November 20, 2014

From The Kansas City Business Journal

By Rob Roberts

A proposed $78 million Country Club Plaza office tower cleared a tax incentive hurdle Thursday and is ready to go vertical as soon as enough tenants are secured.

During their monthly board meeting, the board of the Planned Industrial Expansion Authority voted 8-3 to approve a 20-year schedule of decreasing property tax abatements for the project.

Developed by a partnership led by Block Real Estate Services LLC, the project will include eight stories of Class A office space over a six-story parking garage at 46th Terrace and Pennsylvania Avenue. The site is currently occupied by the Victory Court Apartments, nine rundown buildings constructed in the 1940s that will be demolished to make way for the new office tower.

When the developers of the office project first appeared before the PIEA board in July, the discussion was focused on the question of whether incentives should be used for that or any other project on the Plaza, which was characterized as Kansas City's crown jewel.

But by Thursday's meeting, the debate had been boiled down to the question of how much tax abatement the developers needed to fill the project's financing gap and justify their risk.

Roxsen Koch, a Polsinelli PC attorney representing the developers, said a compromise was reached during lengthy negotiations with representatives of the taxing jurisdictions that will forgo revenue as a result of the abatements.

The compromise, approved by the board Thursday, calls for effective abatement rates of 95 percent in years one through five, 90 percent in years six through 10, 70 percent in year 11, and 50 percent in years 12-20.

That 20-year abatement schedule compares to the standard 25-year PIEA abatement of 100 percent for 10 years, followed by 50 percent for 15 years.

Stephen Block, a BRES principal, said the taxing jurisdictions currently are reaping just $7,474 from the Victory Court Apartments site, which his firm bought with redevelopment intentions a few years ago. The purchase price, part of the proposed office tower's $78 million development cost, was $4.63 million.

Block said the office project couldn't have been built without incentives. But assuming it was built without abatements, he said, it would have generated total property tax revenue of about $27.5 million over a 25-year period. The abatement package approved Thursday will allow the taxing jurisdictions to split about 40 percent of that amount through payments in lieu of taxes from the developer.

Chris Kline, the development incentive administrator for Jackson County, said the PILOTs will result in substantial increases in revenue from the site for the county, school and library districts, and other affected taxing jurisdictions. He and Kevin Masters, a representative of Kansas City Public Schools, thanked the PIEA for bringing the developers and jurisdictions to the table to negotiate a mutually agreeable abatement schedule.

In July, before those negotiations had taken place, Kline had sided with four PIEA board members who voted against considering incentives for the project.

In addition to granting abatements Thursday, the PIEA board approved a financing arrangement that will allow the office tower developers to save $1.9 million through a sales tax exemption on construction material purchases.

PIEA board member Bonnie Sue Cooper asked why so many developers coming before the board are seeking the sales tax exemptions. Board chairman Lee Barnes said that was happening in response to the non-city taxing jurisdiction's desire to shift more of the incentive burden to the city.

The city and the county both could forgo sales tax revenue as a result of the exemption. But Koch noted that many of the materials may be purchased out of county and state and that, in those cases, no sales tax revenue would be forgone locally. For that reason, she said, the sales tax exemption is being viewed as an economic-development tool that lessens the impact on local taxing jurisdictions.

View the article here.