Real Estate & Retail

Hearthview becomes church's reluctant savior: Developer chooses 'significant' financial hit over wrecking ball

March 20, 2006

Condominium developer Hearthview Residential Inc. came out of a news conference this month looking like something of a hero for converting a former church at 802 N. Meridian St. into condos, but company officials must have been grinning through clenched teeth.

Locally based Hearthview initially tried to demolish the 1905 structure, quietly seeking a demolition permit for the entire building. When the permit was discovered at the 11th hour by city and state historic preservation officials, the wheels were set in motion to save the structure, and Hearthview quickly switched to plan B: Undertake extensive renovation of a building that by all accounts is in rough shape.

In the end, historic preservationists conceded about half of the 35,000-square-foot building, which will be demolished to make way for a new condo building. Hearthview, in return, conceded part of its bottom line.

Hearthview principal James E. Thomas Jr. wouldn't say how much money will be sacrificed to renovate the building, except that it is a "significant economic concession." The developer won't know how much until it gets into construction and determines the extent of the renovations necessary.

For a company that has made a name for itself converting downtown buildings, some of them in historic preservation districts, keeping the peace with the Indianapolis Historic Preservation Commission and Historic Landmarks Foundation of Indiana was more important than short-term profit, Thomas said. As a result, Hearthview quickly capitulated rather than fight the organizations it must seek approval from for some of its other projects.

"I don't think it was tremendously hard," Thomas said of the decision to reconfigure its plans for the site. "Everybody would like to be the good guy, plus we looked at this project within our larger profile in the city of Indianapolis. ... We may not get 100 percent of what we want, but if we have a good working relationship, it's worth it."

When finished, Meridian Arch, as the project will be named, will have 69 condos ranging from 1,100 to 2,000 square feet and priced from $200,000 to $500,000. Slightly fewer than half the units will be in the renovated church, with loft-style condos in the new addition.

Thomas wouldn't say exactly how much money Hearthview expects to make on the project, but was clear it's less than it would have if it could have torn down the entire building and started fresh. Converting the former church will leave the developer with fewer condos to sell than a newer building would. It hopes to make up some of that money by charging slightly more for condos in the former church building, which will incorporate some of the unique architectural features, such as the round towers on either side of the church front.

"Our hope is that will pay the burden," he said. "They're going to be qualitatively a very different product than the new loft space."

Conversion projects of existing buildings often end up costing more than original estimates, said local developer Larry Jones, who has converted houses into apartments and is working on a new-construction condo project at 25th Street and Central Avenue. He said he's not familiar with Hearthview's economics on the former church, but typically only so much of the conversion cost can be recouped through asking prices.

With adding new construction to the project, Jones said, "It sounds like they struck a happy medium. ... They may be able to develop enough bread-and-butter units to make the deal work."

Hearthview has made its name largely by converting downtown buildings into condos. Some, like a former office building at 110 E. Washington St., presented few historic preservation issues. Others, however, have been in historic districts or buildings. The developer's nearly complete condo conversion of the former Indianapolis Athletic Club at Vermont and Meridian streets kept most of the building's original exterior and lobby architectural features.

The company is also partnering with downtown-based Dinmont Development LLC on Lockerbie Park condos in the Lockerbie Square historic district. That $28 million development, which will eventually have 97 condos and 9,000 square feet of retail space, went through a lengthy process before receiving approval from IHPC. The two developers are also finishing construction on Mill No. 9 condos, a conversion project that straddles the Lockerbie and Chatham Arch historic districts.

The March 2 announcement of the compromise wrapped up three months of negotiations between Hearthview and city and state preservation officials.

Those negotiations weren't contentious, said Maury Plambeck, director of the city's Department of Metropolitan Development, which includes IHPC. When contacted by DMD, Hearthview quickly agreed to revise its plans and presented new designs that included the church building.

"We were prepared to start and had started the process to have it designated a historic site without their permission," Plambeck said. If Hearthview hadn't agreed to work with officials, "who knows what would have happened"?

Hearthview purchased the former church in January 2005 and sought to demolish it in late November. During that time, it was unclear who owned the building and lot or even that it had been sold-a for-sale sign remained on the property and the owner was listed as Indiana Equity Associates LLC, a partnership difficult to trace back to Hearthview. The demolition permit was filed under the name of the company that would be doing the demolition work.

The developer wasn't trying to operate under a cloak of secrecy, Thomas insisted. Hearthview waited until November to move on its plans while it worked to finish other condo projects. And buying land under a partnership name is common, he said, in order to try to get the best price for the property.

"They didn't want anyone to know for a period of time," said Ralph Balber, president of locally based Halakar Real Estate, which brokered the sale of the church. He said he kept the sale confidential at the buyer's request.

"I didn't get the impression that was because they didn't want anyone to know they bought it, but because they were working on other deals," Balber said.

The exact price Hearthview paid wasn't disclosed, but the site was listed for $1.2 million by a private investor who made a short-lived run at renting the building for offices and artist studios before listing it for sale.

While it was listed, Balber said, he had "tons of showings" to potential buyers interested in the site because of its location and positioning-the lot runs the full length of the block between Meridian and Illinois streets, offering frontage on both streets.

The building itself, however, wasn't a big selling feature, Balber said. Most everyone who looked at the building did so with an intent to demolish it, he said. The offices and classrooms built for Indiana Business College, which occupied the former Methodist church from 1940 to 2002, weren't in great shape, and what remains of the original features of the church are in need of significant repair, Balber said.


Interior demolition work has yet to begin on a dilapidated former church building at 802 N. Meridian St., which is slated for conversion to condos.
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