One of the coolest endeavors to open in Pueblo in recent years is tangled up in a court battle after being accused of not paying its builders for the full cost of the project.
Fuel & Iron, the historic hardware store transformed into affordable housing and a trendy food hall where visitors can find cocktails and beer, pizza and fried chicken, opened in April. It was sued in May, its contractor claiming it was shorted more than $2.4 million.
The dispute is a black eye on a project heralded as the perfect mix of private investment and public dollars, a $16 million plan cobbled together from 17 sources, including grants and local, state and federal government investments.
Fuel & Iron’s owners, commercial brokers Nathan Stern and Zach Cytryn, declined to talk to The Sun about the ongoing lawsuit, and attorneys on both sides did not respond to requests for comment. But court documents lay out a case that includes claims not only against Fuel & Iron, but Pueblo and the Colorado Department of Local Affairs, entities that helped fund the transformation of the 100-plus-year-old brick building into a first-floor food venue with second- and third-floor apartments.
Ash and White Construction, the project’s general contractor, claims that costs escalated beyond the initially agreed-upon cap — thanks to Fuel & Iron’s repeated design changes and requests.
The cost of the project was initially capped at $7.25 million. Fuel & Iron retained 5% of the budget agreed to in the initial contract, which is a common way to ensure a project is completed. The so-called retainage happened as dealings between the developers and their general contractor began to sour. In addition, the construction company claims project costs exceeded the cap and Fuel & Iron refused to pay. The general contractor accused Fuel & Iron of breaching their contract and placed what’s called a mechanic’s lien on the property in an attempt to recoup their costs.
To complicate the case, subcontractors who worked on the three-story, 28-unit project have intervened in the lawsuit, saying they’re owed money, too.
Fuel & Iron, in court records, blames the extra costs on the construction company’s mistakes and disorganization. The dispute is between the owners and the general contractor, and not directly related to the agreements between the food hall or its tenants, which include The Hungry Buffalo and Steel Crescent Kitchen.
Still, the food hall, an incubator that started strong and then saw its sales decline, has undergone significant turnover in its first year. A ramen place that became a burger place, called Mosh Burger, is leaving this month, being replaced with a plant-based eatery called The Cutting Board. A taco restaurant became Union Pizza Co. And Solar Roast Coffee & Nick’s Dairy Crème, longtime Pueblo favorites that served as the food hall’s front-door anchor, has left the building. Trailglazers Bakery and Cafe is set to take the space.
Fuel & Iron says it and the construction company agreed in 2021 that the cost of the project would not exceed $7.25 million. The parties “had considered but then agreed not to add a provision” in the contract concerning price escalation. The construction company “voluntarily chose to accept the risk of subcontractor price escalation,” according to court records.
Costs went up, Fuel & Iron claims, “due almost entirely” to the construction company’s “poor performance and defective and incomplete” work. That poor performance, the food hall owners say, caused delays that meant Fuel & Iron did not receive a temporary certificate of occupancy for the project until April 18 — nine months behind schedule.
It’s the construction company’s fault that they “failed to lock in pricing” and purchase materials on time, Fuel & Iron says in its response to the lawsuit.
The timing of the project coincided with a nationwide jump in construction costs.
The cost of construction materials and labor has soared since the pandemic due to a mix of early supply chain challenges, home improvement trends and a scarcity of labor. That also impacted nonresidential construction. In 2022, material and services costs rose 10.1% from an already more expensive 2021, with materials like paint and wallboard increasing between 20 to 30%, according to Associated General Contractors of America, an industry trade group.
The contract gave Ash and White Construction 268 days to complete the bulk of the project, plus an additional 45 days for final completion. That should have meant the project was finished by August 2022.
The construction company failed to keep up with the building schedule, including neglecting to complete the elevator as scheduled and “drastically” impacting the sequence of tasks, court records say. The company also wasted two days of work by laying out the third-floor walls according to a design that was more than six months old, Fuel & Iron alleges in court records. And Ash and White had trouble finding staff willing to travel from the Denver area to work in Pueblo, and had to replace its project manager three times, the lawsuit says.
The delays and missteps were “catastrophic to the project,” Fuel & Iron states in court documents.
The Colorado Department of Local Affairs, which provided state funding for the revitalization project, was named as a defendant in the lawsuit. The state agency, in a response filed by the attorney general’s office, said it claims an interest in the Pueblo property and that it has no knowledge of the details of the payment dispute.
Gov. Jared Polis visited Fuel & Iron in December, bestowing an award praising a local business that used state tax funds to repurpose a historic building. The 1910 building on 2.5 acres in the heart of downtown Pueblo was damaged by a fire, then rebuilt in 1915. For years, it was Holmes Hardware, but then sat vacant for decades after the hardware store closed.
The next phase of the project includes a child care center and a skate park.
Stern and Cytryn, who specialize in food and beverage properties, bought the property for $2.73 million in May 2021.
Stern previously told The Sun that funding for the project, which breathed life into the Union Avenue Historic District and created much needed affordable housing, included money from three foundations, loans from four banks, tax increment financing, a grant from the American Recovery Plan Act, and state and federal historic preservation tax credits.
The Colorado Historical Foundation provided two loans, which have been paid back. Another $1.4 million in grants and a tax-credit program came from First Southwest Bank, the Colorado Health Foundation and First Southwest Community Fund, which also was named as a defendant in the lawsuit.
State agencies also provided $4.56 million in loans and grants.
The Office of Economic Development and International Trade awarded the project a Community Revitalization Grant of $1 million, the final draw paid in May after expenses were verified. The Department of Local Affairs provided a $3 million loan from the Colorado Housing Investment Fund, which must be repaid within seven years. A second loan of $560,000 is from the state’s Housing Development Grant Funds and is dependent on the company’s cash flow, according to a DOLA spokesperson.