Loan Collateral Up To City, Talbott Told Mayor’s Questions Probably Won’t Affect Hud’s Decision, Says Councilman Barnes

The Spokane City Council, not a federal agency, must determine whether there’s enough financial backing for a $22.65 million loan to the proposed River Park Square redevelopment project, Mayor John Talbott said Wednesday.

Talbott emerged from a meeting with a top official of the U.S. Department of Housing and Urban Development and said he was right that the city must decide whether the loan is sound.

His council colleagues were wrong in saying that was up to HUD to decide, he said.

“I want to see what the final collateral is,” Talbott said, adding that the city may need to ask for more collateral to secure the loan.

Councilman Orville Barnes, who also attended the 45-minute meeting, said Talbott is “looking at ghosts.”

“What went on was exactly what I expected,” Barnes said. “John posed questions, which were not answered, and he had negative comments to make.”

The questions couldn’t be answered because HUD still is analyzing the project, Barnes said.

The agency can’t complete its final analysis until the loan collateral is appraised, city officials said.

The $100 million River Park Square project includes a new Nordstrom department store, a multiplex, expanded parking and numerous shops and restaurants.

A proposed public-private partnership calls for HUD to loan the city $22.65 million, which then would be loaned to River Park Square developers. The loan has received preliminary approval from HUD but hasn’t been awarded.

In Spokane, Deputy City Manager Pete Fortin said the city still is negotiating certain details regarding collateral that HUD will use to complete the loan analysis.

The city is negotiating with Citizens Realty and Lincoln Investment, owners of River Park Square. Those companies are affiliated with Cowles Publishing Co., which also owns The Spokesman-Review.

The loan security includes the proposed new Nordstrom building, the Nordstrom lease and other retail tenants’ leases, Fortin said.

Betsy Cowles, president of the two companies that own River Park Square, said other council members who have reviewed confidential details of the lease have agreed that developers are offering sufficient collateral for the loan.

“We’re far enough along that we know what the deal is,” she said.

Talbott has chosen not to review those confidential details because he’s one of three people suing the city to stop its involvement in the project. The state Supreme Court has ruled the city can legally take part in the project, but attorney Steve Eugster has asked the court to reconsider.

The collateral would only become an issue if the project should fail and the city defaults on the loan. Eventually, Spokane Community Development block grant money could be diverted from neighborhood projects to repay the loan.

“We think the project is solid and the risk to that block grant money is very, very small,” Cowles said.

According to HUD, no city ever has had to use their block grant dollars to repay this type of loan.

Talbott and Barnes left Wednesday’s meeting with HUD Assistant Secretary Saul Ramirez saying they support the downtown project.

Barnes questioned whether Talbott understands the project, even after talking with Ramirez.

“He’s looking at ghosts that might appear,” Barnes said, adding it was impossible to avoid all risks.

Barnes agreed, however, that the decision on whether to accept the collateral that is offered and approve the loan is up to the city, not the federal agency: “HUD will do their thing but ultimately it’s up to us.”

Questions Talbott raised during the meeting probably won’t affect HUD’s decision, Barnes said.

Talbott continued to draw a line between supporting the overall project and questioning the loan, which developers say is essential to the project.

He said other members of the City Council have told him that HUD is responsible for determining whether the loan had adequate collateral. The meeting Wednesday, however, convinced him that he was right that it is the city’s responsibility, Talbott said.

He said he asked for the meeting to learn more about HUD’s role in the process. He also wanted information about the amount of the loan and the adequacy of the collateral.

“HUD is there and ready and willing to help our city,” Talbott said. “I want to be sure our citizens in the long-term are adequately protected.”

The City Council should ask developers to assume more risk by pledging more collateral, Talbott said.

“What’s being given back to the city in the event of catastrophic failure?” he said. “We must make sure we’re adequately protected as a city.”

The city hired three Gonzaga University professors to analyze the loan according to HUD guidelines. That analysis currently is being reviewed by HUD, and federal officials have requested that the new Nordstrom building be appraised.

That appraisal currently is under way.

“We’ll look at the value determined by the appraisal” to decide if there is sufficient collateral, Fortin said. “If it isn’t, we’ve got to find some more.”

Once the appraisal is done and the final terms of security are worked out, HUD will assign a risk to the loan, Fortin said. HUD might say the collateral isn’t adequate for the full loan and offer a lesser amount, or say the city needs to go back to the negotiating table with the developer, he said.

Cowles said there is no more collateral for the developer to pledge, and no other source of funds if HUD scales back the loan.

“We’re not hiding any pots of gold,” she said. If the city demands more collateral, or if HUD lowers the amount it is willing to lend, “the project won’t get built.”

Ultimately, the council must decide whether the loan terms are agreeable, Fortin said, adding that likely won’t happen until May or June.

Talbott said he was concerned with the lack of a market feasibility study, and believes the city should have considered other options for revitalizing downtown. The city should have considered spending money to expand the medical industry, a major business park, or fiberoptic cable opportunities, he said.

“I want to see downtown revitalized,” he said. “We’ve got a downtown that needs help, but I’m not going to put the future in the pot to do it.”

Critics have noted, however, that there are no well-developed plans to do any of the options Talbott regularly mentions.

Cowles said that while there has not been a specific market feasibility study of the project, the developers did their own study before announcing the project and major tenants have conducted their own studies before agreeing to participate. The ability to lease space in the building is the ultimate market study, she said.

, DataTimes The following fields overflowed: BYLINE = Alia Beard Staff writer Staff writers Jim Camden and Kristina Johnson contributed to this report.