Jason Swords

Developers face post-pandemic challenges

a MWM CRE event recap

Roxsen Koch, shareholder with Polsinelli PC, and Jason Swords, principal with Sunflower Development Group, joined moderator Christine Johnston, CPA, CGMA, CMA, partner with MarksNelson LLC, for a live webinar discussion hosted by CREW KC this Tuesday.

The panelists discussed tax increment financing (TIF) in Kansas City, Mo., economic development incentives and future challenges facing developers in a post-pandemic world.  

Koch began with explaining that TIF is an economic tool enabled through the State of Missouri which allows developers to capture the tax increment that a real estate project generates in order to finance a project which otherwise might not be financially feasible. 

Although TIF has been used by developers on many prominent projects in Kansas City, Mo., its future use may be more limited, especially to finance any hospitality and retail project in the immediate future, according to Swords.

“I think that’s the tool for keeping jobs,” Swords said.

Koch, who was involved with the financing of the Loews Kansas City Hotel project, said TIF financing along with several other economic development tools, were incorporated into the hotel project.  Although its opening was delayed, the hotel recently opened amid the pandemic.

“Obviously, timing is everything. We were very fortunate to obtain the financing when we did. In today’s market, I don’t think you would see the project come forward. Any project of this nature in Kansas City, Missouri really would be substantially on hold until we knew more about what the world in the future would be,” said Koch. 

According to Koch, there are a lot of challenges amongst successfully financing a project today. 

“You need to have investors who want to have a certain return on their investment to be committed to the project. You have to show you have a team that’s knowledgeable in the construction of that particular project and the operation of that particular project,” said Koch. 

Swords predicts that getting a deal financed in the next few years is going to be tough.

“We’re only seeing the beginning of the triage that is out there. Fifty percent of our small business tenants aren’t going to make it. I think there’s a lot of money on the sidelines waiting for distressed assets,” said Swords. 

Both Koch and Swords agreed that TIF will always be a tool for developers in Kansas City. 

“If policymakers do not embrace the use of TIF on projects that the city wants to see developed, then investors will simply take their money someplace else and they won’t invest in Kansas City,” said Koch.

Swords acknowledged that although obtaining incentive tools from Kansas City, Mo. is not an easy process, the city has been a leader in spurring redevelopment. 

The duo agreed that the one market segment where consumer demand remains strong is housing. 

“I think that everything else is too spec, too tough, too difficult. Housing is the only kind of project we’re working on today,” said Swords. 

Koch added that developers still need economic development tools to make housing projects happen. Although TIF is not typically used to finance housing, Koch noted that there are other economic development tools available to developers such as tax abatement.

“I think that the important thing is to sit back and be prepared for what’s to come. None of us really knows what that looks like right now,” Koch said. 

Sunflower Development: Preserving the past, creating a new future

MARCIA CHARNEY

Sunflower Development Group, founded 13 years ago, has established a niche in redeveloping historic properties. Principal Jason Swords shared with attendees at the Kansas City CCIM Chapter Breakfast on Friday, May 17, 2019, the details of some of its recently completed and current redevelopment projects. Swords showcased The Grand, a transformation by Sunflower Development Group and its project partner, Block Real Estate Services, of the Traders on Grand building, located in downtown Kansas City, Missouri. The property, purchased in April, 2016 from Van Trust Real Estate, now features 201 luxury apartment units with high end amenities.

The Grand also features 12,000 square feet of office and retail space. Sunflower Development Group recently relocated its offices to The Grand. Sunflower Development Group worked with the National Parks Service to designate the Traders on Grand building a historic building, making the project eligible for historic tax credits on both the state and federal levels.

Swords said that without the historic tax credits, the project would not work. With a total investment of $69 million, the quality of the amenities and The Grand’s prime location, Swords said he believes the building has another 40 to 50 years of life, “so we believe we’re positioned really, really well.”

Another recently completed historic renovation project is the Blenheim School Apartments, located at 2411 E. 70TH Terrace, Kansas City, Missouri.  Sunflower Development Group acquired the closed Blenheim School through the Kansas City Missouri Public Schools’ repurposing program and transformed the building into 52 affordable/restricted income apartments for seniors 55 years and older. 

After signing the purchase contract, Swords said it took Sunflower Development Group three years to get the federal and state historic tax credits, the federal and state affordable housing credits and other financing in place.   During those three years, the gymnasium filled up with four feet of water creating a mold issue, recounted Swords, “so the building got less expensive the longer we were under contract.” 

The completed project opened in December, 2018 and is approximately 75% leased.   Swords noted that most of the tenants are from the neighborhood.  This is the second  Kansas City, Missouri school building that Sunflower Development Group has repurposed.  It completed a 48 unit affordable senior living project in 2017, the Faxon School Apartments, which is fully leased.

Within the next two months, Sunflower Development Group plans to begin the transformation of the former Valentine Shopping Center, located across the street from the Uptown Theater, into the Uptown Lofts, a 226 apartment unit project.  The project also will contain a retail component.  In addition, Swords noted, Sunflower Development Group is working with Sky Real Estate to convert the historic American Electric Building located in downtown  St. Joseph, Missouri into the American Electric Lofts, which will contain 137 market rate apartments.

Swords wanted to dispel the myth that it’s cheaper to buy an older building and convert it than undertaking new construction.  “Renovating an older property, you’re going to spend more per foot than you would building a new construction,” he said.