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FBI Investigated NorthSide Regeneration Tax Credit Deals, Report Shows

Posted on 01/13/2022

From St. Louis Post-Dispatch:  The FBI in 2018 opened an investigation into NorthSide Regeneration and its real estate deals involving a now-lapsed Missouri tax credit program that funneled more than $40 million in credits to the developer and companies associated with it, documents obtained by the Post-Dispatch confirm.

FBI agents focused on allegations that NorthSide and other companies were involved in “fraud in the form of ‘paper-only’ real estate transactions designed to manipulate Missouri’s tax credit system for profit,” according to a March 2018 synopsis of the investigation.

The Post-Dispatch previously said that federal investigators appeared to be scrutinizing NorthSide’s use of the tax credit program, reporting an FBI agent attended a 2018 trial involving the developer’s real estate transactions and quoting a property owner who said agents asked him about a failed deal with NorthSide.

But the documents, released under a federal Freedom of Information Act request and then obtained by the Post-Dispatch late last year, provide a clearer understanding of the investigation and confirm one of the targets was NorthSide Regeneration, led by developer Paul McKee and represented by attorneys at Stone, Leyton and Gershman.

The report includes details on multiple interviews conducted by FBI agents, including one with a representative from the real estate arm of the Archdiocese of St. Louis that inked one of the final tax credit deals with NorthSide Regeneration.

Details on some of NorthSide’s “paper-only” transactions came out in a 2018 eminent domain trial for one of those properties, which was transferred to NorthSide to net the developer tax credits but was later deeded back to the original owner once the city needed to buy it to assemble a site for the National Geospatial-Intelligence Agency.

After those details emerged, St. Louis officials terminated their 2009 development agreement with NorthSide Regeneration. But members of the St. Louis Board of Aldermen have continued to work with the developer. In 2019, they approved up to $6.4 million in city incentives for a 19-bed health center set to open this spring on the site of the former Pruitt-Igoe housing complex.

The Post-Dispatch has documented other instances of transactions in which NorthSide put no money down and used seller-financing to acquire real estate — essentially writing an IOU and transferring the ownership on paper — in order to collect millions of dollars worth of state tax credits under the former Distressed Area Land Assemblage program.

One of those deals involved a company partially owned by Steve Stone, NorthSide’s longtime attorney, who helped write the Distressed Area state tax credit legislation. Another involved fellow developers McKee had worked with in the past — Larry Chapman and Bob Clark, who owned the downtown Bottle District before transferring it to NorthSide and triggering $9 million in state tax credits. Another involved a north St. Louis factory that was later deeded back to the original owner after NorthSide collected $2.5 million in tax credits for the purported sale.

In all, at least a quarter of the $43 million in state tax credits provided to NorthSide under the program — nearly all of the $47 million the state ultimately awarded before the program ended in 2013 — were disbursed through seller-financed transactions.

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