The Bank of Washington has loaned developer Paul McKee at least $34 million for his Northside Regeneration project, and possibly as much as $62 million.
The series of 17 loans from the Washington, Mo., bank was made to several of McKee’s holding companies and to Northside Regeneration between 2006 and 2012. The bank, by its own calculations, now holds more than 1,500 parcels as collateral, or about 78 percent of Northside Regeneration’s real estate in St. Louis.
That information came to light when the bank filed a motion last month to intervene in a lawsuit between Northside Regeneration and another debt holder.
The lawsuit
Titan Fish Two, a Kansas-based entity, sued McKee and Northside Regeneration this spring, claiming it was owed $17.6 million. That stemmed from a 2007 loan made by Corn Belt Bank and Trust Company, the only other private lender for McKee’s proposed $8 billion development. Corn Belt failed in February 2009, and Northside Regeneration eventually defaulted on several loans.
Titan Fish Two bought that debt in March from another entity. It then filed suit and asked a St. Louis County Circuit Court judge to appoint a receiver to take control of more than 400 parcels of land owned by Northside Regeneration.
The Bank of Washington argues in its motion to intervene that a receiver would put its investment at risk:
"... in the event that a Receiver is appointed, the Property and Collateral may be sold, transferred or assigned, placed in the possession of another party, or otherwise disposed of in such a manner as to impair the interests of Bank of Washington or impede Bank of Washington’s ability to protect its interest in the Property and Collateral."
St. Louis Public Radio reached out to the Bank of Washington seeking comment from its CEO L. B. Eckelkamp Jr. or president Louis B. Eckelkamp III. The bank's director of marketing and public relations Danielle Unnerstall reponded.
"We appreciate your intent to speak with us. However, we cannot comment on pending litigation or private financial information about our customers," Unnerstall said in an emailed statement.
An attorney for the bank did not respond to a call from St. Louis Public Radio. Kyle Binns, an attorney for Titan Fish Two, declined to comment. But all parties in the suit consented to Bank of Washington’s motion to intervene, and a judge granted it.
The loans
Bank of Washington provided the court with documents from a series of 16 loans made to several holding companies that later merged into Northside Regeneration and to Northside Regeneration itself. The loans total $34.7 million and range in size from as little as $25,500 up to $6.45 million. Nearly all of them use Northside Regeneration’s property on the city’s north side as collateral.
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But one major loan Bank of Washington gave McKee was not included in the documents submitted to the court. In January 2009 a deed of warranty was filed with the St. Louis Recorder of Deeds showing several of McKee’s holding companies were providing collateral for at least one loan of $27.6 million from the bank. Nearly 350 parcels owned by McKee companies called Babcock, Dodier, Larmer, MLK 3000, Sheridan Place and Union Martin were used as collateral.
It’s not clear whether loans taken from Bank of Washington after 2009 refinanced that initial $27.6 million loan or mortgaged the same property again.
Edward Lawrence, a professor of finance at the University of Missouri-St. Louis, said whether the bank loaned $34.7 million or much more to the project, it was a risky move for the small bank.
"It’s highly unusual," Lawrence said. "Anything over $10 million for a bank of this size is way too much. A lot of banks would keep it under $5 million. It’s a high concentration in one area."
Bank of Washington has assets of about $611 million.
McKee losing land
Even without a court-appointed receiver, Titan Fish Two already has sold some of the Northside Regeneration’s land and could sell more. In Missouri those who hold collateral have the right to foreclose without court approval. The Kansas-based company put 46 parcels up for public auction in June and bought the land for $3.2 million. (No money was exchanged as Titan Fish Two holds Northside Regeneration’s debt.)
In recent weeks McKee has lost two other developments in the St. Louis region due to defaulted loans.
His proposed Hazelwood Commerce Center land in St. Louis County was sold at auction in May. The sale came after Kansas City-based NP Hazelwood 140 bought a $31 million federal judgment BancorpSouth won against the developer over defaulted loans. NP Hazelwood 140 bought the 165-acre site with a $9.2 million credit bid and plans to build warehouse space there this summer.
Last month a federal judge appointed a receiver for McKee’s Three Springs at Shiloh development after PNC Bank sued over the default of an $8.3 million loan. All parties in the suit, including McKee, consented to putting the 193 acres in St. Clair County under receivership in hopes of selling it.
A consent decree
The lawsuits and loan defaults have brought into question the health of Northside Regeneration’s loans from the Bank of Washington. Several partial releases of collateral have been filed with the St. Louis Recorder’s office, showing the loans have been paid at least in part. A spokesman for McKee declined to comment for this story.
The bank has also faced scrutiny.
It signed a consent decree on Dec. 27, 2012 with the Federal Deposit Insurance Corp. after undergoing an audit. The bank acknowledged the enforcement action had to do with issues related to its real estate loans. The FDIC order, still in effect, requires Bank of Washington to get board approval before renewing or extending credit to any borrower whose loans have been classified “substandard” or “doubtful.”
Lawrence, who teaches commercial banking at UMSL, said the consent decree seems to show a pattern of unsound banking practices.
"It never specifically says exactly what the problem loans were, but bank regulators must have also thought this was far beyond what any small bank should be doing," Lawrence said.
Public funding for Northside Regeneration
McKee has also looked to city and state government for help in funding his urban redevelopment, and some of that money helped pay off loans.
The project received $43 million in tax credits from the state of Missouri between 2009 and 2013. The Distressed Areas Land Assemblage Tax Credits granted to McKee allowed him to use the money toward 50 percent reimbursement of land acquisitions, full reimbursement of loan and interest fees and maintenance costs.
According to documents from the Missouri Department of Economic Development, Northside Regeneration used $26.6 million to reimburse the acquisition of about 900 parcels on the city’s north side. Another $15.6 went to loan and interest fees and about $717,000 for maintenance.
The St. Louis Board of Aldermen also approved a $390 million Tax Increment Financing package for the project in 2009, which was re-authorized in 2013. So far no TIF funding has gone to the project as there’s been no development. In a recent meeting in the Fifth Ward, McKee revealed plans to build 235 new homes on the north side, and said he expected to use about $9 million in TIF for that project.
NGA project
The most promising development proposal within Northside Redevelopment doesn't include McKee, at least not directly. The city is heading up efforts to relocate the National Geospatial-Intelligence Agency to a 100-acre site just north of Cass Avenue and east of Jefferson. While Northside Regeneration owns more than half of the land in the site, the city is negotiating with McKee to buy 342 parcels, some of them used as collateral in Bank of Washington loans.
Forty other parcels now belong to Titan Fish Two following its public auction and $3.2 million credit bid last month.
The St. Louis Board of Aldermen will vote on a board bill Friday authorizing a $20 million loan to help buy all of the land. That loan will use one, possibly two, city-owned buildings as collateral. While the NGA will not choose between four possible sites until next year, city officials have said they have to show they can assemble the land.
Some aldermen have balked at the notion of allowing the developer to profit from selling the land back to the city without having developed it. Northside Regeneration bought more than 260 parcels directly from the various city agencies for about $600,000 in 2012. It received $3.5 million in state tax credits for the $7 million acquisition of another 91 privately-owned parcels.
While the NGA is not McKee's project, city officials have said bringing the 3,100 employees to north city would spur other economic development.
That could help Northside Regeneration and a bank in Washington, Mo.
