Incentives Spur Downtown Revitalization

by Richard Wetzel AIA

Downtown Kansas City is coming alive before our very eyes. Last month's passing of the financing vehicle for the new arena is one of the last pieces in a comprehensive development puzzle for downtown which includes a new performing arts center, an expansion to our convention center, a Fortune 500 corporate headquarters, and a vibrant urban entertainment district. Kansas City is truly experiencing a "once-in-a-generation" opportunity to re-direct private and public investment into our central core.

 

Yet, while large-scale projects represent much of the development in Kansas City's downtown, real success stories also exist in the small-scale projects bringing life and vitality to the urban core through residential, commercial, and retail uses. Many of these projects were unthinkable even five years ago, when the preponderance of surface parking lots and crumbling infrastructure sent developers and entrepreneurs to the suburbs. But now, from the River Market to the Crossroads, older structures are finding new life as homes for start-up companies, hip new restaurants, and urban lofts. What has sparked this phenomenon? Is it the new larger developments in the planning phases? A new understanding of the quality of urban spaces? The rise of the "creative class" in Kansas City?

While the answer is yes to all three, the biggest impetus for the rehabilitation of older structures in Kansas City's downtown has been development incentives. On a purely economic basis, these projects often do not make much sense. Downtown properties suffer from older infrastructure, limited parking, and contaminated sites. Suburban properties typically suffer from none of these ailments, and are thus much more attractive from a purely economic standpoint.

McCownGordon Construction recently purchased a downtown property for redevelopment into its corporate headquarters. The building, located at 422 Admiral Boulevard, was the first Ford dealership in Kansas City, and was once the jewel of Kansas City's first "Miracle Mile" from Grand Boulevard to Oak Street along Admiral. However, the building has been vacant for several years, and is a contributor to the blighted nature of the northeast quadrant of downtown Kansas City. While the building has a strong and vibrant history, it currently suffers from asbestos and lead-based paint contaminants, little parking, and a building envelope that has endured years of water damage. However, three economic development tools: historic tax credits, Brownfield tax credits, and tax increment financing, will hopefully help transform 422 Admiral into an economic engine for Kansas City.

Historic Tax Credits If a building meets the United States Department of the Interior's standards for National Register of Historic Places status, a developer can be entitled to both State of Missouri and federal tax credits. To qualify, the rehabilitation must meet the Secretary of the Interior's standards, which includes restoring the original façade and respecting the original interior layout with new uses. For approval, the project must be locally endorsed by the City's Landmarks Commission, City Council, the State of Missouri's Department of Economic Development, and the United States Department of the Interior. If the project is in compliance, the developer receives state tax credits of 25% and federal tax credits of 20% of the project's cost.

Brownfields If a building or site is contaminated, a developer can be entitled to grants to abate and remediate the site, in addition to development credits for using a formerly contaminated site to create jobs and encourage investment. To be eligible, the developer must enter the State of Missouri's Voluntary Cleanup Program to ensure compliance with abatement standards. For approval, the plan must be endorsed by the City's Brownfields Commission, City Council, and the State of Missouri's Department of Economic Development. If the project is in compliance, the developer receives a grant to offset the costs of abatement and state tax credits for new jobs and investment.

Tax Increment Financing Tax increment financing (TIF) allows a developer to redirect new, or incremental, property taxes and economic activity taxes (sales, earnings, utility, etc.) towards public infrastructure development costs. To be eligible, the development must be within an existing TIF plan (or create a new one), and the developer must submit a realistic plan that meets financial requirements and prove a condition of blight while showing how the new development will remove it. By freezing the existing level of taxes generated by the site, TIF ensures that the city, county, school district, and state will not lose current revenues, and will actually gain net new revenue when the TIF period is complete. If the project meets the criteria, the plan must be endorsed by the City TIF Commission and City Council, and must also meet specific reporting criteria to record project costs and taxes incurred.

Conclusion Are economic development incentives worth it for governments to grant? Consider this: with all three incentives in place, an independent appraiser targeted the return on investment for 422 Admiral at 6.2%, well below market average. Without these development tools, the rehabilitations of underperforming, historic, and contaminated properties would simply not occur. What is the result of the proper implementation of redevelopment tools? A building transformed to its original grandeur, the removal of a city block of underutilized and blighted property, and a positive economic impact to the City of Kansas City, Missouri, Jackson County, Missouri, the State of Missouri, and the Kansas City, Missouri School District.

While all of the development incentives for the 422 Admiral project are still in the review phases, we have been treated objectively and fairly by all departments at all levels of government. While many would claim that incentives and agencies are simply there to give developers a free ride, they are protecting the public's interest by holding the developer's feet to the fire: ensuring that the building is fully remediated of contaminants, that the project will be redeveloped according to historic standards, and that all levels of government will maintain a positive economic return due to the project. In this win-win situation, downtown Kansas City has another successful downtown redevelopment story, and McCownGordon Construction looks forward to being a downtown resident for years to come.

Richard Wetzel, AIA, is Director of Business Development with McCownGordon Construction. He can be reached at Wetzel@mccowngordon.com or 816.960.1111