City Auditor Concerned, but DURA Defends Deal

In 1993, DURA sold a portion of the Denver Dry Goods Building to the Denver Building HTD for $2.2 million. It was financed by a promissory note to DURA with a 7% interest rate and the amount is due on or before 2010. There were also two additional notes issued by DURA to DBH to ready the building for use as well as a loan guarantee for a loan from the Colorado Housing and Finance Authority. But buried in a footnote was that repayment "is doubtful."

However, Huggins explains that DBH was DURA's investment to bring affordable housing to Downtown. The rest of the Denver Dry building, which now houses retailers such as Media Play, T.J. Maxx and Wolf Camera, as well as expensive, market-rate lofts, was developed to raise tax revenues and have a productive use for a former department store that was sitting empty in the heart of Downtown.

So DURA created a non-profit group called the Denver Dry Development Corp., which teamed up with Fannie Mae to form DBH. Fannie Mae owns 99% of the DBH and Denver Dry Development owns 1%. DBH also is the general partner. Fannie Mae bought historic tax credits from the building, which served as the equity to rehab the units.

The DBH is required to keep 39 of the 51 units on three floors of part of the Denver Dry building as affordable housing. The financing is known as a "cash-flow" note that is only paid from excess cash flow from the units. However, because the units are subsidized and have strict limits on how much rents can be raised, and because of rising utility and other operating costs, the units don't provide the cash to repay the bonds. But because they are cash-flow notes, they can't go into default. Rather, no cash is received from them.

The idea from the beginning was that the note would be repaid if and when that part of the Denver Dry was ever sold, Huggins tells GlobeSt.com. And the units must remain as affordable for at least 30 years, according to the original agreement signed in the 1990s.

And a city official who helped structure the deal in 1992 and 1993 tells GlobeSt.com the context of the time has to be considered. No historic building had been rehabbed in Downtown for more than 10 years, and there was almost no first-class affordable housing Downtown.

"The Denver Dry did just what it was supposed to do," the official tells GlobeSt.com. "It's been a catalyst for many other historic renovations and has helped jump start all sorts of activity downtown. It's been a sterling example of a successful urban renewal project."