Move over historic buildings. You may have been the driver behind the vast majority of apartments and condos built downtown in recent years, but the city is looking for something sexier.
By KEVIN COLLISON
The Kansas City Star
Sexier as in new construction.
The competition is on for the last $2 million remaining in a $10 million bond approved two years ago by the Kansas City Council to spur more housing downtown.
The rest is going to the Cordish Co. for its ambitious 23-story tower thats due to start construction at 13th and Walnut streets later this year and the renovation of the old Midland building for a total of 318 apartments.
The city and its partners, the Downtown Council and the Economic Development Corp., arent disclosing whos applied for the remaining $2 million, claiming thats proprietary information. There are seven developers in the hunt, though, and a decision is expected by the end of the month.
What is known is that new is cool and old is not.
Thats spelled out in the request for proposals that went out to developers a couple of months ago. Heres the rationale contained in the solicitation document:
To a large degree, only new construction promotes upward trending in rents. Towards that goal, proposed projects that are new construction will be given preference.
Some quick background.
The overwhelming majority of housing created downtown has been through converting old buildings with the help of state and federal historic tax credits and, in some cases, the extra boost of state affordable housing tax credits.
The only significant new construction over the last 10 years was Market Station, a 323-unit, $45 million project in the River Market.
The problem has been that rents are still relatively low in Kansas City compared with other desirable urban locations. So while it costs about the same to build new apartment buildings here as other cities such as Minneapolis, Denver and Chicago, developers cant get the kind of rents they can elsewhere to make it work financially.
The magic number suggested to make a purely private, new construction deal work has been a rent of $1.60 per square foot.
A new housing survey published by the Downtown Council recently found none of the projects it surveyed, new or old, coming close to that. Market Station was closest, yielding $1.41 per square foot for a one bedroom, and $1.54 for two bedrooms.
Some prominent rehab projects came close on one-bedroom rents, notably the 909 Walnut building ($1.43), Union Carbide ($1.45) and Windows Lofts ($1.51), but most of the other renovated buildings were in the $1.03 to $1.29 per square foot range.
New construction creates a different perception than historic rehab, said Tom Trabon, a Downtown Council board member whos done some historic projects himself over the years.
Its good to save older buildings, but theres sexiness to new construction, and we dont have that in this town.
Though the city isnt talking about who has applied for the $2 million, not many new-construction projects are in a position to apply. In fact, there are two, both in the River Market area.
One is the 137-unit, $16 million River Market West plan being pursued by developer George Birt on Third Street west of the Populous office building. The other is a 248-unit, $42 million project named after its location, Second and Delaware, proposed by Jonathan Arnold.
Both developers argue historic redevelopment projects already have a built-in advantage, the state and federal historic tax credit programs.
If youre doing a historic structure, you have a 45 percent tax credit to make your pro forma work, Arnold said. With new construction, there is no equivalent incentive to help take down the cost of construction.
Arnold said new construction also wa more efficient and appealing than most rehab projects because the units were designed for living from the outset. Both he and Birt said they were among the applicants for the city money.
Those whove been doing historic rehab projects, however, say theres still some value left in renovation.
Historic tax credits also arent a guarantee of financial success, and in recent years the state program has been under threat of draconian cuts. The Missouri Senate recently approved a bill that would roll back the amount of credits offered by 68 percent.
Donovan Mouton was involved in a recent effort to redevelop the historic Power & Light Building into apartments that fell short financially even though it had more than $19 million in historic tax credits authorized. Hes also helping the Alexander Co. in its effort to develop the old Folgers building into a 167-unit apartment project.
The Folgers plan, by the way, also is applying for aid from the citys $2 million fund.
As an advocate for preservation, every little bit helps in terms of redeveloping our existing structures and providing new housing opportunities downtown, Mouton said. Its possible that money would go further helping renovate existing structures.
The big enchilada when it comes to driving rents to new levels should be the new apartment tower planned by Cordish. Christina Boveri, a real estate professional who specializes in downtown properties, estimated it could hit $1.75 per square foot.
But Mouton noted that people also would be willing to pay more to live in an art deco landmark such as the Power & Light Building.
Cordish will offer a different feel and finish, so the rents would be a little higher, he said, but the Power & Light Building will offer something unique and a bit higher than what else is on the market.