Government & Politics

KC Council members pump brakes on ‘extraordinary’ buy-in for downtown office projects

An artistic rendering depicts Strata, a proposed 25-story office and retail development planned for the southwest corner of 13th and Main streets in downtown Kansas City.
An artistic rendering depicts Strata, a proposed 25-story office and retail development planned for the southwest corner of 13th and Main streets in downtown Kansas City. Copaken Brooks

The Kansas City Council hit pause Thursday on its consideration of huge subsidies for two proposed downtown office buildings, deciding instead that it wanted more time to evaluate the hefty buy-in from the city sought by developers.

In its final legislative session of 2018, council members were set to vote on two ordinances authorizing City Manager Troy Schulte to negotiate development agreements on office towers at 13th and Main streets and 3rd Street and Grand Boulevard.

Both passed the city’s Finance and Governance Committee Wednesday and were on an accelerated path to passage. But Councilwoman Katheryn Shields, who represents the 4th District at-large, led a move to defer them until January out of concern over the “extraordinary” financial request of the city.

The two measures asked for a total of nearly $80 million in debt guarantees and incentives to assist developers of the projects.

Shields expressed doubt over whether council members who wanted the projects to pass could muster the nine votes required for fast track approval. Failing to do so could have also held up other ordinances on the agenda.

“I’m not sure there are even seven votes either,” Shields said. Seven votes constitutes a simple majority on the 13-member council that includes Mayor Sly James.

She added: “I know there aren’t nine.”

Shields said she was concerned the ordinances would authorize Schulte to enter agreements that would not come back to council for scrutiny. She wanted members to have more time to consider the proposals. Schulte disputed her analysis and said members would still have to sign off on both office buildings.

Councilwoman Jolie Justus, a mayoral candidate representing the 4th District, suggested language be added making it clear the projects would still need city approval.

“So what I’m asking is that we not delay these things so that the folks who are out there trying to make these projects work can continue to move forward, but that every step of the way the development agreements will have to come back to the council,” Justus said.

Council members went ahead with an attempt to vote on one project, an $85 million mixed-use office building with retail and a parking garage in the River Market. That failed 8-3 with Shields, Councilman Quinton Lucas and Councilwoman Alissia Canady voting against it.

Justus and fellow members Scott Wagner, Heather Hall, Teresa Loar, Dan Fowler, Jermaine Reed, Lee Barnes and Kevin McManus voted to go ahead.

After that, developers of the $132 million “Strata” office tower and parking garage planned at the southwest corner of Main and 13th streets, agreed to wait until January for a vote on their project. The effort to fast-track it was withdrawn.

The site for Strata was originally supposed to be a second office building for H&R Block.

Instead, developers Jon Copaken and Ron Jury have plans for a 25-story building that includes 16 floors of offices and a garage that would fit 750 cars on top of existing retail — Yard House, Jos. A. Bank and others — across the street to the west of the current H&R Block headquarters.

Copaken says he plans to start construction on the building in the fall of 2019, meaning it would open for business in 2021 if general contractor JE Dunn can stick with a proposed two-year construction schedule.

Copaken is building Strata on a speculative basis, meaning he doesn’t have tenants signed up ahead of time. The conventional wisdom in starting a new office building is the developer, and their lenders, want commitments ahead of time for at least half of the available space.

But Copaken is taking a risk, believing that market conditions in Kansas City and demand for downtown office space has improved enough that he can attract tenants before construction wraps up in 2021.

Economic development professionals in Kansas City have lamented the lack of new and available office space in downtown, saying that companies otherwise interested in locating in Kansas City have taken a pass and gone elsewhere. While there is plenty of existing office space, much of it is 1980s-era or older and unattractive to tenants willing to pay a premium for being downtown.

City Hall, in turn, is taking a hefty risk by guaranteeing up to $63 million in debt on the project. The city has avoided guaranteeing debt on private business projects ever since it agreed to backstop the bonds on the Power & Light District. City leaders said at the time that it passed the bonds for the entertainment district that enough people would flock there to pay for it on its own.

But that hasn’t happened, and probably never will.

The complicated financing structure for the Strata project works like this: The $36 million parking garage would be paid for by fees from people paying to park there, coupled with revenue from what’s called an Advanced Industrial Manufacturing Zone. The Port Authority of Kansas City can impose an AIM zone on the building site, which allows it to redirect 50 percent of state withholding taxes generated by jobs created at the office building to make annual debt payments on the garage.

If revenue from parking fees and the AIM zone don’t add up to equal the annual debt payment, the city makes up the difference through the general fund.

The city is also selling $27 million in bonds to provide upfront cash for the office tower portion of the project. The city hopes that lease payments and revenue from tax increment financing, which redirects new property and economic activity taxes to the project, is enough to cover debt obligations on the office tower. Again, if there’s not enough from TIF and the lease payments to make the debt payments, it’s up to the city to come up with the rest.

At 3rd and Grand the Kansas City Area Transportation Authority looked to come up with a better use for an existing Park and Ride lot. The agency put out a request for proposals to redevelop the site and chose Briarcliff Development Company, which plans to build a timber frame building it believes to be capable of attracting out-of-town tech companies to settle in Kansas City.

Briarcliff President Richie Benninghoven said the building could support more than 800 jobs.

On the ground floor, Briarcliff plans to have anywhere from two to five retailers. The site will continue to serve as a multi-modal transit hub and could eventually connect the existing streetcar line to the riverfront.

Financing options for the tower’s garage are still in flux, but the city could issue bonds for $14.75 million of the garage. Those would be repaid by parking revenues, earnings taxes on the new employees and payments paid by the building owner.

Because of incorrect information provided by the city, an earlier version of this story inaccurately described the financing plan for the garage.