Little progress on Des Moines' 515 Walnut tower a year after site was cleared. What happened?
Nearly a year after the city of Des Moines approved demolition of downtown's long-empty Kaleidoscope at the Hub, a developer has still not secured the funds to build the 33-story skyscraper planned to replace it.
Construction of the project — 390 multifamily apartment units and 1,400 square feet of commercial space at 515 Walnut St. — was originally slated to start Oct. 29, 2023. Despite the clearance of the former shopping mall and an unusually warm winter that saw an early start on other projects around Des Moines, there has been no apparent work on the property.
Carrie Kruse, Des Moines' economic development administrator, confirmed in an emailed statement that the city has yet to reach a final agreement with St. Joseph Group for the building’s construction. This time last year, Deputy City Manager Matt Anderson said he expected the development agreement to be presented to the City Council in a matter of weeks.
“The project team is still working to identify financing sources to close their current financing gap on the project,” Kruse said.
Joe Teeling, owner of St. Joseph Group, has not answered calls or texts from the Des Moines Register since September. A Register reporter visited his home the evening of April 18 and was told he wasn’t there.
The Business Record reported in late April that Teeling said the project was still moving forward.
“It’s going to happen. We’ve got a lot of time and money put in this and we’re not going anywhere," it quoted him as saying, though he also told the publication that the project would advance when interest rates drop to a level that makes financing feasible.
It's not clear what Teeling may be telling the city. When asked if Des Moines officials had been in communication with Teeling, city spokesperson Debbie McClung declined to comment, saying the project was still under negotiation.
Records obtained by the Register show the last written communication from the city to St. Joseph Group was an email from Economic Development Coordinator Whitney Baethke on Jan. 17. She asked for an update on the project and offered to meet.
The records, provided in response to a public records request for all communications about the project from January 2023 to April 2024, showed no reply from St. Joseph Group.
Is 515 Walnut developer in downtown Des Moines running out of time?
The demolition of the Kaleidoscope severed a skywalk segment that connected with Capital Square on the east, the Polk County Justice Center on the south and The Hub. That means a long detour for users seeking to reach skywalk destinations to the west.
As a standard, property owners downtown have three years to reestablish skywalk connections once they are severed, whether for repairs, remodeling or new development. With two years remaining, it would seem St. Joseph Group still has time to get its project underway.
But another clock is counting down for the developer.
While no development agreement has been reached, a separate, supplemental agreement gave St. Joseph Group just two years to begin vertical construction before having to submit a plan to reconnect all skywalk bridges and corridors, with that work to be completed before June 11, 2026, regardless of the status of the tower project.
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In the event the St. Joseph Group misses any of these deadlines, the city has the immediate right to enter the property and rebuild the skywalk, with the cost covered by St. Joseph Group via a $1 million escrow. If repairs exceed that value, Des Moines can put a lien on the property, allowing it to recoup the difference if the site is eventually sold.
When asked if St. Joseph Group would be granted leniency on the skywalk requirement, Anderson stuck by the schedule the city laid out.
"They need to show some progress within two years or they are required to submit alternate plans," he said.
Why was the Kaleidoscope demolished with no development agreement in place?
The more stringent requirements for St. Joseph came after the city suffered the failure of two major downtown development plans.
One, called the Fifth, was slated for a 1.4-acre parcel between Court Avenue and Walnut Street east of Fifth Avenue, one of downtown's most prominent sites. It called for a 40-story hotel and residential tower with an adjacent movie theater. But developer Mandelbaum Properties, after numerous delays, completed only an 11-story parking garage for the complex, replacing an aging city-owned garage already on the property.
Bankers Trust Co. filed a foreclosure petition in September 2020, and the city declared Mandelbaum in default of its development agreement.
The city ended up paying $42 million for the garage, the upper portion of which is routinely blocked off for lack of traffic. The rest of the property sits vacant. The city and Mandelbaum Properties await a judge's decision on whether the developer actually defaulted and the city can reclaim the land ― or that Mandelbaum suffered unavoidable construction delays because of the COVID-19 pandemic.
The other failed project, diagonally across Walnut Street from the Fifth site, was none other than 515 Walnut. Des Moines developer Blackbird Investments received city approval for it in 2016 but became embroiled in lawsuits for failure to pay loans on other developments. With no construction on the skyscraper, the city terminated the development agreement on June 1, 2020.
Teeling, at one time president of Blackbird, owned by Justin Doyle, emerged in fall 2022 with a proposal to revive the project, using plans he is purchasing from Blackbird. He said Blackbird and Doyle have no involvement in the $140 million project, though several other former Blackbird staffers are employed by St. Joseph.
Demolition began at the Kaleidoscope on July 11. But the timing wasn't quite what city staff originally planned. Anderson told the Register that a development agreement would likely get signed first, and that the city wouldn't approve clearance of the site until St. Joseph finished raising the needed funds, he said.
Then the city did so anyway, after Teeling claimed in April 2023 to have 18 investors committed to providing 85% of the needed capital.
In a recent statement, Anderson explained that the decision to greenlight the demolition was intended to give St. Joseph Group a better chance at financing the project. Also, the demolition was scheduled to take months; if the developer started later in the year, it would have had to contend with winter weather.
