Updated June 28: The Kansas City Council approved the TIF amendment that will allow tax incentives to help build the project’s garage at its meeting Thursday. Renderings of the Track 215 project also were furnished by staff. The next step is seeking a property tax abatement from Port KC)
By Kevin Collison
Backers of a proposed 250-unit apartment tower in the Crossroads Freight House District cleared their first hurdle Monday when a development agency approved an amendment that will yield $3.9 million in tax incentives to help build its garage.
But the $95 million “Tracks 215” project has a long process ahead before it could break ground on what’s now a parking lot west of the Freight House building along the Kansas City Terminal railroad tracks.
The developers also are seeking a 15-year property tax abatement from Port KC to help finance the apartment tower itself. That request got a chilly review from SB Friedman, a private consultant hired by the Kansas City Tax Increment Financing Commission.
The local developers behind the Crossroads luxury apartment project want a 10-year abatement at 75 percent and five years at 37.5 percent, a formula that fits the new limits adopted by the Kansas City Council.
But the Friedman consultants recommended a 10-year, 25 percent property tax abatement. Friedman did support the $3.9 million TIF request and a sales tax exemption on construction materials worth about $2.5 million.
“The project does not appear to require the full requested assistance to be financially feasible,” according to the report by SB Friedman.
“The recommended level of assistance leaves the project well within the range of returns that are typically acceptable for institutional-grade development in established markets.”
The development team however, said the Friedman recommendation would not allow them to reach the 7 percent return on their investment they say is necessary to make their project work financially.
In its report, SB Friedman stated its recommended tax abatement for Tracks 215 would provide the developers with a 6.7 percent rate of return.
Vince Bryant of 3D Development noted that return level was below the firm’s own benchmark for development returns of 7- to 8 percent.
“We believe the project is still a high risk,” Bryant said. “We want a 7 percent unleveraged return and we’re in preliminary discussions with Port KC.”
The value of the total tax incentive package requested by the developers over 20 years was estimated at $15.6 million. During that period, about $7.5 million in new property taxes for taxing jurisdictions including the school district and libraries would be generated.
The parking lot currently generates about $18,000 to $19,000 annually in property taxes.
The alternative tax incentive package recommended by SB Friedman would provide about $7.8 million to the development and yield $15.3 million to the taxing jurisdictions over the same 20-year period.
This is not the first time a developer has challenged the tax incentive recommendations of SB Friedman.
Last October, Drury Hotels scrapped its plan to develop a $50 million hotel on the site of the former Board of Education building, saying the Friedman recommendations were too low to make their project work financially.
The Friedman report was prepared for the TIF Commission. It’s unknown how much weight it will carry when Port KC considers the Track 215 property tax abatement request.
As for the first step, the TIF Commission approved an amendment to what’s called the 22nd & Main TIF Plan on a 6-4 vote The developers of the proposed luxury apartment project said the additional TIF revenues were vital to providing parking for their endeavor.
“There’s no way to add parking for a nine-story apartment project and still have parking for office users (without the TIF), said Chris Sally of Development Initiatives.
Sally is part of a local team led by Bryant that is pursuing the luxury apartment project.
They are in negotiations with Greystar, the nation’s largest apartment operator, for a project that calls for nine stories of apartments above a three-level, 400-space garage.
One-hundred and fifty of the garage spaces would be used to replace employee parking on the existing lot. The remaining 250 would be reserved for apartment residents.
The apartment tower would have 60 micro units, 165 one-bedroom units and 25 two-bedroom units. It would also include a rooftop outdoor kitchen, fitness center and active “living room/gaming area,” according to the Friedman report.
Rents are expected to be at $2.54 per foot, comparable to the nearby ARTerra apartment tower and Two Light.
The developers plan to designate 10 percent of their project, 25 micro apartments, as affordable housing units leased at a rate of $1,100 per month.
In its report, the SB Friedman consultants observed the estimated construction cost for the proposed Tracks 215 project was close to what developers of similar luxury towers are paying in Chicago.
As for rents, that was a different story.
“For illustrative purposes, the cost profile of the project is similar to luxury residential product recently reviewed by SB Friedman in Chicago, which is projected to achieve $3.50 per square foot in rent as opposed to the $2.54 at the (Tracks 215) project.”
The developers of Tracks 215 acknowledged their construction estimate was preliminary–in fact, a design of the building still hasn’t been prepared–and said they would return to the TIF Commission with a better estimate once plans are refined.
The developers expect to submit their application for tax incentives to Port KC in a couple of weeks. The tentative construction timetable, depending on approvals, calls for work to start on the project next January with completion in Spring 2021.
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Interesting stuff, this abatement business. Tax payer subsidies were never available to ensure the ROI on our business. How much more density is prudent in Freight House District? What’s the occupancy rate for all those new track-side units? f the demand is really there, might that boost ROI another 0.30? If not, maybe the market timing is later and without subsidies.
Is Affordable Housing demand really satisfied with Micro units at $1100/mo.? Seems to target a pretty narrow renter profile – like small single people -:).
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