A St. Paul program that offered loans to small developers officially earned a zero-percent success rate Wednesday, as the city council voted to forgive the defunct loans of its one and only applicant in over a decade.

The Small Developer Ownership Construction Program, started as part of former mayor Randy Kelly’s “Housing 5000” initiative in 2003, was created “to increase participation of small for-profit (including minority and women) developers … in the production of small market-rate ownership projects,” according to a city background document.

The single applicant for the program was St. Paul-based developer 4RM+ULA for a five-unit residential project on a vacant lot at the corner of St. Anthony Avenue and Fry Street in the city’s Union Park neighborhood.

The city’s Housing and Redevelopment Authority approved a $40,000 pre-development loan to 4RM+ULA, which then secured a $1 million construction loan from Western Bank. The project was never built — though 4RM+ULA spent $125,000 on pre-development work including soil boring, environmental testing and architectural design.

But the economy started to sputter and construction costs “started coming back two or three times what they were,” said 4RM+ULA co-founder and principal James Garrett Jr. “We had to hold where we were. We didn’t want to put ourselves at risk, didn’t want to put the city at risk. … and once we hesitated, then the bank called the loan.”

INTEREST COSTS, LATE FEES GROW

Western called their loan in 2006; 4RM+ULA had negotiated it down to the $125,000 they’d spent, plus $1,165 in interest. The city, through a guarantee made by the HRA, assumed the balance of $126,165.

Then, under former mayor Chris Coleman, the city slapped a $1 million lien on the site, preventing 4RM+ULA from getting credit until they paid back the $40,000 pre-development loan, plus the $126,165 loan the city assumed from Western. Over the next 12 years, the loans — remaining unpaid — accumulated an additional $109,197 in interest and late fees.

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Earlier this year, 4RM+ULA offered to pay back the original $40,000 loan to the city in exchange for forgiveness on both loans, and waving of the interest and fees.

The HRA, made up of members of St. Paul’s city council, voted unanimously Wednesday to take the offer, and also to take 4RM+ULA’s principals off the city’s “adverse lending” list.

LESSONS LEARNED

“The fact that only one project was approved through the program, and it was not successful, shows that the program did not meet its original goals,” an HRA board report stated.

“If I were to do something like this today, I would make sure there would be a strong mentoring (component),” said Bruce Corrie, the city’s new director of planning and economic development. Corrie also pointed to the mid-2000s recession as a strong factor in the failure of the program.

The company, 4RM+ULA, survived by morphing from development into an architectural and professional services firm. It designed all the light rail stops on the Green Line as well as side projects such as the Rondo Plaza.

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With new shops and street improvements, Saturday’s ‘Rice and LarpenTOUR’ showcases three cities “We spent over a decade going back and forth before finally Mayor (Melvin) Carter came in and took a fresh look at it. Think about trying to run a business for over a decade, with no access to credit,” Garrett said, adding, “We’re happy to move on.”

During discussion of the resolution, no commissioners voiced concerns for the deal.

Earlier this month, the HRA started a new $500,000 pilot program offering low-interest loans to businesses that create jobs in the city’s most poverty-plagued neighborhoods. The funds could be used for a wide variety of things, from building improvements to inventory to working capital.