Waddell & Reed won’t move into new HQ building in downtown Kansas City after merger
Waddell & Reed no longer plans to move into a downtown Kansas City tower designed as its new corporate headquarters after it merges with Australia’s Macquarie Group.
That news comes after the financial services company, currently based in Overland Park, announced it would lay off more than 200 employees as part of the merger. The company had been planning to move into a new $140 million tower that is currently under construction.
But Macquarie officials said that is not going to happen.
“While we will not be occupying the new building, Macquarie and LPL remain committed to the region and supporting the needs of our clients and staff here,” Macquarie said in a statement Tuesday. “It is our understanding that construction on the building at 1400 Baltimore will continue.”
In December, Macquarie Asset Management announced plans to acquire all of the outstanding shares of Overland Park’s Waddell & Reed for $25 per share in cash in a deal valued at $1.7 billion.
Macquarie plans to sell off Waddell & Reed’s wealth management platform to LPL Financial Holdings Inc., an independent broker-dealer in Boston, for $300 million.
Construction is well underway on the 18-story tower at 14th Street and Baltimore Avenue. Plans called for a 10-floor, 913-space parking garage and eight floors of office space. While the building was designed and built for Waddell & Reed, it is actually owned by a private developer called 1400 Baltimore Owner LLC.
Jackson County property records list executives from various companies controlled by Financial Holdings Corp. as being involved with 1400 Baltimore Owner LLC. Financial Holdings is an umbrella firm of companies, including the Americo Life insurance firm, controlled by the Merriman family.
Kansas City-based Burns & McDonnell was contracted for exterior design and construction of Waddell & Reed’s new tower, with HOK working on interior design.
“Burns & McDonnell is committed to its contractual obligation to design and build a first-class office building with the Waddell & Reed headquarters now under construction in downtown Kansas City,” the architecture and engineering firm said in a statement. “We will fulfill our responsibility and finish the job as we always do.”
The developer could not immediately be reached for comment.
Waddell & Reed signed a 15-year lease on its new tower in January 2020.
‘We were warned’
Some city officials in Kansas City reacted to the news with dismay, particularly after a protracted effort was made by economic development interests to pave the way for Waddell & Reed to relocate from Overland Park. Waddell & Reed was the latest target in the long-running saga of companies relocating across the state line with taxpayer assistance from local and state governments, a practice that critics say is wasteful and adds little in the way of new economic benefits.
In Waddell & Reed’s case, the move came after top officials in Kansas and Missouri pledged to discontinue what’s referred to as the economic development border war. It also came amid questions about Waddell & Reed’s viability as a standalone company, concerns that were heightened after the announced Macquarie merger.
“We were warned,” said Eric Bunch, a Kansas City Council member whose 4th District includes downtown. “There were some former employees who were warning that the financial health of the company should really be called into question or whether or not this was really something that was going to work out because of that. We were told, no those are disgruntled employees who were making that stuff up.”
Mayor Quinton Lucas said the developers would keep working on the building, and that they have a lease with the company, giving them legal recourse.
“But change in those who are tenants in buildings happens all the time, actually,” Lucas said.
Either the development group or Waddell & Reed’s new owners will ensure someone occupies the building, he said.
“I think that, in many ways, almost nothing has changed in connection thereto.”
Lucas said he expected the building to be full and provide both high-end office space and parking that might alleviate the city’s need to reconstruct the Barney Allis garage and plaza near Bartle Hall.
Though Lucas noted discussions began during former Mayor Sly James’ administration, he voted to approve both the incentive package and the controversial design of the building, which sets aside eight of the building’s 10 floors for parking.
Tim Schaffer, president of AREA Real Estate Advisors, said the news about Waddell & Reed was unfortunate, given that the company’s employees were going to work downtown and now will not.
But it’s been a goal among local economic development professionals to pursue new, top-of-the-line office space in downtown Kansas City, an area where much of the existing office supply is older and less appealing to large tenants, particularly out-of-town concerns, that are exploring a relocation.
“So I think we’ve essentially got our spec (speculative) office building everybody has been asking for. We need to take it and run with it,” Schaffer said. “Now you’ve got the space, now go get the tenants you said were going to come here if we had the quality space.”
Bunch said it’s too soon to know what future demand for office space will look like.
“I think there’s some educated guesses to what’s going to happen with the office market in the ensuing years with the office market, post-Covid,” Bunch said. “But if we’ve learned anything from Covid, well, one systemic racism definitely exists in our health care system, but the other thing that we’ve learned form Covid is a whole lot of people can work remotely and what does that mean for the need for, the demand for office towers. I don’t know that anyone has a great answer for that.”
Substantial incentives
Kansas City lavished extensive economic development incentives to pursue Waddell & Reed.
In December 2019, a divided City Council approved $35 million in local incentives in the form of a six-year, 75% tax abatement followed by nine years at 37.5%, a sales tax exemption on construction materials and a redirection to the company of earnings and utility taxes.
The company also won up to $62 million in incentives from Missouri for relocating jobs to the state.
Added together, the incentives made up about 70% of the overall project cost, though the company was required to move positions to Kansas City before those incentives kicked in.
It was unclear on Tuesday what penalties the developer or Waddell & Reed could face as a result of the company pulling out of the deal.
An attorney previously said Waddell & Reed would pay a rent of at least $40 per square foot — well above the norm for downtown or any part of the metro. That meant Waddell & Reed could be on the hook for more than $10 million in annual rent.
The loss of the building’s sole tenant will disrupt the building’s finances: Documentation of a $103 million construction loan from JPMorgan Chase to the developer references the lease agreement with Waddell & Reed.
And big subsidies from state and local governments were centered on the company’s relocation from Johnson County to Kansas City.
Tuesday’s development cast further questions about the city’s use of tax incentives to lure private developments. Just last week, the Kansas City Council approved a reform of some of the city’s incentive programs, primarily by shortening their duration in most cases. It was the second round of reform of Kansas City’s incentives after years of awarding them frequently to developers and private businesses, often in the name of keeping them from moving elsewhere.
“In terms of developments like these, it is transactional, we are deciding on what incentive levels go where based on this one project and jobs numbers or whatever,” Bunch said. “Instead we should be looking at a bigger picture and we should have a larger strategy when it comes to economic and real estate development.”
Waddell & Reed in many ways encapsulates some of the biggest controversies in economic development in the Kansas City region.
Waddell & Reed was founded in 1937. It had its offices in downtown Kansas City and later near Crown Center.
In 1990, the firm relocated to 63rd Street and Lamar Avenue in Overland Park, a complex of buildings that was previously a training academy for TWA flight attendants.
In 2002, Waddell & Reed publicly considered a move from Overland Park to either Kansas City — downtown and the Country Club Plaza were mentioned as possible destinations — or to Texas. The entreaties prompted the Kansas Legislature to pursue tax relief legislation to convince the company to stay in Kansas. In the end, the company stayed put.
Some 17 years later, Waddell & Reed cast its eyes across the state line again. This latest time around Kansas officials didn’t mount a legislative effort to keep Waddell & Reed like they did in 2002.
Instead, Kansas City tried to welcome the firm with a new office. But some other company will have to roam the halls at 1400 Baltimore when the building is completed.
The Star’s Allison Kite contributed to this story.
This story was originally published March 2, 2021 at 12:52 PM.
