When Cordish Co. dropped its contract on the Power & Light Building in December 2012, Nathaniel Hagedorn of then one-year-old NorthPoint Development saw an opening. His purchase of the building would be the fifth time redevelopment of the 80-year old building went under contract.
One email later, and NorthPoint VP of Operations Mark Pomerenke was drawing up plans for the building based off its information filed with the National Register of Historic Places. A pro-forma was ready by 4 a.m., that broke down how many units they’d be able to get with a certain efficiency, how much they could get for the units and what it all would cost. And by the time Hagedorn toured it, he instantly fell in love.
“The lobby with these beautiful barrel ceilings, all the marble, and these pewter with sun bursts over the elevator doors. Then you get up to the 32nd floor and you see the views,” he said. “I knew I had to buy it.”
The two-year-old firm closed Sept. 30 on its acquisition of the building and by fall of 2016, will unveil 213 apartments with the “the highest end finishes anyone has seen in Kansas City,” Hagedorn says. But knowing that one of many barriers to building downtown was the addition of parking space, NorthPoint also bought the lot to the north of the building, where 80 additional apartments will wrap a 509-stall garage.
“Our plan was to come in with a five-story garage that suits the parking needs for our project, and the Hotel President had a need for 100 stalls, so we cut a deal,” Pomerenke said. “The Hotel President is one of the most successful TIF projects in the Kansas City-area, so meeting with Ron Jury and understanding the finances of that TIF and what the capacity was to do more with it, we hatched a plan for this 5-story garage, with 400 stalls on floors 2 through 5 and Hotel President having the basement level. That allows us to capture existing TIF income to subsidize the infrastructure needs of project.”
Named after the utility company it formerly housed, the Power & Light Building building has sat largely vacant for years. BNIM, its last tenant, moved out and demolition has already begun. Crews are dealing with environmental issues: asbestos and dealing with the effects of the power plant that formerly sat in the northern lot. The building was also 59 percent efficient – much lower than the 80 to 85 percent range NorthPoint usually works with. The firm also had to get six code modifications from the city to allow it to do things like dead-end corridors, and to leave the stair towers as they were.
After a full-gut remodel, each unit will receive hardwood floors and travertine bathrooms. A 3,000-square-foot clubhouse on the 32nd floor will house a bar, piano, and sundeck as well as a 360-degree terrace with the most stunning views of Kansas City.
“We’ve also got this remarkable lobby space, one of the finest art deco spaces in the country. We could convert it to office, but it deserves to be a public space,” he said. That’s why he’s on the hunt for a 17,000-square-foot restaurant to go into the lobby. With a $6 net rent, “it will be a hell of a deal,” Hagedorn said.
With street-level retail, a full-size saltwater pool, and 400-square-feet private terraces, the Power & Light project’s north extension “will be the most unique product offering in Kansas City from a multifamily standpoint,” Pomerenke said. “The tower units are sexy, and they have the views, but this will be a really unique living experience.”
[Click here to see a floor plan.]
So why take on a project that’s failed so many times?
“We’ve seen absolutely great growth in the multifamily sector over the last few years. Demand in downtown has historically been 97 to 98 percent – and those are pretty lightly managed properties,” Pomerenke said. “The level of service we’ll bring will really change that landscape.”
NorthPoint’s playing ground was principally in the suburban markets of Kansas City, but Hagedorn points out he’s concerned with oversaturation in those markets. “So we asked ourselves how we take our expertise in management and multifamily but utilize it in a place where there’s high barriers to entry,” Hagedorn said. “Land downtown is $80 to $100 a square foot, you’ve got to go vertical, and you’ve got to build parking structures. It’s difficult to build downtown, which is great, because that means you close the door behind you.”
But Hagedorn believes the Power & Light Building, along with Cordish Company’s One Light 25-story apartment tower will “open the flood gates” on new supply.
