Development

Kansas City ‘business’ fund helps one developer renovate housing

MAC Properties has worked in midtown Kansas City since 2007 to acquire and renovate apartment buildings, mostly along Armour Boulevard. Seen Thursday, three of their properties along the north side of Armour Boulevard are Bellerive (from left), 214 E. Armour Blvd.; Park Central, 300 E. Armour Blvd.; and Clyde Manor, 350 E. Armour Blvd.
MAC Properties has worked in midtown Kansas City since 2007 to acquire and renovate apartment buildings, mostly along Armour Boulevard. Seen Thursday, three of their properties along the north side of Armour Boulevard are Bellerive (from left), 214 E. Armour Blvd.; Park Central, 300 E. Armour Blvd.; and Clyde Manor, 350 E. Armour Blvd. jtoyoshiba@kcstar.com

Drive east from Broadway on Armour Boulevard and take a look at what redevelopers have done.

Blocks of once-dilapidated, vacant or crime-ridden apartments have been renewed, mostly by MAC Properties, a company aided in part by a Kansas City fund with one purpose: Create a thriving residential neighborhood in midtown Kansas City.

Different public subsidies help multiple developers citywide, but MAC is almost exclusively the sole recipient — to the tune of about $13 million — of allocations from the city’s Midtown Business Interruption Fund.

The fund was created when the city backed risky development about 15 years ago of the Costco/Home Depot and Sun Fresh shopping centers in midtown neighborhoods that had floundering economics.

“What would happen if one of the big tenants went dark?” recalled former city councilman Jim Glover, who championed the projects to the extent that they’re dubbed the “Glover Plan.”

“The way to keep Costco and Home Depot from failing — and of course they haven’t — was to provide more housing, which creates more shoppers,” Glover said. “More housing creates more property taxes, more sales taxes. It revives the demographic base.”

So the city, which issued bonds in 2000 and refinanced them in 2007, “wanted a way to cover itself in case in any given year we didn’t have enough money to cover the debt service,” the city’s finance director, Randy Landes, recalled about the $47 million debt service burden.

Because of legal intricacies, the Midtown Business Interruption Fund wasn’t a “bona fide debt service reserve fund. It was a fund that was to be used for other than debt service, to use for any purpose or to use in the spirit of midtown redevelopment,” Landes said.

Indeed, the two shopping centers have squashed early “business interruption” fears. The centers’ special sales tax revenues for almost every year exceeded the approximately $4 million annual debt service on the city-issued bonds. Excess revenues filled the Midtown Business Interruption Fund coffer, and distributions began in 2011.

Other developers — notably Eagle Point, a Maine-based company that invested in three apartment buildings — contributed to multifamily housing work along Armour starting in 2007. But their projects were low-income, or subsidized, housing.

MAC alone did its midtown market-rate apartment redevelopments with the fund’s assistance. That raises some eyebrows.

“It’s a plus that public money is being used for preserving midtown housing,” said Donovan Mouton, who has consulted with some developers, including Eagle Point. “I’m just raising a question of inequality. It makes sense that a benefit of this kind should be for more than just one multifamily housing developer.”

But city development agencies found it easy to work with MAC.

To date, MAC Properties has acquired, renovated and repopulated about two dozen apartment buildings along the Armour axis. It’s on target to rehabilitate a total of 30 properties in the 64111 and 64109 ZIP codes.

The developer’s successes most recently spurred the city to commit $1 million from the Midtown Business Interruption Fund to buy derelict properties at the intersection of Armour and Troost. It’s money that will help MAC continue its redevelopment work eastward.

At a City Hall meeting Wednesday, Councilman Scott Taylor made a point to recognize the work that MAC and the business interruption fund have accomplished together.

But the fund that has helped MAC tackle projects that otherwise might not have offered a reasonable return on investment is due to end in 2022. And that has sent Kansas City scrambling for something else that will help induce developers to venture east of Troost, where property assessments and rental rates aren’t high enough to justify their risks.

A new “Shared Success Fund” proposed Wednesday by Mayor Sly James might replicate in small part the redevelopment successes achieved by MAC and the midtown fund.

So how did MAC — a Chicago-based apartment management and development firm with East Coast investor ties — win near exclusive access to the fund?

Glover and current city development officials say it’s because the company simply performed.

MAC entered the Kansas City market in 2007, acquiring and redeveloping five midtown apartment buildings with incentives granted through the Planned Industrial Expansion Authority. Primarily through its representative, Peter Cassel, MAC developed good working relationships in Kansas City.

The company grew into a reclamation powerhouse in 2010. That’s when its group, under the label Commonwealth Apartments, tackled acquisition, remodeling and rental of 10 more midtown apartment buildings, mostly on Armour.

“We worked very closely with neighborhood associations and with the local City Council folks to design and develop local projects,” Cassel said recently. “Plus, we’d already done successful preservation projects. We had a track record.”

Cassel took the time and pulled the necessary ropes to get redevelopment deals through the Planned Industrial Expansion Authority, the Industrial Development Authority and the City Council. And he became adept at the workings of the midtown fund.

The city keeps about $4.3 million a year in the fund — continuing security against the “go dark” possibility or lean years. That safety net is now about equal to the city’s annual debt service on the obligations. But, annually since 2011, the fund has been hefty enough to have money left over.

As of the city’s most recent official accounting last year, the fund had a balance of $6.4 million. Each year, the fund has been able to transfer between $1.35 million and $2 million to the city’s general fund. And that wasn’t all.

Dollars from the fund began going to MAC for its housing redevelopments. Under existing agreements, that tap stays open through 2022.

A city accounting of fund distributions shows that MAC has received $8.2 million from 2011 through this year. Looking forward from 2017 to 2023, the company is on the books for allocations of $4.8 million to assist housing projects at 525 E. Armour, 100 W. Armour and 3435 Main St.

While some other developers privately grouse about MAC getting special treatment, Glover and other city officials insist there was no backroom deal to channel the fund to MAC alone.

MAC, they say, got its projects through the system by making friends with neighborhood associations, City Hall planners, council representatives, economic development agency officers and even the Central Patrol of the Kansas City Police Department.

Or, perhaps, “others just didn’t try hard enough,” Glover suggested.

Jason Swords, with Sunflower Development, another successful redeveloper in the heart of the city, said he once inquired informally about the fund and was told there wasn’t any money available at the time. But he never formally applied for it.

“I do think it’s interesting that it’s all gone to one group, but I will say that what they’ve done has been awesome,” Swords said of MAC.

Diane Stafford: 816-234-4359, @kcstarstafford

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