Business

Former Kemper losing money in first year as Hy-Vee Arena, but developer is optimistic

There was nothing hard to understand about the former Kemper Arena — a big venue that held big events.

Kansas City’s former NBA and NHL teams called it home. The iconic structure hosted big names like Elvis Presley and Billy Graham. And Kansas famously won the NCAA title there during the 1988 Final Four.

But now, a year into its reincarnation as Hy-Vee Arena, the venue has an entirely different purpose. It’s no longer one vast, single-use structure, but houses multiple spaces that can hold dozens of different events each day.

“It’s a very hard building to understand,” said Steve Foutch, the developer who led the transformation.

That may explain why Hy-Vee Arena has struggled in its first year. After a $40 million redevelopment, Foutch says the venture is not breaking even a year later.

Marketing the venue has proven challenging: It can hold everything from corporate banquets to graduations to concerts. But Foutch said it was pegged early on as a destination for youth basketball — a limited notion he hopes to expand.

“You have to come down here and see it to understand how big and diverse we are,” he said.

Even with a lackluster first year, he remains optimistic that the venue will take off. He even envisions a future expansion next door once the American Royal makes its planned move across the state line.

Foutch said the fact that many big events book their venues months or years in advance might have explained the slow start for bookings at Hy-Vee Arena. But he said the pace is starting to pick up for future events.

The arena is open from 6 a.m. to midnight daily, but it mostly comes to life on weekends and evenings. That dynamic has made it difficult for the retail and restaurant operations that fill the concourse area. Some of those tenants have left within the first year, Foutch said.

Currently, office space in the building is about half full, he said. The arena’s rental space is also occupied about half the time, he said.

“We were hoping we’d be close to break even after one year,” he said. “It might take us another year to get there.”

‘A very risky project’

Kansas City sold Kemper Arena to Foutch for $1. The facility, which had languished since the Sprint Center opened downtown in 2007, was costing the city about $1 million in annual maintenance costs.

When seeking incentives to help redevelop Kemper, Foutch acknowledged the risk he was taking. He noted similar facilities existed but most were publicly owned.

“There aren’t any other comps like this,” Foutch said in February 2017.

At the time, Foutch was seeking incentives from the Planned Industrial Expansion Authority. The agency awarded the arena a 100% property tax abatement for 10 years, followed by a 50% abatement for two years. A financial analysis estimated the arena would generate $3 million to $4 million a year.

“This is a very risky project,” PIEA executive director David Macoubrie said in 2017.

In addition to the tax abatement, the arena won a spot on the National Register of Historic Places in 2016, helping Foutch qualify for $14 million in historic tax credits.

He said the project would not have been possible without the tax breaks.

The renovation created a multipurpose facility split into two main levels. It now includes a 350-meter track and a dozen basketball courts, which can also hold volleyball and pickleball games for youths and adults. Hy-Vee Arena is also home to a fitness center, office space and several restaurant and retail concepts.

While the construction transformed the interior, it maintained Kemper’s exterior steel trusses — an iconic feature that supports the roof and provides nearly unobstructed views indoors.

Developer Bill Haw said it’s not hard to see where the $40 million construction budget went.

“The facility itself is just spectacular,” he said. “I don’t know how they could have done a better job with it than they did.”

Haw had originally planned to invest in the project but said he withdrew because of unfavorable bank loan terms. He has worked for years to redevelop the surrounding Stockyards District into a residential hub for young families.

Just across from Hy-Vee Arena, Haw helped finance The Yards, a 232-unit apartment development under construction.

“I am extremely pleased with the way it’s going,” he said. “The developer and I are already considering a second location.”

Haw owns lots of property in the area, including a 20-acre stretch that runs along the Kansas River. He said the arena, particularly with its fitness center, is complementary to other development in the Stockyards District.

“I am delighted it’s there, but it’s probably going to take a little while to develop into its full potential,” he said. “But it is really cool that those 230 apartment units will be looking directly at the arena.”

The broader potential

In addition to its fitness center and athletic courts, Hy-Vee Arena currently houses two clothing stores, an escape room and a few dining options. It’s also home to an eSports organization, the Mid America Intercollegiate Athletics Association and sports and events company KC Crew.

