River Market Project Proceeds Amid Concerns Over Affordable Housing Proposal

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CBC, the developer of the proposed Third and Grand apartment project, has expressed concerns about the new affordable set-aside and its affect on its financial viability. (Rendering from 3G Development)

By Kevin Collison

The developer of a planned 250-unit apartment project in the River Market is worried an affordable housing proposal now before the City Council could harm its prospects for success.

“We’re concerned about the implications of that ordinance in terms of meeting the demands of the market and the impact on the economics of our project,” said Bill Crandall of CBC Real Estate Group.

CBC and EPC Real Estate Group are pursuing a $65 million transit-oriented apartment project on a parking lot it recently acquired from the Kansas City Area Transportation Authority northeast of Third and Grand in the River Market.

The project being proposed by what’s called 3G Development calls for a mix of apartments including small studios also known as micro-units, and one- and two-bedroom units with amenities including a pool and fitness area.

Crandall said his firm plans to seek tax incentives to help finance the plan.

That incentive request could entangle the development in the proposed affordable housing ordinance now before the Council. It was endorsed by the Council Neighborhood and Planning Committee last week.

The legislation sponsored by Councilwoman Melissa Robinson would require residential developers receiving city tax incentives  to set aside at least 10 percent of the units as affordable housing, and another 10 percent as “extremely” affordable housing.

Affordable was defined as a household with an income at or below 70 percent of the Metro Kansas City median family income (MFI), according the the U.S. Housing and Urban Development Department. Extremely affordable was defined as 30 percent of MFI.

The Third and Grand development site is currently used for parking.

That would translate to monthly rents of $1,000 or less for affordable apartments, and $500- to $700 per month for extremely affordable units, depending on family income and apartment size, according to a report by KCUR.

The legislation is supported by affordable housing advocates who submitted more than 40 letters to the Council, several of which included the same boilerplate points:

“Currently, it takes $18.81 per hour or an annual salary of $39,120 to meet the minimum market rate rent requirements in Kansas City,” the letters state.

“This reality leaves essential workers like those working in food services, at grocery stores and in health care support unable to afford decent housing or leaves them heavily cost burdened (spending more than 30- to 50 percent of their income on housing costs) in doing so.

“Kansas City is behind the curve when it comes to implementing affordable housing policy,” the letters continue, adding several peer cities including Minneapolis, Nashville and Denver have set-aside policies for affordable units.

At least one developer submitted a letter to the Council opposing the ordinance, saying doing business in the city already is difficult and the proposed affordable set-aside legislation could slow further investment.

Aaron Mesmer, a senior vice president at Block Real Estate Services, said it’s more “expensive and cumbersome” to develop in Kansas City than its suburbs and other cities Block does business including Omaha, Des Moines, St. Louis and Northwest Arkansas.

Block Real Estate was a partner in the 185-unit 531 Grand apartment project that opened late 2017 in the River Market and The Grand project, the $65 million renovation of the historic Traders National Bank Building, that opened in 2018.

Mesmer noted the city already has attached requirements for minority- and women-owned business participation, and paying prevailing wages when developers are granted incentives.

Block Real Estate was the co-developer of the 531 Grand apartment project that opened in late 2017.

“All of those additional costs are incurred by a development project upfront, while the tax abatement for the project is received over many subsequent years,” Mesmer wrote.

“In order to preserve an adequate supply of housing or commercial properties (and therefore pricing at a more affordable level), Kansas City needs development and developers,” he continued.

“In a bi-state market with dozens of municipalities, developers in Kansas City have the option to build all over the metro…For developers, suburbia represents the ‘easy button.'”

Mesmer said that while his firm finds “non-monetary” rewards developing in the city, including a “hip factor that cannot be replaced in a suburban environment,” he finishes his letter on a cautionary note.

“We have passed on a dozen or more opportunities in KCMO over the last 12 months, and put several developments in process on hold, as we wait for the environment in KCMO to improve.

“Put it another way, the rhetoric and uncertainty are already costing taxpayers millions of dollars while reducing the housing supply, which in turn drives up the cost of existing rentals.”

A copy of the Messmer letter can be found here.

The 3G Development apartment proposal for the River Market already has been modified from its original concept, dropping a planned boutique hotel from the mix.

The plan does call for the KCATA to lease a multi-modal transportation hub at the project.

The hub will be available to streetcar riders, MAX bus service and bike share stations. It will be near where the planned extension of the streetcar to the riverfront will begin along the Grand Viaduct as well as a new pedestrian/bicycle bridge planned by the city.

Crandall said his firm plans to continue pursuing its River Market apartment proposal while keeping an eye on the proposed affordable housing legislation.

“We’re going to continue to operate and move things forward,” he said, “but on a broader level, this (ordinance) has the potential to hurt investment in multi-family housing in Kansas City.

“We intend to continue with the development, but certainly hold open the option of suspending our activity pending the outcome of this ordinance.”

The developer is anticipating a construction start in the first half of this year with completion expected in Summer 2022.

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3 COMMENTS

  1. As usual, the KC city council are making inexperienced and misguided decisions that further short circuit the city’s already uncompetitive development/economic landscape. This is why you shouldn’t elect social justice warriors like Lucas to run a city or make business decisions. Development will grind to snail pace and projects will either be reduced or canceled. Ironically this ordinance will hurt the East Side even more. What a fool!

    Meanwhile, Overland Park just passed incentives for over 3 billion dollars worth of development. We’ll happily roll the carpet for investors subbed by KC. Lucas and the rest of the incompetent do-gooders need to go!

  2. So, just so we understand: the reason Kansas City has a lengthening history of inadequate supply of non-luxury rental housing is because Kansas City is (perhaps) about to require builders to increase that proportion of what they build which is non-luxury?

    Non-luxury rental housing, especially if it’s adequately maintained, is simply not as profitable on a unit basis as is luxury housing. Builders and owners chasing high profit will therefore only build luxury housing, and will only continue to do so as long as the supply of incentives, and of people able to pay the high rents, keeps up.

    It’s nice when such builders and owners are honest (if you don’t pay us via discount to extort high rents we’ll take our ball and go home) but irritating when they are disingenuous (if only you pay us via discount to extort high rents for long enough, rents will magically come down). The only possible economic underpinning for the latter claim depends on the high-profit seekers abandoning properties, as they age and incentives expire, to new owners who pursue their own profits through neglect.

    After enough neglect, it falls to someone else to swoop in, demolish, and reap new incentives. So the unstated part of the claim is that poor and middle-income people should just expect housing which is not merely non-luxury but deteriorating/ed, if any, and nothing will be built to last longer than a few decades in any case.

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