"The motivation to allow demolition was to tee the project up for success as much as possible. Interest rates were continuing to rise in 2023, and we wanted to set the developers up for a running head start had they successfully closed their financing," he said. "Ultimately, they were not successful in finalizing the financing package."
In the emails the Register obtained, exchanges between St. Joseph, city staff and the Des Moines Fire Department point to another concern: illicit activity at the vacant Kaleidoscope. The emails show that Anderson had been in contact with the developers since January, asking them to "double-down" on their efforts as state wrestling and NCAA tournaments brought more traffic to the skywalk.
The emails noted issues with graffiti featuring racial slurs, and Per Mar Security Services relayed that it had encountered a fire while removing an individual from the building Feb. 8.
The Kaleidoscope was shut down the next day, and the City Council voted to approve the permit for its demolition in June.
What happened when the dust cleared after Kaleidoscope was demolished?
In the months after the Kaleidoscope was razed, St. Joseph Group worked with city officials to finalize its plans.
It indicated it would apply to the Iowa Economic Development Authority's Brownfield/Grayfield program, which awards tax credits to projects that redevelop vacant, blighted, underused or environmentally damaged sites. The state could award 515 Walnut Tower up to $1.5 million.
In a letter to the state from Des Moines' Office of Economic Development, Baethke, the city economic development coordinator, signaled the city's support for the project, writing that it would be "extremely challenging with current construction costs" to complete.
When the IEDA announced its annual tax credit recipients on Oct. 20, it did not include St. Joseph Group.
On Oct. 24, the city issued a permit to grade the site for new construction. St. Joseph passed a mandated review for a building permit two days later, though Des Moines never issued one. St. Joseph still owes about $195,000 to the city's permit and development center.
Terry Berk, the city's plan review supervisor, asked Beal Derkenne Construction co-owner Mike Derkenne in an email how his company, listed as the general contractor for the project, had determined its $95 million construction cost (the figure for the building alone, without associated costs).
Derkenne clarified that Beal Derkenne did not have a contract to build 515 Walnut, and said St. Joseph paid the company only to demolish the Kaleidoscope.
Derkenne and co-owner Andy Beal declined to comment, instead deferring to Teeling.
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Meanwhile, as conversations with city officials continued about preparing the site for construction, Seth Sojka of the St. Joseph Group was seeking to negotiate changes in the financial terms.
Under the city's proposal, it would give St. Joseph Group $5.7 million in tax increment financing over 14 years. In addition, the city offered $2 million in grants over four years after St. Joseph finished the project. The company also could apply for a 10-year declining residential tax abatement on the project, a break the city gives all new downtown properties.
Upon the project's completion, the city would provide St. Joseph an additional $500,000 in American Rescue Plan Act funding — a pool of money that Congress gave cities around the country as part of a COVID-19 relief bill.
The money that St. Joseph put in escrow to repair the skywalk in case the project failed, $1 million, would be paid back in two installments in November 2026 and November 2027.
But Sojka had informed the city in 2022 that St. Joseph would still face a financial gap — $1.5 million, or $500,000 annually ― in 2025, 2026 and 2027. While contractors were still tearing down the Kaleidoscope, he asked the city about changing part of the incentive package.
Instead of the tax-increment financing offer, in which Des Moines would dedicate future property tax revenue to infrastructure around the building, Sojka asked the city to offer a debt service reserve fund. Under his proposal, Des Moines officials would put money into an account that St. Joseph could tap to pay off debt immediately after the company finished building.
"I don't have a firm definition of the refill yet, but thinking about if it matched the $9 million total sum from TIF or something thereabouts," Sojka suggested to Anderson via email.
After Anderson asked how many years Des Moines would be responsible for replenishing the fund, Sojka backtracked. He later said St. Joseph would not benefit from switching the incentive package.
What's next for the 515 Walnut skyscraper project?
Meanwhile, the relief on interest rates that Teeling told the Business Record he is awaiting could be a while coming. The Federal Reserve's key interest rate continues to hover at a 23-year high of 5.25% to 5.5%.
The Fed hasn't changed the rate since last July as board members wait to see if the pace of inflation will slow. The Fed held its key interest rate steady when it met May 1, and it gave no signal that it plans to lower the rate soon.
St. Joseph Group's financial projections show the developers raising money for the building by selling shares at a 5.25% interest rate.
Jimmy Olsen, director of the Downtown Chamber of Commerce, is concerned that letting St. Joseph go ahead with the Kaleidoscope demolition before obtaining a development agreement may turn out to be another development mistake for the city.
Severing the skywalk without a plan in place puts commuters and visitors in an awkward position — and it's not a good look for downtown Des Moines, he said.
"It's a pain. I was just at an event where I had to walk an odd way around instead of using the skywalk," he said. "I would not have let them tear (the Kaleidoscope) down, so at least we could have had skywalk access.
"I don't know what's going to happen. Nobody knows what's going to happen," Olsen said. "And the feeling I'm getting from people is that nothing is going to happen."
Addison Lathers covers growth and development for the Des Moines metro. Reach her at 608-931-1761 or alathers@registermedia.com, and follow her on X at @addisonlathers.
This article originally appeared on Des Moines Register: What's going on with Des Moines skyscraper project? Site remains idle.
