City Council approves $3.6M sale of revenue bonds for Mercantile reimbursement

Members of the Missoula City Council on Wednesday agreed to reimburse the developer of a downtown hotel and retail center for some, but not all costs associated with public portions of the project, saying much of that work was required by the city.

In doing so, the Administration and Finance Committee approved a reimbursement agreement for Mercantile Investors LLC, authorizing the sale of $3.6 million in urban renewal revenue bonds purchased by Stockman Bank.

Ellen Buchanan, director of the Missoula Redevelopment Agency, said the city placed a number of demands upon Mercantile Investors when it approved plans for the new Residence Inn by Marriott hotel on the corner of Front Street and Higgins Avenue.

Among them, the city required that the old Mercantile building be deconstructed, not demolished, and required the developer to save a portion of the structure and slip it into the new building. Improvements to the public right of way were also required as part of a larger downtown vision.

All costs in the bond are eligible for reimbursement under state law, Buchanan said.

“The reimbursement agreement basically is our standard development agreement,” Buchanan said. “But there are some things in here that are unique because of the nature of the project, and because of the requirements of the City Council.”

The old Mercantile was vacated in 2010, and while several attempts were made to redevelop the property, none panned out. Mercantile Investors purchased the property in 2015 and presented plans for a five-story hotel with 20,000 square feet of ground-floor retail.

Still, the developer’s plans to remove the older Mercantile didn’t sit well with some members of the public, despite the building’s deteriorating condition. That led to a protracted and often contentious process that eventually saw the city make demands of the developer in exchange for the project’s approval.

“These were activities that were required of the developer – we essentially codified those activities in the agreement because they were a representation of community values,” said council member Bryan von Lossberg. “There was compromise.”

The requirements included preservation of the historic Merc pharmacy and deconstruction of the old building, salvaging reusable items.

As a result, Home ReSource received more than 200,000 board feet of lumber from the building, along with a number of historic discoveries including tin ceiling tiles, old poster ads and railings. Some of the items have been included in the new hotel while others went to homes, schools and offices across Missoula.

“These (bonds) aren’t covering the entire costs of deconstruction and pharmacy preservation,” von Lossberg said. “There were additional expenses beyond these items. The developer assumed those risks and covered the additional costs.”

The hotel represents a $42 million investment in the heart of downtown, of which $3.6 million will be reimbursed using public funding. Downtown advocates have praised the project, saying it will bring jobs and vibrancy back to a corner that sat empty and neglected for years.

That wasn’t lost on members of the council during Wednesday’s discussion.

“Those were jobs that otherwise would not be there,” said council member Heather Harp. “That’s a critical piece of this whole idea of a redevelopment agency. When we have the ability in our position to affect people at their own level, we’re doing the right work.”