Foutch said some of the food and dining options have struggled. A coffee shop, for instance, had trouble with sales as the arena is busiest on nights and weekends.

“As far as marketing, more needs to be done,” said Jonathan Pamintuan, who manages the Longboards restaurant there. “People still think of it as Kemper Arena.”

Longboards draws a fairly steady weekday lunch crowd, mostly from office workers in the downtown area, he said. And traffic spikes during big tournaments. The Pacific coast-themed restaurant, which operates several metro locations, keeps busy in the slower times by using its arena kitchen as its catering hub.

Pamintuan said retailers have had a tougher time making it work there. But he thinks the challenge largely centers on marketing the businesses inside the arena as everyday destinations.

“There’s a lot of potential here,” he said. “People should know they can come in and enjoy the space.”

Moving forward, Foutch hopes to partner with another company to offer rock climbing on the arena’s exterior structure. He envisions expanding into the American Royal complex after that organization moves out. There, he could add turf for indoor soccer, rugby, football and field hockey. He also envisions a family entertainment center with batting cages, a pool and go-karts.

If that’s successful, the redevelopment would connect to the nearby 702-foot Rock Island Bridge, which spans the Kansas River. Developer Michael Zeller is proposing to connect the bridge to nearby trails and redevelop the fenced-off structure into a bar, food hall and events venue.

Zeller said the bridge project is “totally symbiotic” with the redeveloped arena. The two envision adding a zipline that runs from the arena across the river.

“I think it’s going gangbusters,” Zeller said of Hy-Vee Arena. “When I go down to the bridge on the weekends, I see cars all over that valley.”

Hy-Vee’s pitch for events

Sporting events generally search for venues months or years ahead of time, which may help explain the venue’s slow start.

“We work so far out that we haven’t truthfully been able to include Hy-Vee Arena just because timelines didn’t necessarily align,” said Katherine Fox, director of marketing and sales at the Kansas City Sports Commission.

She said the addition of any sports facilities can help the city win future events, though she noted the commission largely recruits high-profile events that demand large seating capacity and fewer courts. Fox, who used to work on marketing for Madison Square Garden in New York, said it can be difficult to market a facility with so many possible uses.

“One of the challenges is going to be getting enough of those events under their belt to showcase for future prospecting,” she said. “Once they do host some successful events, that’s just going to make their sales pitch more palatable.”

Officials with Visit KC, the region’s primary tourism organization, declined to be interviewed for this story. The organization released a one-sentence statement that read: “Hy-Vee Arena is an important asset in our community and we work to bring business to the venue whenever possible.”

But the venue may struggle to win over local tournaments with its current pricing structure, said Kristen Davis, executive director of KC Premiere, a nonprofit that oversees youth basketball leagues.

“We are the largest provider of youth basketball in the city, primarily because we’re the most cost effective provider of youth basketball in the city,” she said. “Their pricing was a little bit higher compared to what we are accustomed to paying.”

In early talks, Davis said the rental prices at Hy-Vee Arena were about 25 percent higher than those at other venues in the metro. Premiere, which hosts 25 tournaments a year, generally uses cheaper school facilities, particularly in Johnson County.

Davis consults on other youth sports facilities, including the Bluhawk hockey arena proposed for Overland Park.

With youth basketball, parents don’t traditionally wait around for hours on tournament day, she said. But tournaments for other sports, like volleyball, frequently become marathon events where families might find more value in the retail and food amenities available at Hy-Vee Arena.

“It’s perfectly suited for that,” she said. “Those people have to be there at like 7 o’clock in the morning and you’re not leaving until 5.”

With 12 courts, the arena is well positioned to court big regional and national events. At this point, Davis said she’s not ready to move Premier games there, but she’s not opposed to it.

“I’m one of those people who will sit back,” she said, “and let other people be the guinea pigs.”

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Kevin Hardy covers business for The Kansas City Star. He previously covered business and politics at The Des Moines Register. He also has worked at newspapers in Kansas and Tennessee. He is a graduate of the University of Kansas
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