T-R PHOTO BY ROBERT MAHARRY - During Monday night’s meeting, the Marshalltown city council voted unanimously to terminate a grant agreement with Huegerich Construction Company and Huegerich Holdings Series 2 LLC related to disaster recovery funds for townhome projects at two locations, including 601 E. South St., pictured, which appears to still be in progress.

About two years after the city of Marshalltown — in partnership with Huegerich Construction Company and Huegerich Holdings Series 2 LLC — received just over $2 million in Community Development Block Grant Disaster Recovery Funds to construct a total of 12 townhome units, the city council voted unanimously to terminate the agreement during Monday night’s meeting, citing several issues the developer is facing with the properties at 601 E. South St. and 106 N. 4th Ave.

City Administrator Carol Webb provided some background on the projects and grants as well as the challenges that have unfolded since then, and she then invited Region 6 Resources Partners Executive Director Marty Wymore to the podium to further explain the situation and answer any questions. Wymore did, however, note that Huegerich is still completing a separate 30-unit, $2,346,000 project on South 7th Avenue.

“It’s been a bumpy road with them on this project. They’ve encountered a number of details with federal funding, and they have a very small administrative team. I think they’ve bitten off more than they can handle,” Wymore said. “They don’t seem to be interested, at this point, in adding more staff to handle all the administrative burden of this federal grant, so I think it’s in our best interest to turn back the funds.”

In the council packet, the following challenges were listed as reasons Huegerich wished to terminated the contract.

“The developer is facing delays and fines on other federal projects in which he is involved.

The developer has expressed interest in converting the owner-occupied housing units that were a part of the grant into rental housing in response to the current housing market. This conversion from owner-occupied housing to rental housing would be a violation of the CDBG grant terms and would not be allowed to happen for many year if the project was built out as planned.

For the 4th Avenue project, the developer encountered a site issue that may prevent him from building the site out as he had planned. The developer expressed his interest in terminating the grant agreement before any additional site plans were submitted.”

Wymore felt there could still be an opportunity to engage in discussions with the state about opening up another round of funding, submitting another eligible project within Marshalltown and going through an Request for Proposal (RFP) process with interested developers. Councilor Gary Thompson asked for clarification on whether the city could hold onto the money while searching for another project or if it had to go back to the federal government.

“I guess the state is expecting the city to turn back this money and then submit a new application, potentially, for a new project with all new details because the current funding agreement that you have details everything related to these two projects,” Wymore said.

He added that only Marshall, Tama, Benton and Linn counties were eligible for the funding because of the damages they sustained in the August 2020 derecho. Mayor Joel Greer commented that as city leadership considers conducting a new housing study, state officials might look more favorably upon redirecting the funding to another Marshalltown project.

Councilor Melisa Fonseca asked about the status of 601 E. South St. and 106 N. 4th Ave. — where Huegerich was slated to build six townhome units at each address. The latter property was formerly owned by UnityPoint Health and sold to Huegerich in 2023.

“So, 601 E. South is the one that’s under construction, and the last time I drove by there, which was maybe 30 days ago, they had a roof on it and windows on it, so I understand they’re gonna complete that and rent it out,” Wymore said. “The one on 4th Avenue, they had problems obtaining a building permit for that location, so that project was on hold because of that. So I don’t know what their intention is officially on 4th Avenue.”

Thompson also wondered about the timetable once the council passed the resolution to terminate the agreement and whether they would still have time to make phone calls. Wymore guessed it would take at least a month, and if a new application was pursued, he figured they would have five to six months to go through the steps.

“It’s not gonna be a quick turnaround because of the RFP expectations they have,” Wymore said.

Marshalltown Area Chamber of Commerce President/CEO John Hall then stepped forward and said he was “disappointed” that the city found itself in its current position with the development. He asked Wymore if there was an opportunity to ask the state to keep the funds committed to Marshall County or Marshalltown specifically before the contract is released.

“I don’t know if the state can legally go through that kind of commitment process to it, but certainly, if we’re running the risk of returning that $2 million and then competing with three other counties, I’d like the opportunity to at least have that conversation. And perhaps, Marty, you’ve had that discussion, but just a question I wanted to ask,” Hall said. “Would it make more sense to table and get some additional answers and kind of next steps forward before approving dissolving those contracts?”

Wymore responded that the state so far hasn’t been willing to say the money is “reserved” for Marshalltown but agreed that it was worth having a conversation and citing the city’s experience with two major natural disasters in the last decade. Nonetheless, he recommended moving forward with terminating the current agreement.

Greer asked what would happen if the city made an effort to hold Huegerich to the current contract, and Wymore said he didn’t know. Thompson added that he liked Hall’s idea of trying to table but wasn’t sure it was possible.

“Are we in a position to possibly bankrupt a builder if we hold his feet to the fire on this? I mean, this is a tough one. I just see us trying to get a great package put together if the state even allows that money to go back out in another round. This is one of those no-win situations for us, I think,” Thompson said.

The original motion to terminate the contract passed by a unanimous 7-0 tally, and Webb committed to following up with the state about the possibility of keeping the money within the community for another housing project.

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Contact Robert Maharry at 641-753-6611 ext. 255 or rmaharry@timesrepublican.com.