At iconic downtown KC building, investors feud as tenants wonder who is in charge
A tenant at downtown’s Commerce Tower called John Bradley this month with a problem: Their key fob wasn’t working to get into their 23rd-floor apartment — could he help?
Bradley’s phone number was on a piece of paper taped to the door on the locked-up leasing office at the iconic Kansas City building. A few years ago, a group of investors had taken over Commerce Tower with the promise to transform it into what they called a 30-story “vertical neighborhood” with apartments, fitness facilities, shared working space, a restaurant and cafe, among other things.
But now tenants were being advised to call Bradley after the property manager had been told to leave the building. Bradley works for Iowa businessman Roy Carver, a top investor in Commerce Tower’s redevelopment. His family has been a huge benefactor at the University of Iowa and their name adorns the basketball arena there.
“I said I’m sorry, I don’t know what to do to help you,” Bradley testified in Jackson County Circuit Court on Friday. “I don’t have access to any of the tools we needed. We did the best we could under the circumstances.”
Bradley testified in support of an emergency request to a judge to install a new property manager. The building had not had a property manager since March 12, when the previous manager, Greystar, was terminated and told to leave.
It caused confusion among tenants: To whom do they pay rent? Who do they call to make arrangements to move in or move out? Who can help if there’s a problem at their apartment?
Bradley, who lives six hours away in Illinois, painted the absence of a property manager in more dire terms: Who would be in charge in case of an emergency?
Jackson County Circuit Court Judge Patrick Campbell ordered that North Kansas City-based Maxus Properties be given access to Commerce Tower. But last week’s battle was just the latest in an ongoing dispute that continues to play out in contentious court proceedings among the partners.
There were happier times in 2016 when Carver, Kansas City businessman Michael Knight and others teamed up with plans to transform what had become a languishing office building.
Some of it has come true — the apartments are 90% leased.
But three floors of commercial space were never completed. And the partners in the $139 million redevelopment of Commerce Tower at 911 Main Street, particularly Carver and Knight, are at odds about who is responsible. They even dispute who can make decisions for the building.
And it’s unclear to Commerce Tower’s top investor what financial condition the redevelopment effort is in. References have been made in court filings that the project has been, at least at one point, unprofitable. Lenders had warned the investors last year that they were at risk for default on their loan. No budget has been circulated among the investors since April 2020, even though one is supposed to be approved by Nov. 1 of each year.
Rob Pitkin, an attorney for Carver, said Carver as the managing member of the redevelopment hasn’t had all of Commerce Tower’s financial information until recently.
“With that information now in hand, Carver will work with its outside accountants to complete the information and fully assess the financial standing and performance of the project, most likely in the next 30-60 days,” Pitkin said in an email.
A ‘vertical neighborhood’
Bob Berkebile lives on one of the upper floors of Commerce Tower, which gives him a sweeping view of downtown.
Berkebile, the B in prominent Kansas City architecture firm BNIM, became part of an investment group that sought to re-imagine Commerce Tower after it was bought off the auction block in 2014.
Prior to the involvement of Berkebile and others in the investment group, Commerce Tower languished under the ownership of Hertz Investment Group, a California real estate firm that in 2012 defaulted on the loan it used to buy the building in 2006 from Kansas City-based Tower Properties.
Commerce Tower had been home to civic groups like the Greater Kansas City Chamber of Commerce and the Kansas City Area Development Council, as well as other private businesses. The Chamber and KCADC decamped for Union Station and other tenants left, causing the occupancy rate at Commerce Tower to dwindle.
It left a conundrum for downtown Kansas City: What to do with a towering skyscraper that wasn’t fashionable enough to attract large office tenants?
Berkebile, Knight, Carver and others took a chance on refashioning it into what they called a “vertical neighborhood,” a single building where people could live, work, dine and shop.
The ownership structure of Commerce Tower is complicated. A simplified version shows that through business entities, Carver is the majority owner with a 58.5% stake, Knight owns 15.3% through Acomo Development and Bryce Henderson owns 13.5% through Fitch Development. Berkebile owns just more than 2%.
A combination of tax breaks, a $67.8 million loan backed by the U.S. Department of Housing and Urban Development, equity and a bridge loan financed the ambitious plan.
