500 housing units, 100,000 square feet of commercial planned for Champion site

Article from the Missoulian – to read full article click HERE

On a steamy, summery afternoon this past week, the 46-acre Champion millsite was filled with soft sounds: ripples from the nearby Clark Fork River, distant traffic on the Russell Street Bridge, a breeze rasping in the knapweed.

Someone had spray-painted “The Good Life” on the metal wall of the cavernous Missoula Pres-To-Logs building, one of the few structures on the property not ruined or damaged by fire. Inside its cool interior were 12 massive halls littered with boots, bits of clothing and trash.

The only sign of life on the defunct mill grounds was a brown dog lying atop the riverbank. The dog lifted his head briefly, yawned and resumed his nap.

A complex $19.4 million public-private partnership is under way to clean up and rebuild this dormant industrial complex into homes, shops and a 14-acre city park.

It’s all about transformation, said Ellen Buchanan, head of the Missoula Redevelopment Agency.

Hundreds of towns and cities across the West house the remnants of the industrial booms of decades past. Bill Hudnut, former mayor and senior fellow at the Washington, D.C.-based Urban Land Institute, called them “big potholes.” The derelict sites are dangerous, sometimes toxic and a drain on city coffers.

With seed money from the U.S. Environmental Protection Agency and other state and federal sources, some cities are beginning to reclaim these large urban wastelands, particularly in the West, where rising land values make the sites attractive for development, said Rebecca Russo, Brownfields coordinator for the EPA in Denver.

Missoula is on the movement’s leading edge.

Industrial use of this former island in the Clark Fork River began in about 1910, when the Polley Lumber Co. opened for business, said Philip Maechling, Missoula’s historic preservation officer.

Maechling is not sure of the exact date. A 1912 city map shows the fully operating mill with a log pond and slough from the Clark Fork. A photograph from four years earlier shows nothing but river on the spot.

In the 1930s, the mill was headed into bankruptcy. That’s when local businessman Morris Silver, who made his money in the stock market and in plumbing and building supplies, bought Polley Lumber to keep it afloat. At least that’s how the story goes, said Karrie Montgomery. She was something of a surrogate granddaughter of Morris and Helen Silver family, and is the director of the Morris and Helen Silver Foundation.

Morris Silver never intended to be a lumberman, Montgomery said. In the late 1950s, he leased out the plant to a succession of operators. Silver wasn’t a hands-on manager. The lease and subleases were sold and resold, just more pieces of property in the ever-evolving Montana wood products industry. The site finally went dormant about 15 years ago.

In the end, the long-term lease was the property of Idaho Timber Co. of Missoula, an unrelated offshoot of the Boise-based Idaho Timber Corp. The lease expires in about 30 years and includes an option to buy.

The deed for the site remains in the hands of the Silver Foundation and earns the nonprofit about $46,000 per year in rent.

The site also has some environmental issues, albeit none very serious, said Chris Behan of the Missoula Redevelopment Agency.

Sawdust and wood waste were used to fill in the old slough and log pond. There were also contaminants from solvents and diesel and wood glue spills.

When saturated with water, the wood waste produces methane in small quantities. That’s OK when the methane can dissipate on its own. It’s not OK with roads and buildings on the ground. Methane, following the path of least resistance, tends to travel along underground pipes and collect in dangerous levels in basements and other closed spaces, Behan said.

The wood waste also can cause manganese to seep into the groundwater. It’s not a harmful toxin, but it stinks, Behan explained.

In some places, such as the area south of Ogren-Allegiance Park, the wood waste is up to 40 feet deep.

Not a good base for foundations.

“Not at all,” Behan said.

In 2004, Kevin Mytty of Quality Construction Co. and Colorado-based developer Ed Wetherbee formed Millsite Revitalization Project LLC.

After eyeing another piece of property on the other side of the Clark Fork River, Mytty said, the huge former riverfront millsite looked like a prime candidate for redevelopment – smack in the middle of Missoula, within view of downtown.

Mytty and Wetherbee began talking to Idaho Timber and the Silver Foundation and looking into the cost of the environmental cleanup.

“It’s not your typical land project. This one here is different,” Mytty said.

When Mytty lined up all the numbers, it didn’t pencil out. The cost would be more than $20 per square foot, he said. By comparison, residential redevelopment in Missoula costs between $8 and $12 per square foot, Buchanan said.

Mytty has done some projects in partnership with MRA. He approached the agency to talk about Urban Redevelopment District II and the possibility of using tax-increment bonds to help cut some of the costs. District II encompasses a large part of central Missoula, not including the Higgins Avenue area downtown.

