Council signs off on $15 million settlement for Citadel Plaza

Trying to make the best of a development debacle, the Kansas City Council voted unanimously Thursday to pay $15 million to settle lawsuits on the failed Citadel Plaza.

“We’ve made the best deal we possibly could on a bad situation,” Mayor Sly James said. If the city had lost at trial, he said, it would have risked having to shell out twice as much.

The settlement will resolve several lawsuits involving creditors for a development first proposed more than 15 years ago. It remains a weed-choked, environmentally contaminated site generally extending from 60th to 63rd streets, and from Brooklyn to Prospect avenues.

Exact settlement details were not available because not everyone involved in the lawsuits has signed off.

City Attorney Galen Beaufort and Brian Madden, attorney for the plaintiffs, said the deal should be completed by Dec. 1, and then the public will know where the money is going.

Citadel Plaza LLC, which is owned by a community development corporation called CDC-KC, sued the city in February 2010, alleging that the City Council had reneged on an agreement to provide at least $20.5 million to jumpstart the shopping center project in late 2008.

Council members argued that the developers had failed to meet certain conditions, such as fully resolving earlier lawsuits and paying all taxes, so they didn’t provide the money, and the project stalled. But the plaintiffs had damaging memos and ordinances that showed the council, and some city staff, had supported the project and dangled expectations that the developers would get their money.

James and City Manager Troy Schulte, who were not involved in the city deal-making on the project, said focus group studies showed the city risked losing $30 million or more at trial. And even if the city won at trial, it would not have gotten clear title to the land, or the development rights, which the settlement provides.

James was not the mayor at the time, and most of the current council also had not taken office when the city was sued. James said Thursday that the current council “can’t undo ancient history” but had crafted a deal that finally allows the city to try to remove “this ugly scar” on the East Side neighborhood.

James also said the money would not go to the failed development team but to its creditors.

Resolving the debacle will not be cheap.

The settlement calls for $15 million, but Schulte said the city probably will spend about $3.5 million more to acquire the rest of the properties in the tax increment financing district and to finish cleaning up asbestos contamination.

The city plans to issue about $20 million in bonds to raise that money and will pay off the bonds over 20 years. With debt service estimated at $1.7 million per year, the total would be $34 million over 20 years. That money would come from the city’s general fund — tax dollars that could otherwise have been spent on snow removal, police or other basic services.

Schulte said the city hopes new revenue from development eventually can cover at least part of the debt service, but no developer has yet been identified.

The blame game was heating up before Thursday’s vote. Crosby Kemper III, a former banker who now is director of the Kansas City Public Library, told The Star that he personally voted against Citadel Plaza when it sought incentives from the Tax Increment Financing Commission several years ago. He said that he was the only no vote on the commission, but that the TIF staff knew it was a bad deal and the city should have, too.

Kemper said council members also were warned that it was a bad deal but kept voting to move forward because they felt political pressure to support an East Side project.

Former City Councilwoman Deb Hermann said Thursday that the council wanted to see something positive at that site, and still does. She said she thought the council had placed enough conditions on the developers to make them accountable and to safeguard taxpayer money. But, she said, the city staff unfortunately sent memos to the developers indicating the project was ready to go.

Some of the blame has been directed at former City Manager Wayne Cauthen and his finance director Jeff Yates. Neither could be reached Thursday for comment.

Cauthen moved to Denver after the City Council dismissed him in November 2009. Yates was also let go in late 2009 and is now finance director of a small city, Dunedin, in Florida.

Much of the blame also has been directed at the developers, who were principals with CDC-KC. Madden said he could not yet comment on their behalf, pending the final settlement.

But Donald Lee, current president of CDC-KC, said in a statement Thursday, “CDC-KC’s goal is and has always been that this underserved and blighted Kansas City neighborhood be redeveloped. We appreciate that the current mayor and city council have taken positive steps to address a very blighted neighborhood.”

Schulte, who succeeded Cauthen, said one of the big lessons learned from this fiasco has been that urban redevelopment is very difficult, and the city has to work with developers who have skills, capacity and the ability to bring private money to the table.

“Our partner, the selected developer on this, CDC-KC, had none of that,” Schulte acknowledged. “At the time when they came over we should’ve said, ‘You don’t have the capacity to do this development. We’ll wait for somebody who does.’ ”

One of the long-suffering neighbors of the Citadel Plaza is Research Medical Center.

Will McCarther, the hospital’s longtime vice president for community affairs, stopped short of assessing blame Thursday for the failure of Citadel Plaza. But he did provide some perspective on what happened.

He noted that Health Midwest, which owned Research in the 1990s, had been trying to get commercial development into the tax increment financing district since 1994. He said none of the major commercial developers was willing to do anything, in part because the project involved the complex assembly of a large amount of land from multiple property owners.

“The normal market forces didn’t kick in,” he said.

The ownership of Research transferred from Health Midwest to HCA in 2004. McCarther said Cauthen urged HCA to make CDC-KC the developer at the site because CDC-KC had been working on the East Side for a long time.

McCarther said he and others told Cauthen that they thought CDC-KC lacked the financial expertise or wherewithal to do such a development but that they were assured the city would assist CDC-KC.

He said Thursday the hospital hopes something positive can finally happen at 63rd and Prospect.

“It’s at our back door,” McCarther said. “The physical appearance of that site adversely affects our ability to recruit doctors and nurses…It is not a very inviting site.”

Ideally, a new developer could bring in an upscale grocery to an area with few healthy food options, along with some other “neighborhood friendly” stores and restaurants, McCarther said.

Steve Block, a principal with Block Real Estate Services, said he thinks development is possible at that site and that it should be retail, although almost surely not the 300,000 square feet originally envisioned.

He said a modest-sized grocery story, possibly somewhat bigger than Cosentino’s in Brookside, is possible, along with other shops and restaurants. Another development phase could bring in housing, and some of the land could be sold to another developer for a different use, he suggested.

But Block cautioned that the entire TIF district probably won’t be developed right away or very quickly.

“It may be a multi-year, multi-phase project, and it should be,” he said.