Work on the high-profile Plaza on State Street site in Salt Lake City has halted, and officials are looking for a new developer to take it over.
In a setback to efforts at urban renewal and adding affordable housing downtown, Utah-based developer Ben Logue and his company Tannach Properties are pulling out, at the city's urging, in light of chronic delays and financial issues.
Since a well-publicized May 2012 groundbreaking, Logue and Tannach Properties have pursued replacing two now-demolished hotels and an aging theater at 255 S. State St. with upscale shops and moderately priced apartments, all centered around a European-style plaza.
But the work, backed by the city's Redevelopment Agency (RDA), has seen years of intermittent stoppages, engineering problems and rising costs that ballooned its estimated budget from $32.5 million to $55.2 million.
"It's been a real challenge for him," Stan Penfold, Salt Lake City councilman and RDA Board chairman, said of Logue and Plaza on State Street.
Housing, Penfold said, is now the city's chief concern in facing "the possibility of losing this project."
Along with stores, restaurants and a plaza extending east to an improved segment of adjacent Edison Street, Plaza at State Street was to add 180 residential units, including 136 units serving low- and moderate-income households.
Those residences were intended partly to replace nearly 50 single-room occupancy units of low-income housing eliminated when the aging Regis and Cambridge hotels on State Street were torn down to make way for the new development.
Logue, who is also a principal in The LaPorte Group, did not respond to several messages left at his company offices in Salt Lake City.
City officials said the developer had an otherwise good track record of successfully building affordable housing and historic renovation work in the region when Tannach Properties was initially selected for the Plaza on State Street work.
Tannach bought the site from the RDA in 2010 after the 1.12-acre downtown parcel on the east side of State Street lingered on the market for almost two years without a buyer.
Difficulties arose shortly after construction began in 2012, partly due to errors in site surveying and architectural design, according to RDA documents. Higher-than-expected groundwater levels also led to costly changes and delays.
An attempted project reboot and a proposed cash infusion from new investors last spring apparently failed to get work back on track. At the time, Logue told the RDA board, which doubles as the City Council, that he faced a funding gap of at least $15.45 million to revive construction.
As part of the April restart, Logue reported he had a major new partner, Salt Lake City health care executive Michael Weinholtz, who was said to be poised to chip in $11.2 million and lend his expertise to beefing up oversight.
The RDA Board voted unanimously at the time to make $3.5 million in additional loans available to Logue, contingent on changes in key personnel and tougher financial reins.
"That never really fully came together," said Justin Belliveau, RDA deputy director and the agency's manager over Plaza on State Street. As a result, he said, the RDA loans were never doled out.
Chief among the project's challenges, Belliveau said, has been a unique structural system used in construction, which has proven costly and that recent engineering tests revealed was structurally deficient.
Court records show Logue has been entangled since March in a dispute over $269,747, allegedly owed to Gerdau Ameristeel, for construction services, labor and materials the Brazilian steelmaker says it delivered to Plaza at State Street.
In a rare move, RDA officials sent Logue a notice of default in late summer, invoking benchmarks he agreed to in a development contract signed when Logue bought the property. The Aug. 24 notice give him 60 days to remedy the missed deadlines, clear up liens, and obtain several outstanding payment and performance bonds.
Belliveau said recently that Logue has since acknowledged he cannot meet the demands, although he reportedly is cooperating in finding someone to take over the project.
Logue's exit also leaves the city to sort through a thicket of competing public and private creditors with stakes in the development. Among them are several government agencies; low-income housing groups; the city's own Housing Trust Fund, which loaned Logue $750,000; and Citibank, which provided an initial construction loan of $19.1 million.
All the same, Penfold and Belliveau hold out hope that a new developer will come forward, especially in light of a recent upsurge in downtown building.
"Eventually, we'll have a clear picture of a timeline," Belliveau said, "but we're not there just yet."
tsemerad@sltrib.com
Twitter: @TonySemerad
