Pappas seeks $3M for former 'Red Shop' buildings

DeKALB – Now that $2.5 million in tax increment finance money has been denied to developers trying to turn a hospital into a hotel, Pappas Development LLC is looking to the city to assist in a project to turn the old Mooney property into a mixed-use residential and commercial retail space.

According to the agenda for Friday’s Joint Review Board meeting, City Manager Bill Nicklas will propose $2 million in TIF funds from the tax increment finance district known as TIF 2 be instead awarded to Pappas, and its principal, John Pappas, with an additional $1 million to come from TIF 3 surplus in 2020 and 2021.

"This would be for a project that promises much more return on investment," Nicklas said Wednesday, referring to the City Council's decision Monday to terminate the preliminary incentive agreement for 145 Fisk LLC based on a lack of proven financial documentation.
"It's viable," Nicklas said of Pappas' new plan. "We have a developer that's proven that he can accomplish projects. It just seems to be an easy fit from where we sit."

When reached Wednesday by phone, Foti Pappas, vice president of development at Pappas Development, said he could not comment on the matter at this time. The developers of the proposed hotel project this week filed a federal lawsuit against Nicklas, alleging he unfairly torpedoed their plan to steer money to other favored developers.

On March 22, John Pappas and Heartland Real Estate Holdings entered a 90-day purchase and sale agreement for the properties at 204 N. Fourth St. and 423/420 Oak St. in DeKalb, the agenda shows. The building has been mostly vacant since it ceased to be used as an auto dealership in 2002. It initially was known as the “Red Shop,” and was a barbed-wire manufacturing site that opened in 1881.

Nicklas said the 90-day window is to allow Pappas to determine whether he wants to move forward with a planned $13.8 million overhaul of the site.

The remaining $500,000 from the formerly earmarked funds for the Fisk Avenue hotel project would be split between the demolition of the former DeKalb Clinic, to where Safe Passage Inc. is planning to relocate, and a transfer to TIF 1 reserves to offset a fiscal 2019 budget deficit, the agenda shows.

The breakdown of the funds over a three-year period is as follows: $300,000 for environmental remediation; $400,000 for demolition; $100,000 for footing removal; $250,000 for gas and electrical infrastructure; $300,000 for storm and sanitary sewer infrastructure; $75,000 for engineering and surveying; $250,000 for structural and architectural design; $150,000 for city sidewalks; and $250,000 for land acquisition. Also according to the board agenda, and subject to council approval, an additional $925,000 would be committed to the project from fiscal 2020 and 2021 TIF 3 funds.

“Long before I got here, the Mooney property was of interest for redevelopment,” Nicklas said. “That was considered one of the key centers in the downtown area. It’s for a long time been on the list, and it’s been at the top of the list because it’s not going to be cheap to do it.”

The site would be Pappas’s third mixed-use development downtown. The existing buildings would be demolished and be rebuilt as two separate 56,000-square-foot buildings. Each building would include 10,000 square feet of commercial retail space on the ground floor, and 38 one- and two-bedroom executive suites on the upper floor. Each building also would have hospitality rooms, a fitness center and outdoor terraces, the agenda shows.

Nicklas said he’s seen rent rolls for Cornerstone DeKalb, which he said only has three out of 51 units vacant. Even though Plaza DeKalb, another mixed-use space, is not yet completed, the city manager said continued projects such as this one are “elemental” to downtown redevelopment.

“It’s all about foot traffic,” he said. “What we don’t have and they have in Geneva, St. Charles, Elburn, is the ready-at-hand population that could be half-a-million, a million or more.

“In this town, we have a wide range of quality in our housing,” Nicklas continued. “What we haven’t had in the downtown area is a place for people who are on the lower end of the economic scale, graduate students who are just starting their careers or people who have done a career and are just tired of mowing the lawn.”

Nicklas said Pappas’ site plans for the Mooney property include “a sea of parking” so no street-side parking will be needed.

According to the agenda, John Pappas says the project would take two and a half years to complete. Pappas has already presented the city’s Community Development Department with a conceptual development plan, scheduled for a Planning and Zoning Commission review May 22.