Tax incentives for the next highrise luxury apartment building planned in downtown squeaked through an advisory panel Wednesday with several strings attached.
Now it's up to the Kansas City Council to decide whether developers should get a property tax abatement to build Three Light, a 300-unit luxury apartment tower with retail and amenities, in the city's Power & Light District.
The Chapter 353 Advisory Board recommended the abatement despite significant hesitation by some commissioners who said developers shouldn't need tax breaks, given the success of the One Light and Two Light apartment buildings. The developer, Cordish Companies, argued that the $130 million project wasn't feasible without assistance.
The board voted 3-1 to recommend the abatement to the City Council with strings attached that were suggested in a financial analysis of the project — conducting an analysis to look at the cost and anticipated rent of the project, and requiring an audit five years after Three Light opens. The goal in each proposal is to identify whether the tax incentives are truly needed to go forward and allow the city to "claw back" money.
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The board's vice chair, Gabriel Okafor, was a vocal critic of the incentive and said he wouldn't vote for it without the caveats, which he proposed. He said he was familiar with "how well Cordish has done" financially.
"It's kind of difficult for me to hear you give me some of this stuff. It's hard for me to swallow," Okafor told Cordish executive Nick Benjamin.
Commissioner Daniel Edwards said he understood the city needed to provide some incentives for downtown development to increase density.
"I think we can incentivize development downtown if it's not all luxury," Edwards said.
Cordish is expected to convert the Midland office building at 13th Street and Baltimore Avenue into 100 apartments for low- and moderate-income tenants, an agreement it reached with the city in exchange for a $17.5 million parking garage for Three Light. Kansas City's agreement to build parking garages for each highrise was a key provision in the city's 2004 master development agreement with Baltimore-based Cordish, which has developed the Power & Light District.
"That makes it sound like we’re warehousing all the poor people to one area and we're putting all the luxury people in another area, which is our city's structure right now," Edwards said.
Later in the meeting, Edwards said he was "embarrassed for our city" because of the separate building for affordable housing.
Greg Flisram, executive director of the Economic Development Corporation of Kansas City, said the separate building for affordable housing wasn't preferable, but the requirement was sprung on Cordish well into the development process. He noted that the Midland building is in the middle of downtown, only a few blocks from Three Light.
The recommendation the advisory board sent to the City Council would allow for a 100 percent tax abatement for 25 years. But other payments Cordish will pay to the city and other taxing jurisdictions, including schools, mental health providers and the library, effectively create a 75 percent abatement for Cordish, Flisram said.
The board can only make recommendations to the council, which makes the call.
"The reason we're here with the request for assistance is so we can proceed with Three Light, and we won't proceed," Benjamin said. "We won't be able to proceed financially with the returns."
Benjamin added Cordish would struggle to get financing from banks without incentives because of high costs and concerns over competition.
"The reason we're here is we do want to proceed with the third building. We do believe in the downtown Kansas City market, but from a financial return perspective, there are a great deal of pressures and risks," Benjamin said. "Interest rates are going up. Construction costs are going up very substantially."
A financial analysis released in December 2016 initially determined Three Light wouldn't need abatement, but analysts revised that finding after Cordish provided more conservative data indicating it wouldn't be able to charge as high a rent price as it anticipated and might not fill up. With those assumptions, the revised analysis by SB Freidman Development Advisors deemed the abatement necessary.
According to the analysis, Cordish cited concerns about a large supply of luxury apartments in downtown Kansas City, making it more difficult to compete. But a "meaningful share of the competition" for Three Light comes from Cordish's own One Light and Two Light buildings, which both received assistance.
"There is therefore a somewhat circular argument for assistance — market pressure from the developer's own projects is reducing the projected project cash flow, thus indicating a need for greater public assistance," the report says.
Flisram said he wasn't surprised by the concern among commissioners, but he told them during the meeting the Economic Development Corporation supported abatement for Three Light.
"We want to be able to compete with the Dallases and the Denvers and see ourselves as being something higher than the — no offense to the Omahas and the Des Moines of the world, but we have ambitions for our city. And if we really want to get there, we need to pack more density and more vibrancy," Flisram said.