Spokane-based InterUrban Development LLC recently has submitted updated building permit applications for a three-building second phase of construction at the historic McKinley School site, in East Spokane.

Construction hasn’t started yet on the first phase, which would be an extensive renovation of the McKinley School building for mixed uses, but the city’s review period for a building permit application for the renovations has been extended until May.

The developer, however, says plans are facing headwinds, including potentially higher city fees, rising financing costs, and inflation, that threaten to stall the project further.

“At this moment, we’re holding back until the city makes the right decision regarding impact fees,” says Steve DeWalt, who heads InterUrban.

On Monday, the City Council approved emergency ordinances that implement significantly higher traffic impact fees and utility connection fees called general facility charges intended for developments to pay for infrastructure improvements that serve them. Under the measures, some charges would be waived for affordable and low-income housing.

Since the Journal last reported on the McKinley School two-phase redevelopment plans nearly a year ago, InterUrban has submitted new building permit applications for its second phase, which includes three mixed-use buildings with a total of 169 residential units. The construction value for the three new buildings is $33.8 million combined, which is about three times the total value listed on earlier planning information.

The construction value for the renovation of the McKinley School building is listed on permit information at $4 million. That valuation includes work planned for a 17,200-square-foot restaurant and bar and 9,000 square feet of office space in the 44,000-square-foot structure but doesn’t include the cost of renovating up to 29 units of multifamily housing planned for the building, permitting documents show.

The plan review extension request filed by DeWalt says InterUrban aims to break ground in the first quarter of 2023 on the site work, utility connections, historic building renovation, and new mixed-use buildings, with the completion date estimated next February.

InterUrban first submitted pre-development plans for the McKinley School site in late 2020.

DeWalt notes that, after the pandemic emerged, InterUrban redesigned the McKinley project to include restaurants, apartments, and three new multifamily buildings, which also involved an 18-month change-of-use process in which InterUrban sought approval to develop housing.

Prior to the Council’s action, DeWalt says, “After all of that, construction costs escalated, interest rates began climbing aggressively, and the City Council has proposed emergency impact fees on new construction.”

Kirstin Davis, the city’s communications manager for public works, says, applications submitted before fee changes may be grandfathered.

“Based on the current versions of the ordinances, any project that is already in permit review for a building permit will have fees assessed on the old fee structure,” Davis says via email. “That would be the case whether it's a new building or a change of use.”

DeWalt says, however, he has received conflicting information about whether impact fees are grandfathered in at the time of the building permit application.

“The ambiguity and mixed messages about when a project is vested adds to the difficultly of undertaking projects in this city,” he says.

The recently submitted applications for the second phase of construction include a 5-story, 66,323-square-foot building with 83 living units, and 2,400-square feet of commercial space; a four-story, 53,400-square-foot building with 70 living units; and a three-story, 22,200-square-foot building with 16 living units, 2,300 square feet of commercial space, and a 4,100-square-foot bodega.

The contractor is Baley Construction LP, of Mercer Island, Washington, and Bard & Vellum LLC, of Seattle, is the architect. Storhaug Engineering Inc., of Spokane, is providing engineering services.

McKinley School was built in 1902 in a neo-classical style of architecture that was popular for American public schools during the early 20th century, according to the Spokane City-County Historic Preservation Office. The school closed in 1962.