Kansas City developer Steve Foutch said on Wednesday that he will no longer pursue an apartment project in the East Crossroads, even after receiving a tax abatement from the Land Clearance for Redevelopment Authority.
The board for the LCRA approved a deal that would grant Foutch a 100 percent property tax abatement for 5 years, followed by a 50 percent abatement for the subsequent 5 years to assist with a 104-unit apartment project he sought at 18th and Holmes streets.
Seconds after the LCRA unanimously voted to approve the abatement package, Foutch shook his head and stood up from the 17th floor boardroom at Town Pavilion, where the agency holds its meetings.
“We’re not going to do the project,” Foutch told LCRA commissioners.
“That’s your choice,” LCRA chairman Michael Duffy responded.
The apparent disintegration of a $23 million apartment project occurred on the same day that a Kansas City Council committee will hold a public hearing for the first time on an ordinance that seeks to limit how much tax redirection and tax abatement can be offered in most circumstances to private development projects.
It is also occurring during a time when scrutiny of tax inducements for projects in Kansas City has reached perhaps its highest point in the city’s history. It’s a debate that pits development interests, which point to the need for assistance to continue building a broader community, against skeptics of how much and how often developers leverage tax breaks for private development projects in Kansas City.
The LCRA approved the abatement that the agency’s staff recommended. That recommendation was based on a financial analysis performed by S.B. Friedman Development Advisors.
However, Foutch disagreed with some aspects of the analysis. He had also negotiated a deal with Jackson County officials to request a 100 percent abatement for 5 years, followed by a 63 percent abatement for the next 5 years.
After the meeting, Foutch said that the financing for his project was “razor thin” and that the package that the LCRA approved was insufficient to make financing for his project work. He added that if interest rates or capitalization rates move “even a decimal,” it would affect his project’s financing.
Foutch was under contract to purchase property near the northeast and southeast corners of 18th and Holmes streets for $2 million.
It was there where he wanted to expand the existing two-story Holtman Building on the north side of 18th Street, now occupied by a printing company, into a six-story apartment building. A second phase of the project would convert a gravel parking lot directly across the street into another six-story apartment building. The project, called Holtman Heights, also called for 4,500 square feet of ground-level retail space.
All combined, the project would have added 104 market-rate apartments to the growing multifamily housing stock in and around downtown Kansas City, where occupancy rates reach nearly 100 percent.
But Foutch’s project carried some risk. It would have been near a Kansas City Power & Light substation and along a part of 18th Street that’s underdeveloped.
Foutch had about $7 million in equity lined up for the project and was seeking a $15.5 million permanent loan to finance the project. He said that one bank had already walked away from the project, attesting to his view he had little room to maneuver with project financing.
The LCRA can provide a full 100 percent tax abatement for 10 years. Under recent trends, several developments before LCRA have split that full abatement, sometimes reducing the level of abatement to 50 percent the second half of the 10-year term.
Foutch said he would probably have to cancel the sale contract for the property, which was scheduled to close on Oct. 5.