A consultant says the property value is underwater, but the McHenry City Council this week said it’s not interested in giving a developer $3 million in tax-increment financing money for previously approved downtown redevelopment to help solve the issue.

Nor is the council interested in taking the former First Midwest Bank building at 3510 W. Elm St. out of the existing TIF district or creating a new one for developer EM8 Properties.

“We were hoping to do it without assistance,” EM8 partner Etamar Deshe said of the redevelopment plans. “I don’t think we can.”

A TIF district is a tax subsidy that allows the new, higher property taxes generated by redevelopment within the district to be channeled back into the district rather than distributing those funds to taxing bodies. Excess moneys in the TIF can be used for public improvements, including property acquisition or demolition.

McHenry has used its excess TIF funds to construct the downtown riverwalk.

Oak Forest-based developer EM8 planned to put 34 loft-style apartments in the former bank and received the council’s approval in September on a 6-1 vote.

But since then, EM8 has had to look to other options, including making the building condos, to try to make the numbers work, Deshe said.

“I don’t think there is a way for us to do it. We are asking for what the property generates [in a TIF], nothing else,” Deshe said.

The problem developers discovered since September is that the property is underwater – worth less now than it was when it went into a TIF, Christopher Stark of project consultant Johnson Research Group said.

When McHenry created its downtown TIF district in 2002, the bank was in operation. The building was valued at $1.7 million then, but the bank quit operating in the building about a decade ago. The building and its associated lots now have an equalized assessed value nearly $1 million less than in 2002.

The current owners are asking EM8 for $1.3 million. Their total costs to purchase and renovate the units come to $9.7 million, Stark said.

Second Ward Alderman Andy Glab voted against the proposal in September and voiced his objection to the request.

“For $3 million, we could level it and build a parking lot,” Glab said, adding that he believed rental units would not generate as much property tax for the city as condo units would. “I cannot support it.”

Alderwoman Sue Miller, 7th Ward, said the request coming now and not before the original proposal seemed a little backwards.

“It should have come before that plan and with a better understanding” of what the financials would be, Miller said.

The request was just too large, First Ward Alderwoman Bobbi Baehne said.

“For the among of money being requested, I think it is incredibly excessive and there are so many other opportunities in the downtown area” for other developments, she said.

Deshe did not say at the council meeting whether his group would continue with the project.