investor backed away, he found another one, and then his bank started backing up a little bit.

“It’s not an easy time for anybody right now, but the developers who are closing on deals have a portfolio of projects,” she said, adding that Sherman owns and manages about 5,000 apartment units, which has helped the company get the project off the ground.

George Sherman, Sherman Associates president, was actually discussing the possibility of taking the project over from Sontgerath back in 2007, Nickolaus said. But when Trevor stepped in and signed a purchase agreement with Chuck Bach, who sold the building to Sherman, it took a wait-and-see approach, Nickolaus said.

“Jay couldn’t quite get the deal put together,” she said, adding that Sherman entered into a purchase agreement with Bach last September. “Then you almost have to start over, trying to find a new investor, a new tax-credit syndicator.”

Nickolaus said companies with good track records, strong occupancy rates, good management companies and good credit have a much better chance of success in finding investors and moving projects ahead. Not that those qualities are a “rubber stamp” of approval, she pointed out, but it helps.

In addition to $13,044,400 in LIHTC, Sherman also has been awarded $426,332 under Section 1602, a U.S. Treasury Department Program that allows IFA, the state’s administrator of LIHTC, to exchange a portion of its tax credits for cash grants, which are in turn allocated to projects in lieu of loans.

Section 1602 exchange credits have given a leg up to projects that have recently closed or are on the brink of closing, Nickolaus said.

Sherman’s Rumely Lofts is also expected to receive $2.75 million in state historic tax credits, as well as $3.9 million in federal historic tax credits.

Nickolaus said WNC & Associates paid between 65 and 70 cents on the dollar for the LIHTC and between 85 and 90 cents on the dollar for the federal credits.

“We haven’t seen a rebound in the LIHTC pricing yet,” she said.

A $350,319 deferred developer fee, $175,207 in projected Enterprise Zone tax credits and a standard 10-year tax abatement are helping to offset the $17 million project cost even further, she said.

Sherman also procured a first and second mortgage from IFA totaling $2,090,000, an amount based on the income that the property is expected to generate.

Other obstacles

Three weeks before Sherman closed on the Rumely Building purchase, Jay Trevor’s Rumely Housing LLC filed a nearly $600,000 mechanic’s lien on the property, naming Bach and Rumely Lofts LLP. Trevor claims that between Sept. 1 and Nov. 30, 2008, his development company had furnished material or labor to the project or to a subcontractor.

The filing includes a list of 10 companies shown to have incurred combined costs totaling $585,230.77, including $375,000 of architecture and engineering work allegedly owed to the project architect, Tulsa-based Sikes Abernathie Architects.

“Sikes Abernathie signed a lien waiver that was recorded at closing,” Nickolaus said, adding that Sherman entered into an architect’s agreement with Sikes at the same time.

Mike Abernathie, Sikes’ vice president, confirmed that a lien waiver was signed, releasing any current or future claim associated with previous work.

On Sept. 1, Matthew Valdey, commercial underwriting council with IFA’s Title Guaranty division, filed a cash bond of $1,170,461.54 with the Polk County clerk of court on behalf of Bach’s Security File Warehouse. According to Iowa Code, the bond effectively discharges the lien.

Valdey said in an interview that the bond also serves as “kind of a safety net” for the claimant, in the event its claim is successful, as well as clearing the title so that the sale can close.

Neither Trevor nor Sherman’s general counsel returned phone calls seeking comment.

In addition to the lien, a property-line discrepancy has held up Sherman’s execution of a purchase agreement for the adjacent National Sheet Metal Building at 101 S.W. Fifth St., Nickolaus said.

“We came up with a survey problem at the last minute, and so we just pushed it aside, closed on the project and we are circling back,” Nickolaus said, adding that Sherman is working with the seller’s attorney to resolve the boundary issue between the 99 and 101 S.W. Fifth St. parcels and plans to close within 60 days. The one-story building, located across the alley west of the Rumely property, will be demolished and replaced with 25 to 30 parking stalls for the building’s commercial tenants.

The Des Moines City Council is expected to approve permanently vacating the north/south alley right of way adjoining the two properties, at a cost of $13,959, on Sept. 28. And the city’s real estate division is working with Sherman on the conveyance of an encroachment easement for $1,746, confirmed Ryan Moffatt, a city planner.

Both the Rumely Building and the National Sheet Metal Building have for years been popular with professional photographers looking for unique backdrops, such as the corrugated metal façade on the Fifth Street property’s east elevation.

Historical significance

Originally constructed in 1903 to house a branch of M. Rumely Co., one of North America’s largest manufacturers of threshing equipment at the time, the then four-story building was sold in 1911 to Des Moines Drug Co. The company promptly added two stories to the building and continued to operate there for most of its 73-year history.

The company’s impact on Iowa’s pharmaceutical industry as a wholesale distributor to more than 1,000 local pharmacies across the state, specifically from 1911 to 1939, earned the Rumely Des Moines Drug Co. Building a spot on the National Register of Historic Places in 1989.

Federal Machine Corp. conducted its vending machine manufacturing business out of the space in the 1970s. In 1985, Bach purchased the building and changed its name to Security File Warehouse. He operated Security File Storage, a storage depot for business records, there for nearly 25 years.

A new era

Hopkins, Minn.-based Frana Cos., the project’s general contractor, is currently overseeing asbestos abatement, lead abatement and air-quality monitoring on the site, as other crews work to move out Security Files Storage’s remaining clients.

“We’re going to do selective demolition to it and make it naked again,” said Rick Hailey, project superintendent, adding that Frana is under contract to complete the renovation within 12 months.

In addition to replacing a freight lift with two passenger elevators and constructing a community area on the first floor, the build-out will include an office, exercise facility, laundry room, 4,500 square feet of commercial retail and office space, and 66 apartments, including one on the first floor.

Hailey said a metal-stamped ceiling in the front two-thirds of the first floor will be left intact and a portion of a six-story circular package slide, used to transport boxes down from upper floors, will be retained as a keepsake to be displayed in the lobby. All of the building’s windows will be repaired or replaced, including the installation of energy-efficient glass, he said.

“The building is going to be cleaned and tuck-pointed on the outside,” Hailey said. “(We) just want to keep the integrity of what was there, there.”

A building permit valued at $9,239.037.50 was issued on Sept. 2. Rents for the apartments, including one- and two-bedroom units with an average size of 800 to 900 square feet, respectively, will be $625 to $775 per month.