Developer faces legal claim over 500 N. Grand project in Charles City

By Bob Steenson, bsteenson@charlescitypress.com

The project to transform Charles City’s former middle school into a 40-unit apartment complex – delayed for some time while awaiting financing – has now been thrust into court, as a building and architectural firm has filed legal action seeking payment for what it says are services that were completed but not paid for.

The legal action was filed recently in Floyd County District Court by Elevated Builders LLC against project developer Shawn Foutch’s company, 500NGrandHomes LLC.

Elevated Builders, of Granger, is a construction, design and renovation company. Its petition alleges that Foutch’s company owes Elevated Builders $114,520.50 for design services.

A mechanics lien filed against the property by Elevated Builders says work was performed between June 2020 and January 2023 but not paid for. The petition asks the court to declare the mechanic’s lien valid and order foreclosure – ordering a sale of the property “or so much of it as may be necessary to satisfy plaintiff’s mechanic’s lien.”

In Foutch’s answer to the Elevated Builders’ petition he denies most of the allegations made. He acknowledges that a mechanic’s lien is in place, but disputes the characterization of its contents.

500NGrandHomes says that the plaintiff (Elevated Builders) has failed to make a claim on which the court can grant relief, has failed to mitigate damages and that the plaintiff’s own actions or inactions should prevent or reduce its ability to recover damages.

Foutch, in a conversation with the Press in July during a tour of the project by city representatives and Iowa economic development officials, said he is awaiting $2.4 million in funding from state and federal historical tax credits.

Foutch said he expects the credits will be awarded, but it is taking an unusually long time.

Total funding for the project is expected to be $7.6 million, which includes the state and federal historic tax credits, $1.1 million from Foutch’s own funds, $500,000 in grayfield funding, and $3.6 million in long-term financing.

The financial challenges facing the 500 N. Grand project echo similar issues with another of Foutch’s endeavors, an apartment renovation of the former Wilson School in Cherokee.

In that case, according to reporting by the Storm Lake Times Pilot, Elevated Builders is also seeking to foreclose a mechanic’s lien, alleging $57,000 in unpaid architectural fees.

Foutch does have a history of success in such projects, successfully completing a similar renovation in Storm Lake, where the old South School was converted into 43 apartments, although, there, too, the project took longer than originally forecast due to what Foutch said were delays in getting the tax credits, as well as materials supply delays.

He also built Breeze Condominiums in Storm Lake for additional housing.

Foutch began negotiating with the Charles City School District in January 2019 to purchase the historical part of the school building along North Grand Avenue, for the purpose of turning it into market-rate apartments.

At that time, Foutch had formerly been part of Foutch Brothers LLC, which had been restoring historic buildings for 13-14 years, successfully restoring 11 school buildings including six or seven in Iowa.

Foutch started his own company, JMAE LLC, to focus specifically on restoring schools such as the Charles City Middle School project.

When that project started, around the beginning of the COVID-19 pandemic, he estimated it would take about three years, including about two years of design work, engineering and getting the financing squared away, then about a year for the actual construction.

Now much of the interior of the former school has been cleared out except for hallways and the auditorium, and floor plans have been laid out including some wall framing. But Foutch said he has gone as far as he can with his own funding and needs the historic tax credits to continue.

The Charles City school District sold the historic front part of the building to Foutch for $1 because the building was deteriorating, the district could not afford to renovate it and it wanted the building to be put to a good use.

Also as part of the project, Charles City granted Foutch a 10-year tax abatement on the added value of the property to begin once the project is finished. Council members said at the time that it would be great to get the building on the property tax rolls, noting it had never paid property taxes as a school.

The building is listed as the Charles City Junior-Senior High School on the National Register of Historic Places. It was built in 1932 and first served as Charles City High School. Most recently, it was Charles City Middle School. It stopped serving as general purpose classrooms when the new Charles City Middle School opened in 2016.

At the time, then-school Superintendent Mike Fisher said the district chose Foutch because of his record of successful projects.

The project was expected to be completed by December 2023, with application for the city’s property tax abatement made in February 2024. Now, with the project past its city deadline, if Foutch wants the tax abatement he will likely have to go back to the City Council to redo the urban renewal plan.