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Bittersweet Progress in Kansas City

Kansas Citians have spent decades yearning for the renewal of downtown's southern edge. Cordish Cos., the developer of the Power & Light District, has fulfilled their dream.

The only problem is that taxpayers in Kansas City, Mo., are stuck paying millions of dollars for the project as city officials are considering cutting services, raising fees and laying off workers to close a projected $87 million budget deficit.

An eight-block entertainment zone full of restaurants and bars, the Power & Light District has attracted some 8 million people since the development opened a year ago, says Blake Cordish, a principal of Baltimore-based Cordish Cos. The developer specializes in public-private partnerships to redevelop blighted downtowns and other urban areas into entertainment-themed destinations, among other projects.

For decades the south end of Kansas City's downtown was a wasteland of decrepit buildings, surface parking lots and crumbling infrastructure devoid of human activity after 5 p.m. But the Power & Light District, a new 18,000-seat Sprint Center arena and a new H&R Block headquarters, at a combined cost more than $1 billion, have reversed the area's fortunes.

“It's clearly the most substantive change to downtown Kansas City in the 20 years that I've lived here,” says Clay Sublett, a vice president with KeyBank Real Estate Capital, who has worked in downtown Kansas City since 1989.

Debt-service shortfall

As a tax increment financing (TIF) project, the Power & Light District diverts new property, sales and other taxes generated at the development to pay the principal, interest and fees on $295 million in bonds issued by the city to build it.

But at the end of 2008, Cordish Cos. paid its nearly $2 million Power & Light District property tax assessment under protest and challenged the assessment in a lawsuit filed on Dec. 31 in Jackson County, Mo. Cordish filed a lawsuit instead of pursuing normal appeal channels because it says the county delayed informing the company of the assessment.

The developer pegs the district's value at $11.8 million, far below the county's appraisal of $66.7 million, according to the lawsuit. Cordish Cos. is asking the county to restate the assessment to properly reflect fair market value.

A Cordish Cos. court victory would reduce the assessed value of the Power & Light District. In turn, that would reduce the amount of taxes diverted to pay the project's debt service, says Randall Landes, Kansas City's treasurer.

The tax protest followed news in November that Kansas City's general fund would have to cover a roughly $4 million shortfall in the Power & Light District's bond payments this fiscal year, which ends April 30. The city has since set aside $7.2 million to cover a shortfall in the next fiscal year.

The city blames the revenue deficit on the project's delayed opening, slow retail sales and retail leasing, and a spike in variable interest rates that made $180 million of the bonds more costly.

“It's still very early in the life of that TIF, and unfortunately the openings were caught in a recessionary period,” says Dan Bagunu, Kansas City's manager of development finance. “It could mean that the payout is going to take longer than anticipated, and the city may have to pay.”

The latest twists in the Power & Light District story could focus more scrutiny on the project. Kansas City Mayor Mark Funkhouser, who took office after the city and Cordish Cos. agreed to the development, has been a critic of TIF subsidies in general. He has nevertheless acknowledged the entertainment district's success in bringing people downtown.

Cordish Cos. also has been a target of the local media, which have questioned the firm's operating and public relations methods. In a move that angered some African Americans, the company banned people wearing so-called hip-hop attire such as excessively baggy pants or workboots from KC LIVE!, an open-air entertainment pavilion in the district surrounded by two floors of bars, restaurants and a Lucky Strike Lanes bowling alley.

At press time the Kansas City Council was considering a proposal to limit dress code requirements in subsidized projects.

Additionally, in private e-mails to the mayor that later became public, Cordish Cos. Chairman David Cordish blasted Sprint Center developer AEG of Los Angeles for not fulfilling its pledge to find a pro basketball or hockey team to play in the arena, which opened in late 2007 next to the Power & Light District. A team could bring more consistent traffic.

In a follow-up e-mail, David Cordish criticized the city for impeding the leasing of the Power & Light District and a proposed light rail line nearby.

No apologies

Blake Cordish defends the company's procedures and worries little about how the general public perceives his company or the Power & Light District.

He also claims that the $2 million property tax bill is five to six times more than the amount Kansas City projected the taxes to be when the two parties were hammering out the agreement about five years ago. “We're seeking what any responsible landlord or developer seeks, which is fair market value,” he says.

Cordish and other company officials are quick to point out that the Power & Light District has exceeded its construction and occupancy obligations to the city. The 600,000 sq. ft. first phase is virtually complete and features a mix of local and national tenants. Cordish says the project is more than 80% occupied. He includes H&R Block's adjacent headquarters building in the occupancy calculation, according to a company spokesperson.

In January, downtown's first bona fide grocery store in decades opened in the district, and a six-screen AMC multiplex will open in an 88-year-old former vaudeville theater and movie house. Kansas City-based AMC Entertainment Inc. and Cordish Cos. renovated the building.

Cordish says he wants to swiftly move to the next phase of development to beef up housing by building a boutique hotel and condo tower, and by converting an office building to apartments. Those projects along with three residential towers he'd like to eventually develop could add some 1,200 units to the district.

Despite Cordish's bullish outlook, angst continues to bubble up from other entertainment areas in Kansas City. Business owners in the popular Westport bar district, about three miles south of downtown, have complained that they've lost patrons since the district opened. Sublett, who has helped arrange financing for entertainment and retail projects in the area, sympathizes with the argument.

If the Power & Light District is attracting recent college or high school grads, then that's a major benefit to the economy, Sublett says. “But if it's just a zero-sum game and dollars are moving from one area of town to another, it's going to negatively impact places like Westport.”

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