Overland Park-based Waddell & Reed plans to occupy a new $140 million office building in downtown Kansas City that will tout the area’s highest ever rents.
The 250,000-square-foot building is expected to span as high as 15 floors. Waddell & Reed will rely on a private developer to build to its specifications somewhere in the downtown core. A final site has not been chosen, but real estate attorney David Frantze said the company will pay a rent of at least $40 per square foot.
That’s well above the norm for downtown — or any part of the metro. Data from commercial real estate firm Cushman & Wakefield showed the average asking rate for Class A office space in downtown was $21.73 during the third quarter of this year.
Even after the incentives, the office development “will have the highest rental rate of any building in the city,” the lawyer said.
Frantze shared plans for Waddell & Reed’s move across the state line at a city development agency board meeting Wednesday. The financial services firm is seeking major property tax breaks for the real estate project, which he said would be the first new office tower in downtown since H&R Block broke ground for its world headquarters building in the Power and Light District in 2004.
Waddell & Reed already has received $62 million from the Missouri Works program to bring about 1,000 jobs from Overland Park to Kansas City. On Wednesday, one of Kansas City’s Enhanced Enterprise Zone boards recommended giving the company a 75 % tax abatement for 15 years in its new building. The company also seeks sales and property tax exemptions under Missouri’s Chapter 100 provision and a 50 percent tax redirection agreement with the city.
While some incentive programs in the past might have been viewed as driving down real estate costs, Frantze said this project promised to positively influence the market.
“You are not subsidizing a bargain rental rate for this project,” Frantze said. “You are driving the market up and I think that’s what incentives should be used for.”
Waddell & Reed’s $140 million structure is expected to surpass the price of the $132 million Strata development, a proposed 25-story speculative office tower. Developers of that building are seeking public subsidies to help back that project. They’re expected to bring their proposal back to the Kansas City Council soon.
Waddell & Reed is among the last employers to benefit from the economic border war between Kansas and Missouri. Critics had long decried the practice of using Kansas and Missouri tax breaks to lure companies back and forth across the state line without actually boosting the regional economy.
Governors of both states celebrated an end to that practice in August. But public officials say the Overland Park company is grandfathered in because negotiations on the relocation were underway before the ceasefire.
Shannon Jaax, director of planning and real estate for Kansas City Public Schools, asked the EEZ board to consider a reduced incentive award on Wednesday. She pointed to comments Frantze had made on NPR’s Planet Money podcast last year. In an interview, he characterized the border war as “probably the worst public policy in the history of the world.”
“From our perspective, this is still bad public policy,” Jaax said.
She also asked that the board implement some sort of tracking and claw back procedure should Waddell & Reed not follow through on its jobs commitment. The company has committed to bringing 919 full-time jobs to Kansas City and hiring 120 positions over six years — for a total of 1,039 positions.
Jaax asked that the board only consider net new job creation, not those coming from across the state line.
Steven Hamilton, chairman of the EEZ board, reiterated that Waddell & Reed was excepted from the border war agreement.
He said the agency had proposed a “good compromise” in recommending 15 years of property tax breaks: If it only counted the 120 new jobs created, it likely would have recommended 10 years of tax breaks. But had it counted all 1,039 jobs as new jobs, it could have offered 20 years of tax abatement.
“I still think some credit should be given to these jobs because they are going to bring more into the overall Kansas City economy,” he said. “The employees are going to be eating downtown. They’re going to be shopping downtown.”
The board ultimately voted 4-1 to recommend the property tax breaks. It also asked for a provision to track jobs numbers and end the subsidy should the company not fulfill its commitments. Matt Fritz, the chief financial officer for the North Kansas City Schools, voted not to recommend the tax breaks.
The issue now goes to the city council for final approval.
Officials said Kansas City’s three enterprise zones were created by the state years ago. The incentive program generally rewards job creation within the zones.
Waddell & Reed’s attorney said the incentive plan had been endorsed by Kansas City Mayor Quinton Lucas. In a statement, the mayor’s chief of staff John Stamm said his office told the company must comply with the so-called Lucas ordinance, which capped property tax abatements at 75 percent. Likewise, the administration has advised economic development agencies to ensure that development is equitable and that schools and taxing jurisdictions receive money from day one of any incentive deal.
“We have not seen the deal in its final form,” Stamm said in a statement, “but we’re hopeful that they will comply with that standard.”