Overland Park development struggles on payment, can’t meet lofty sales projections
The Prairiefire development, which combines shopping, dining and a museum with historical artifacts along a key corridor in Overland Park, continues to struggle to meet its obligations to bondholders while its developer vouches for the project’s financial viability.
Prairiefire for the first time could not make a full interest payment this month for bond debt supporting the project.
Even so, developer Fred Merrill Jr. says the project along 135th Street between Lamar and Nall avenues is “financially stable and improving.”
“Sales were overestimated initially nearly 10 years ago, and the retail world changed significantly,” Merrill said.
Bondholders who bought $14 million of debt that is supposed to be repaid by sales taxes generated at the shopping and entertainment district learned on Monday that an interest payment due on June 15 was several thousand dollars short of what was owed. The notice said $312,208 was due on June 15, but a payment of $304,078 was received.
A filing from February said that no principal from the $14 million bond issuance from 2012 has been paid so far.
Bondholders also received a separate notice that a debt service reserve fund — essentially a savings account — was tapped once again to make the interest payment. Typically the debt service reserve fund is used if the project doesn’t generate enough commercial activity to make payments with the sales taxes generated.
Overland Park did not guarantee the debt on the Prairiefire project and so its taxpayers aren’t on the hook to make up any shortfalls.
Taken together, both notices signify Prairiefire’s ongoing inability to meet lofty sales projections made in 2012 when Overland Park and Kansas approved incentives for Merrill’s project. Merrill noted the effect of the coronavirus pandemic, which has broadly complicated the retail industry due to unemployment, lowered discretionary spending and stay-at-home orders.
“There are, of course, issues with sales when you have a total shut-down due to COVID-19,” Merrill’s statement reads. “With cooperation from our lenders during these challenging times, Prairiefire remains 98% leased, almost all businesses have reopened, and AMC and Pinstripes will open in July.”
The interest payment delinquency is a first for Prairiefire; the draw on the debt service reserve fund is not.
Kansas in 2012 approved nearly $65 million in sales tax revenue bonds — or STAR bonds — on the assumption that the Museum at Prairiefire would draw enough tourists from faraway places and generate enough sales tax to repay the debt. The Museum at Prairiefire Foundation, the nonprofit that supports the museum, has lost money every year between 2015 and 2018, the most recent records available show.
The museum was supposed to be a significant draw for Prairiefire, owing to an agreement with the American Museum of Natural History to showcase traveling exhibits in Overland Park. That agreement has since been terminated. Other significant attractions at Prairiefire are retail outlets like REI, Pinstripes Bistro and Rock & Brews.
STAR bonds, first used for the Kansas Speedway in Wyandotte County, are meant for exceptional tourist destinations that are expected to draw at least 30% of their visitors each year from more than 100 miles away. In return for taking on such a project, developers get upfront money from the sale of STAR bonds that they can then repay through sales taxes generated by the project.
A Star analysis published a year ago found several STAR bond projects that don’t live up to expectations, noting that Prairiefire at the time had only paid back a fraction of the principal of the STAR bond issuance. Records show that Prairiefire at the end of 2019 had paid $130,000 in STAR bond principal, leaving a $64,860,000 balance.
Separately, Overland Park approved a community improvement district for Prairiefire, which allows an additional sales tax above local and state sales tax rates to pay off debt.
Merrill said Prairiefire has started construction on a third phase of the development.