“This was the right thing at the right time at the right place,” Berkebile said. “Commerce Tower had been declining in vitality for a number of years.”
The apartment leasing is strong at Commerce Tower, and there are a few commercial tenants, such as Park University, where undergraduate and graduate instruction is held. There’s an early learning preschool for young children.
But the unfinished fourth, fifth and sixth floors appear to be putting Commerce Tower in a bind.
Asked who is responsible, Berkebile said he has an opinion but won’t share it because as a minority owner, he’s not sure he has all the information.
“Michael (Knight) believes Roy Carver never authorized the notes to do the work,” Berkebile said. “And Roy thinks that Michael didn’t want to do the work just to devalue the property and take it over or something.”
Knight did not respond to an email seeking an interview, and his attorney deferred to statements made at Friday’s court hearing, and did not respond to an email with follow-up questions afterwards.
Lawsuits will cost money and time
At any rate, the unfinished floors formed at least part of the basis for a lawsuit that Acoma Development, which is essentially just Knight, filed against Carver last summer and has simmered ever since.
Knight’s lawsuit accuses Carver of keeping other investors in the dark about a number of developments regarding Commerce Tower, including notices of default, and not paying developer’s fees to Knight. It also puts blame for not finishing the three floors at Carver’s feet.
Carver late last year responded with a counterclaim that said he had delegated construction and finances to Knight and Henderson and together they had failed to keep expenses under control, “which made the Project unprofitable” causing Carver to put in more of his money to avoid loan defaults. (Pitkin said the project was the subject of several default notices from lenders last year, but that all monetary defaults have been resolved.)
Bradley testified in court that Carver has put $15 million of his own money into Commerce Tower while Knight put in less than $500. Bradley testified that Knight was the “boots on the ground in Kansas City through the construction project” and was paid hundreds of thousands of dollars in development fees.
Carver’s counterclaim also said that he tried to borrow money to complete the unfinished floors and to settle a $1.3 million obligation to pay prevailing wages to construction workers, but that Knight wouldn’t agree to it.
The truth of those competing claims is still being sorted out in court proceedings.
But Carver’s team suspected Knight had told Greystar, the property manager for Commerce Tower since 2018, to keep accounting information from Carver.
And so Bradley, who represents Carver’s interests in Commerce Tower, decided in February to terminate Greystar, effective March 12. He wanted Maxus, which is approved by HUD to manage a HUD-insured property, to replace Greystar.
Bradley claimed that after Greystar left the project, he was not given access to keys to various parts of the building, access to the leasing office or access to a bank account where tenant and rent deposits are kept.
That precipitated, at least in Bradley’s view, a crisis at Commerce Tower that posed life and safety risks to tenants, prompting attorneys for Commerce Tower to ask a Jackson County judge to put Maxus Properties in charge of managing the building.
Under cross examination by Knight’s attorney, Gregory Spies, Bradley acknowledged that he didn’t know if keys were required to access parts of the building, like where electrical control panels are kept.
Spies also insisted that Bradley violated an operating agreement by not getting consent from other partners to kick Greystar out as property manager. A Jackson County judge disagreed with Spies’ interpretation of the operating agreement, so for now, Maxus is Commerce Tower’s property manager.
For its part, Greystar believes it was caught in the middle of a dispute between feuding partners and wanted to help with an orderly transition to a new property manager.
“Greystar hired a local law firm to help us work with the parties and to assist with the orderly transition of materials, keys, etc. to the appropriate parties,” the company said in a statement to The Star. “We sincerely hope this can be resolved soon.”
Given the posture in the ongoing lawsuit, it doesn’t appear that the differences between Knight and Carver will subside any time soon.
Pitkin told The Star in an email that Carver remains optimistic that the project can remain successful and that Carver has the resources to address funding issues. He added that Carver is working on a plan to develop the unfinished floors at Commerce Tower, but because the pandemic has reduced the demand for office space, those floors may become additional apartments.
But Berkebile hopes that something can be worked out and is still bullish on what Commerce Tower offers as a place to live and work.
“This is an exchange of lawsuits that will cost the project and the individuals money and time, and will, no doubt, impact the public perception for a period of time,” Berkebile said. “But when that gets resolved, it still has all these attributes and values and none of those have changed.”
This story was originally published March 29, 2021 at 5:00 AM.
