Payments from the developer of Hotel Maytag to the City of Newton — which are to repay the housing loan from Iowa Finance Authority — have been postponed.
Upon seeing the developer’s request to “postpone payments to a future date,” officials immediately raised concerns. Jack Hatch, of Hatch Development Group, spoke frankly of the $16 million rehabilitation project, saying it benefited everyone except himself, and that he was unsure how long payments would be paused.
The project, he added, was the result of a public-private partnership whose goal was to reestablish a vacant downtown building that was likely going to last another three to five years. It was financed with the assistance of federal tax credits, historic tax credits, private investment equity and the city itself.
“As a developer, we pull all of these financing mechanisms together,” Hatch said. “But it’s not like we have a crystal ball. This was a $16 million to $17 million project. We’ve spent all of that, and I spent all of my developer fee. Plus, I put in $1 million of my own money. Financially, this was not a success.”
Perhaps it was a mistake trying to achieve excellence in restoring a building to the grandeur that it was 100 years ago. Whether it was a mistake or not, Hatch said it was a decision they all made. Hatch said he does not like losing money, but he could not tell council how long payments would be postponed.
“We’re not asking for forgiveness,” he said. “We were hit pretty hard by COVID, where there was no revenue for the ballroom…We are slowly gaining back that revenue. By our agreement with our investors and the Iowa Finance Authority, when there is revenue we make on this, it goes to paying your loan back first.”
Hatch is unsure if he can continue to subsidize the operations of the whole building. Interestingly enough, all of the commercial areas of Hotel Maytag are filled, and the apartments are at 97 percent occupancy. But Hatch said he cannot increase his revenues by trying to increase the rent.
Hatch said the city’s investment in the building is already $3 million. The city was initially offering $400,000 to a developer to take over the building; nine amendments to the agreement later, the developer and the city learned there was more money needed to improve the property.
“We went back and got more from the investors, got more from the historic tax credits. So there was a continued review process in how you finance this and how you at least break even,” Hatch said. “No matter what happens, we do not break even on this. This building will never break even.”
Hatch added he has already lost a substantial amount of money from the project. If this continues to happen with other projects statewide, he said developers will not spend money. Hatch doesn’t want citizens to interpret the delay in payments as the city “contributing a lot more money to a developer that made a mistake.”
The city continues to contribute to a development that already has so much investment in it. Hatch Development Group took a chance with Newton.
“No one likes to come back and ask for additional dollars, but I’m trying to stabilize the building, and it’s in your community and we have a relationship on this,” Hatch said. “So this is a legitimate request. But I think we have made and met our standard of commitment and quality to this city and to that building.”
The council inevitably agreed to postpone the developer’s loan payments to the city, but council member Mark Hallam proposed it be on the condition that it be reviewed again in one year. The amendment was unanimously approved by council, who already felt uneasy leaving it to an undetermined amount of time.
“I’ve heard from a number of citizens and through emails and phone conversations, and what I have heard, in honesty, Jack, is extraordinary negative towards the council approving this resolution this evening,” Hallam said. “…I could support this, but I think we need to have some annual review.”
In the meantime, the city will continue paying the obligation to the Iowa Finance Authority in the amount of $25,000 a year, or $12,500 every six months. Newton City Administrator Matt Muckler said if the council obligates the city to pay back loans, the city will repay them.
Muckler also said the loans will be paid for with TIF funds, not general fund dollars which come from property taxes.
If Hatch sells the property, Muckler said the buyer is not obligated to pay the city back for the loans it made. But the city also has an agreement in place with the development company to pay back the city for any past due payments. Hatch told council there are plans moving forward to make the building more profitable.
Of note, more marketing will be focused on renting out the ballroom. Hatch encouraged the city to hold more events in the space. Council member Vicki Wade said it is critical for community organizations that promote Newton and its events to also promote the ballroom of Hotel Maytag and its retail spaces.
Newton Mayor Mike Hansen thanked Hatch for investing in the community and sympathized with the developer’s struggles.
“I know it’s been a struggle, and nobody has a crystal ball,” Hansen said, who also emphasized the city is not giving the developer any more money as a result of this council action, but rather delaying the payments the developer makes to the city. “…The city is obligated to pay the loan back to IFA. That is our loan.”