What’s up with no incentives for $46 million downtown hotel project?
12/17/2013 5:19 PM
12/17/2013 5:19 PM
Ordinarily, the $46 million hotel planned by a Tennessee firm for the Crossroads Arts District would be considered a no-brainer for tax breaks from the city.
It meets all the criteria developers cite for seeking tax-increment financing and/or property tax abatement incentives. To build its 10-story project northeast of 16th Street and Baltimore Avenue, Chartwell Hospitality will have to knock down an old car dealership, clean up the site and build a garage for 166 cars.
These are classic infill development hassles, and those added costs are why other developers regularly say they need tax breaks to compete financially with projects built on the wide-open, green fields of suburbia.
But Chartwell officials are confident their 257-room project can be built without public help because its brands, Courtyard Marriott and Residence Inn, and its projected room and occupancy rates will generate enough business to make it a purely private profitable venture.
Chartwell isn’t alone in shaking up Kansas City development assumptions recently.
MHG Hotels, which won approval last month for a 96-room hotel, a SpringHill Suites Marriott at 45th Street and Belleview Avenue, also is not seeking city help for its $11 million project. That project also will require demolition and a garage.
So are the Chartwell folks from Nashville and the MHG crew from Indianapolis transplanting a new trend to Kansas City, or is it just an anomaly? I asked a few experts who know the ropes of the Kansas City development world:
Whitney Kerr Sr. has been a prominent player in local development for more than 50 years, and helped Chartwell assemble the site for their project.
“I think it’s a very good sign, and I’ve felt for a long time our local leaders and developers don’t have as much confidence about downtown and its future as they should,” Kerr said. “Chartwell developers told me they’d looked at a number of markets and thought Kansas City was a surprise and hidden opportunity.
“One thing I’ve seen in Kansas City real estate is the process of getting things zoned and done has become an industry. I had a prominent real estate lawyer call me and say, ‘What the hell are you doing? You’re making my job harder.’ ”
David Frantze, one of the city’s busier development attorneys, was surprised by the Chartwell decision not to seek incentives.
“When I’ve looked at other deals, they don’t work. It’s not even close,” he said. “I don’t know if it’s a precedent.
“I can tell you everybody in the world would rather do projects without incentives. There’s a substantial mount of reporting process, and developers lose a lot of control.”
Mike White, another top development attorney, said the lessons of the Chartwell and MHG projects are unclear, but they are getting noticed.
“I don’t know what to make of this, but it looks like a tough development site,” White said. “I’m sure all the municipal governments in this area will be watching this closely.”
Pete Fullerton is the president and CEO of the Kansas City Economic Development Corp., the agency responsible for assisting developers.
“It’s too early to tell if it’s an anomaly or trend,” he said, “but it shows there’s value in that area.”
Fullerton observed that development agencies usually determine what the financial gap is that developers face because of the additional costs of demolition, site cleanup and garage construction.
“Chartwell’s belief is they don’t have this gap,” he said.
As to whether the EDC might take a harder look at the next developer’s request because of Chartwell, “We’ll have to see,” Fullerton said.
City Planning Director Bob Langenkamp hopes the Chartwell deal will be precedent-setting.
“The market in this part of downtown, with all the previous investment and the streetcar coming, is getting to where developers don’t need incentives,” he said.
“Chartwell also mentioned they have a lender they’ve worked with (Atlanta-based SunTrust Bank) that they have a history with.”
Sean O’Byrne, vice president of business development at the Downtown Council, described the Chartwell project as the “high-water mark” other development proposals will be measured against by incentive-granting agencies.
“If market forces can do deals without us, God bless, we want to support them,” O’Byrne said.
Still, Gib Kerr, a broker keenly familiar with downtown real estate, said the proposed projects he’s familiar with will need incentives to move forward.
“The Chartwell project is a step in the right direction and encouraging, but we still have a long ways to go in urban revitalization,” he said. “We still have a lot of old, blighted buildings, most of which are under contract with a plan in mind.
“But the developers are looking for historic tax credits, abatement and TIF, otherwise their project doesn’t work.”