When board members for the American Royal told dignitaries packed into the Kansas Speedway media room Tuesday that the livestock institution planned to move to Kansas City, Kan., the room erupted in thunderous applause.
The announcement was the easy part. Making it happen is harder: The success of the $160 million American Royal complex, with half the cost backed by public subsidy, hinges on the development of retail around it that can generate enough sales taxes.
Because the American Royal will occupy a small portion of what will be a 500-acre development, that’s going to take a lot of commercial development — shopping districts, entertainment centers, restaurants, convention space.
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Without a development plan or master developer yet, it all amounts to something of a speculative bet, one that government officials and others acknowledge outright. They feel confident about it, nonetheless.
“The speculation is if we plan the American Royal with all its assets and show people what we’re able to build, it will attract the hotels, it will attract the retail,” said Unified Government Mayor Mark Holland.
Kansas has committed $80 million in the form of sales tax revenue (STAR) bonds to underpin the financing of the American Royal complex. STAR bonds redirect local and state sales taxes generated within a STAR bond district to pay for certain development costs.
Because the American Royal, as a nonprofit, doesn’t pay sales taxes on things it sells, the STAR bonds only work if the retail development blossoms.
That could mean anything that can produce sales taxes the STAR bond district near Village West.
Based on the combined sales tax rate in Kansas City, Kan., of 9.125 percent, the STAR bond district for the American Royal would have to generate at least $876 million in sales over 20 years to pay off the principal of the $80 million bonds. That figure doesn’t include interest and amortization, which would account for millions more.
The $876 million figure sounds like a big stack of cash, but not insurmountable. The Legends Outlet Mall, according to a real estate listing, generates $450 million in sales per year.
Mike Taylor, a spokesman for the Unified Government of Wyandotte County and Kansas City, Kan., said a definitive development plan hasn’t been established.
“Nothing definite yet,” Taylor said. “We’re still in negotiations, so it would be premature to talk about any of those details. We have a few ideas of what we would like to see.”
Holland adds, however, that the Unified Government has a track record in these speculative, STAR bond-fueled deals.
The Unified Government bought about 400 acres of largely undeveloped property in conjunction with the development of the Kansas Speedway in 2001. That property eventually became the Legends and Village West shopping districts.
“The whole speedway, with condemning 120 homes and buying $20 million of empty farmland was half vision, half Hail Mary,” Holland said.
Most would argue that the investment in the race track and the surrounding retail development has paid off for the Unified Government.
The American Royal in recent years hasn’t been a magnet for new hotels or retail in the West Bottoms. But Holland thinks that was because of space limitations in the West Bottoms.
A proposed American Royal complex in Kansas City, Kan., includes two arenas, an agriculture education center and a 300,000-square-foot exhibition space.
Reducing the risk for the Unified Government is that it won’t own land in the STAR bond district. The proposed STAR bond district near Village West is mostly owned by descendants of J.W. Perry, a banker in Kansas City around the turn of the 20th century whose land holdings in western Wyandotte County were extensive. About 80 acres in the proposed STAR bond district are owned jointly by two American Indian tribes, the Kickapoo and the Sac and Fox Nation.
The Unified Government also won’t guarantee the debt behind the STAR bonds.
“We could, but we’re not,” said Taylor. “We’ve let them (American Royal) know.”
Taylor said the American Royal and its benefactors may have to provide additional private backing to make the bonds more attractive to the open market for investors.
The American Royal’s board of directors over the years reads like a who’s who of business elites. Cerner co-founder Cliff Illig and UMB Financial Corp. CEO Mariner Kemper were on hand Tuesday to announce the American Royal’s move to Kansas City, Kan.
“Cliff Illig and Mariner Kemper and a lot of the folks who back the Royal may have to make a decision about how to make these bonds sellable,” Taylor said.
Illig and others are already on what he described as a “road show” to raise private money for the other $80 million that’s going into the American Royal complex.
Holland said he believes they can come up with the money.
“When you have (Cerner co-founder) Neal Patterson and Cliff Illig and Mariner Kemper all at the same table pulling in the same direction, I would never underestimate those three,” Holland said. “I think you have the right people at the table to make that happen.”