The MRA has a proven track record for using urban redevelopment financing to help spur investment.

And one primary tool is tax-increment financing.

Here’s how it works.

When a development district is established, the property tax is capped. Any property tax increase (which comes from increased property values due to development) goes into the development district’s coffers rather than to the city of Missoula. That cash can then be reinvested in the district.

But tax increment money can be slow in coming.

To get cash available in the short-term, the city can sell revenue bonds, which are then repaid by the tax increment.

After a set time limit or when the bonds are repaid, the development district designation dissolves (the time frame is set by law) and all the property tax revenues return to the city. When Missoula’s downtown district expired about a year ago, it was bringing in $3.1 million a year, Buchanan said.

By comparison, District II earns “peanuts,” about $850,000 a year, Behan said. If not for the millsite bonds, the 14-year-old district would sunset within a year, just when a number of other projects are gaining a head of steam.

“It’s coming into its time. We’re finally starting to get investment in the area,” Buchanan said.

Over the past two years, the redevelopment agency, the Millsite Revitalization Project, the Silver Foundation and Idaho Timber have hammered out agreements on all the stages of the deal.

Last Monday, the Missoula City Council pushed the deal into motion by voting to go ahead with a $3.6 million bond sale to finance the city’s purchase of the lease from Idaho Timber. The bonds will be repaid by revenues from MRA’s District II.

Next will come the environmental cleanup, after the Montana Department of Environmental Quality approves the remediation plan.

About $1 million made possible by an EPA Brownfields grant to the city will help pay for the cleanup.

Mytty expects start that remediation work this fall.

Later, the city will raise another $7 million with a bond sale, this time to be repaid by revenues generated by the project itself.

That may be the riskiest part of the deal, said Missoula City Finance Director Brentt Ramharter. But it won’t be the city on the hook. Those bonds aren’t guaranteed. The city might get a bad mark on its credit report, but Mytty and his Millsite Revitalization Project have committed to buying the bonds themselves in another complex financial waltz.

Those are the big pieces of the millsite project, but not even half of the complexities.

About $4.1 million in Special Improvement District bonds will help pay for roads, sewer, sidewalks and other infrastructure. The developers have committed $2.5 million, having spent more than $1 million already. There’s also a smattering of other monies into the project.

A number of pieces are yet to be assembled. The city has to approve the agreement governing control of the lease. The cleanup itself remains a question mark. It could take longer and cost much more than anticipated. The subdivision of the land and zoning has to be approved by the City Council.

And then, on top of all that background work, the land itself has to produce saleable homes and commercial properties.

For Hudnut of the Urban Land Institute, the but-for analysis answers the main question when cities start using tax-increment financing to “fix big potholes.”

“But for this money, would the project go forward? If yes, the money shouldn’t be used. If no, either put in the public money or leave it as a Brownfield,” he said.

By using bond money, Missoula is betting on growth.

“You’re rolling the dice, in a sense, but it’s a prudent roll,” Hudnut said. “You’ll have a broader tax base and more revenues.”

“The city can put up patient money much better than the developer,” he said. Cities can get better interest rates and tap into federal programs. Cities have more staying power. They just need to watch the risks, he said.

So what’s Missoula on the hook for if it all goes down the tubes?

The city gets a big $3.6 million riverfront park.

So what do the millsite project plans actually look like?

If all goes as planned, the project will have more than 500 residential units, including single-family homes, townhouses, condominiums and apartments. It will have more than 100,000 square feet of office and retail space. The adjacent baseball stadium will get parking. The Clark Fork River will have a new boat ramp. The city will have a 14-acre park with trails.

It’ll be a model of mixed-use urban development, Behan said.

And don’t forget about the Silver Foundation.

The Missoula-focused foundation will nearly double its total assets to about $5 million when it sells the title to the millsite. The foundation gave about $121,000 in 2004. To stay within IRS guidelines, the grant numbers will probably double, too.

“That’s the goal: Build the corpus, give more to the community,” Montgomery said.

And then there’s Mytty and the Millsite Revitalization Project. Development profits, if they materialize, arrive at the tail end of the deal.

“There’s risk in any development,” he said. “We can plan well and design well and hope that we’ve done our homework enough to know that what we’re building will sell. The things that are out of our control are the economy. The development business is very risky.”

“Sure it’s complicated. If this were easy to do, somebody would have done it already,” Buchanan said.