Public-Private Partnerships Paving the Way for Development
by Matthew Webster
As the regional commercial real estate construction boom continues into 2007, a new development template is taking hold on both sides of the state line.
This emerging financing template increasingly relies on public-private partnerships to direct targeted development to underserved areas in both urban centers and in suburbs that have unmet retail or residential needs. A number of cities in the region have identified targeted assistance to developers as a desirable and cost-effective way to improve the retail and residential offering within their municipalities, fund needed infrastructure and increase and diversify the tax base to assure future growth or reverse residential declines that will ultimately lead to further fiscal strain because of deteriorated infrastructure and a decimated tax base.
The most ambitious public-private partnership example is the downtown renaissance in Kansas City, Missouri. The various public incentives—most notably tax abatements for residential construction and tax increment financing (TIF) funding for the commercial projects have remade the downtown and created the unprecedented growth in what was once a desolate expanse of surface parking lots and dilapidated buildings. The city financing allowed private capital to flow into the area and reestablished urban density—which in turn supplies the tax base necessary to sustain a financially healthy future for the whole city.
On the Kansas side, the massive retail development around the Kansas Speedway has remade Wyandotte County as a nationally recognized center of innovative destination retail and entertainment development. The net inflow of tax dollars from a 500-mile radius allowed for the cost-effective development of public infrastructure needed to spur successful destination retail and entertainment development.
In the increasingly competitive development climate in the greater Kansas City area, public incentives are often the only direct way governments have to influence site selection or to target redevelopment. Without such incentives, most new construction would flow only to the fast growing, high-income suburbs, leaving many older areas to languish. The thoughtful use of targeted incentives gives developers the financial motivation to work in areas that would otherwise be bypassed.
The new development finance paradigm relies on a public financing component to fill the gap in project budgets that would otherwise make a particular development infeasible. H&R Block, Cordish and Village West would certainly not have been developed if the cost of infrastructure and parking had to be borne on a corporate balance sheet. Similarly, many other projects: the new redeveloped Blue Ridge Mall, New Longview in Lee’s Summit, ZonaRosa in the Northland and the Plaza Colonnade and public library would not have gone forward without public development assistance.
Municipalities are taking a reasoned approach to development incentives and performing rate-of-return analysis and feasibility studies before entering into negotiation with private developers. The important analytical step of examining the developer’s financing assumptions and costs allows for development incentives to be used responsibly.
The other new trend, which follows on the successful template that was used in both Kansas Citys, is the adoption of a proactive development planning that seeks to draw private developers to targeted areas. Lenexa’s City Center and Riverside’s Horizons development are examples of municipalities taking the lead and seeking private development partners. As municipalities become more sophisticated, this public-private template will spread and the development time-line will compress, giving the pubic the benefits of completed development on a fast-track basis. This acceleration of the development process will assure that the Kansas City region remains competitive with other metropolitan areas throughout the nation. 
Matthew Webster is Vice President, Oppenheimer & Co.
P | 816.932.7208
E | matt.webster@opco.com