“We had done really the first suburban upscale apartments at Briarcliff City Apartments and we started to achieve new rental rates that people didn’t know were possible. It’s taken off further from there. If we can hit $2 rents downtown, that’s certainly on the high side but it’s a possibility,” he said. “If both of our projects can achieve the success I think we’ll be able to, we can prove out there’s demand for institutional size projects of 250-plus units. We’ll set new high water marks for Kansas City’s multifamily market that I think will open the flood gates of new construction towers.”
PROJECT TEAM: Polsinelli PC, Lewis Rice & Fingerish, NSPJ Architects, Neighbors construction, Great Southern Bank.
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Using historic tax credits to bring
Urban sprawl in Kansas City has left some incredible historic buildings as eyesores in the core of the city. Historic tax credits are one mechanism that’s helping developers take those blighted black holes and make projects work. KC CREW invited four experts to share their thoughts on historic tax credit process and how to best leverage it to make these projects viable. Here’s what they said.
Mark Pomerenke, whose firm is working to renovate the Power & Light Building, said NorthPoint Development wanted to use historic tax credits as a reduction of cost – not a source of equity – and giving those credits to their investment partners. The project is financed using $19 million raised in equity combined with small bridge loans and state tax credits, and with a $36 million permanent loan with Great Southern Bank,
“Those projects exist because you have these unique assets that are irreplaceable real estate. Without the passion and desire to bring those back, you really wouldn’t see these projects,” he said. “It’s a unique tool to keep our history intact.”
So how has Kansas City’s market evolved to now be able to support these projects? Michael Knight of Commerce Tower Group, said his firm looks toward a demographic that isn’t so cut and dry.
“Sure, the young people are the low-hanging fruit of the downtown urban core, but what we’re seeing here and in other cities is that those are the first people through the door because they’re the most risk-oblivious; They don’t think about the same things that a well-weathered individual would, someone that’s been out there before and had to do a little more thinking before rushing into it,” he said.
He also noted a general shift in society. After World War II, mobility was key; Residents could move farther out into neighborhoods and then jump in the car when they needed to drive to different services. Now, today’s market is after instant gratification.
“Mobility’s now gone, and ‘connectivity’ is the new word. I want it now; I don’t want to have to wait to go get it. Connectivity is access to resources like entertainment venues, food, arts, culture – being on the pulse of the city,” he said. “That mindset doesn’t fit well into a pie chart: it’s working professionals, new families, millennials, empty-nesters, and retirees.”
Jason Swords, owner of Sunflower Development Group, recently finished the Ambassador Hotel at 11th and Grand, a $10.5 million conversion using historic tad credits. His group is also working on its biggest project to date – converting 215 W. Pershing to a mixed-use building by adding 5 floors of high-end apartments, a $17 million project.
He said he has two concerns about the future of using these credits in downtown Kansas City. “At some point, we’re going to run out of building stock,” he said. He said he’s also concerned about “falseness” in the market when it comes to developers achieving rents of $1.75 to $1.80 a square foot. “To go up from $1.25 to $1.80 is a three-generation swing. I hope we can get there, but our numbers don’t prevail upon us making $1.75. We have to make it work with numbers that make sense.”
Courtney Kounkel, partner of Centric Projects, highlighted the challenges she sees in the design and construction of historic conversion projects. The most difficult, she said, is often the stringent MBE/WBE requirements.
“The workforce reporting – we’re now required to report on any projects were doing with incentives, every single person that works on the project we now have to report every month. They’re tracking minority women, an as you can imagine in construction, it’s difficult. We’re actively out looking for bringing crafts people that are women onto our project to meet those requirements,” she said.
In fact, although she is one of three founding partners of Centric Projects, she can’t get certified because she doesn’t own 51 percent of the company.
“It’s harder to get women’s participation on the construction services and unfortunately I don’t see as many programs out there encouraging women into that sector, which is a bad thing,” she said. “A lot of programs and services bolster and promote minority side of things but we need to encourage women’s participation because it’s currently, there are so few people out there that can check those boxes.”