A plan to redevelop the 30-story Commerce Tower into a “vertical neighborhood” with housing, offices, child care and education uses was approved for tax incentives Wednesday.
The $71 million project being pursued by a group called Kansas City Sustainable Development Partners received unanimous approval for a 10-year, 100 percent property tax abatement from the Land Clearance for Redevelopment Authority.
The developers hope to complete their purchase of the office tower at 911 Main St., a downtown Kansas City fixture since 1965, and adjacent 249-space garage at 921 Main St. within the next 10 days, according to Michael W. Knight, a member of the development group.
The developers plan to continue using about half of the building, 160,000 square feet, as office space. Besides apartments, the developers believe Park University will continue to be a tenant, and other uses will include a childcare center.
The plan calls for floors 10 through 24 to be renovated as market-rate apartments. The second through ninth floors and 25th through 30th floors would remain offices. The first floor lobby and basement would be available for commercial use, too. A green roof is planned for the parking garage as well.
“Don’t think of it as a building,” Knight told LCRA board members. “Think of it as a vertical neighborhood with education, residential, office and child care uses ... It will be a brand new building in an old shell”
The budget submitted to the redevelopment authority calls for the project to be financed by a $40.8 million loan, $23 million in historic tax credits, $2.8 million in brownfield tax credits, $623,000 in demolition tax credits and $3.8 million in developer equity.
The county's appraised value of Commerce Tower and its garage was $12.2 million last year, and the development group is offering $7.5 million for the properties, according to documentation submitted to the Land Clearance for Redevelopment Authority.
Commerce Tower was headquarters for Commerce Bank until it moved into its current building at 1000 Walnut St. in 1985. The building was sold to a California investor for $21 million in 2006.
The building has steadily lost tenants in recent years. KeyBank Real Estate Capital vacated five floors in 2010, the same year the Greater Kansas City Chamber of Commerce and Kansas City Area Development Council left for Union Station.
The California owner, Hertz Investment Group, defaulted on its loan last year, and the building is controlled by a special servicer, C-III Capital Partners of New York.
Knight said Union Bank of Lincoln, Neb., has agreed to make the acquisition loan; US Bank has agreed to the construction loan, and Commerce Bank has tentatively agreed to purchase the state historic tax credits being pursued by the developers.
The only major step remaining to lining up the financing is to obtain the federal and state historic tax credits. An application is pending to have the building listed on the National Register of Historic Places.
Once the financing is completed, construction would begin next spring. The initial apartments would be available by late 2014 and the entire project completed by spring 2015.
The proposed redevelopment has the support of the Downtown Council because it will add apartments to the high-demand downtown market and take advantage of the streetcar route, which is planned to go by Commerce Tower on Main.
The developers also have an agreement with Commerce Bank for additional parking, bringing the total spaces available to 700.
The office tower is 60 percent vacant, and the developers are encouraging the current office tenants to remain after the redevelopment. Rents from $13 to $14 per square foot are anticipated, which the developers believe is a bargain rate for renovated space.
Lou Steele, a real estate veteran who’s part of the development group, said redevelopment of Commerce Tower into a mixed-use project would be a catalyst for other creative uses for downtown office buildings.
The downtown office market has a 17.2 percent vacancy rate and the level is much higher for older office towers, according to a report prepared by Kansas City Sustainable Development Partners.
“This project will change the dynamics of this building and hopefully others,” Steele said. “Very few downtown buildings are fully occupied, and by taking some of that space and using it for residential it will create new vitality.”
In addition to Steele and Knight, the other members of the development group are architect Bob Berkebile; David M. Brain, president and chief executive of EPR Properties; developer Butch Rigby, and real estate consultant E.F. “Chip” Walsh.
The group also is partnering with FDP Acquisitions LLC of Davenport, Iowa, on the venture.