By: John L. Snyder
Sonnenschein Nath & Rosenthal LLP
Kansas City, Missouri

Kansas City is currently undergoing a major economic rebirth of sorts, with much of the development occurring in the urban core. Some reports state that approximately $4-5 billion of construction is underway or planned in the KC metro area. Many developers are attempting to redevelop projects in urban or “infill” sites, which creates a myriad of obstacles and challenges. Such obstacles and challenges, however, create opportunity.

Sites available for new construction are obviously scarce in urban areas, which drives up land cost. With the current development “boom”, land prices in the downtown Kansas City area (from the River Market to the Plaza) have skyrocketed. Certain landowners have strategically acquired key sites in the urban core and have waited for developers to pay top dollar for the sites for build-to-suit projects or for conversions and rehabilitations of existing structures.

Many large “infill” developments require land assemblage from multiple property owners, such as the Sprint Center, the Power & Light District and the Federal Reserve Bank projects currently under construction in Kansas City. To maintain anonymity, developers sometimes form a “straw” entity to purchase the property and use a real estate broker or attorney to negotiate each acquisition. This strategy is designed to help keep the purchase price at a reasonable market level. For certain projects, the appropriate governmental authority may invoke condemnation proceedings to obtain a key piece of property. The U.S. Supreme Court recently affirmed that eminent domain could be used for economic development purposes (Kelo v. New London), but the case has caused nearly every state (including Missouri and Kansas) to review its current condemnation legislation to add restrictions as to when and how property may be taken for economic development purposes. Multiple bills are currently pending in both the Missouri and Kansas legislatures on this issue.

Most of the redevelopment projects currently underway involve economic incentives from the city and the state. In Kansas City, many developers have obtained tax abatement from either the Land Clearance Redevelopment Authority (LCRA) or the Planned Industrial Expansion Authority (PIEA) in connection with such projects. Tax increment financing (TIF) and transportation development districts (TDD) are being widely used primarily in retail projects to help offset high infrastructure and parking costs. A TIF involves the reallocation of certain real estate taxes and sales taxes generated at the project to pay for eligible costs (including utilities, parking and infrastructure). A TDD involves the implementation of an additional sales tax (between .5 - 1 percent) for goods and services purchased at the project and may be used for similar eligible costs. Because parking is so valuable (and scarce) in the urban core, many developments involve structured parking, which drives up the cost. All of these variables are taken into consideration when putting together an economic incentive package to make the project economically feasible. Lastly, with the increased competition between Kansas, Missouri and other jurisdictions to attract businesses to the region, aggressive economic incentive packages are being offered to lure businesses to Kansas City. These incentives increase the complexity of the transaction.

This increased redevelopment in the urban core has forced developers, land planners and municipalities to become more creative as they analyze, plan and construct each project. A major focus has been on increased density and the drive to create long-term, sustainable developments. Additional concerns involve impact on the environment and the infrastructure capacities of each municipality. In fact, the City of Kansas City, Missouri, is in the process of rewriting its zoning ordinances to accommodate the evolving nature of development in the future, including the increased redevelopment of its urban core.

The list of things potential redevelopers must be aware of include: high land prices, shortage of land, economic incentives, parking issues, and planning and zoning complexities involved with redeveloping the urban core. Additionally, other challenges include environmental contamination, old title problems, survey inaccuracies, historic preservation issues and other matters that require creative resolutions to make the project work. Some of these challenges can be offset by brownfield or historic tax credits or other incentives available to assist the developer in paying the costs associated with such problems.

Although developing a project in the urban core is never simple, the challenges are usually offset by the immense opportunities for such a redevelopment. Companies want to locate downtown (such as H&R Block and HOK); people want to live downtown (in places such as the WallStreet Tower and One Park Place); and retailers want to operate where a large number of people live and work (as evidenced by the recent success of the Power & Light District). How long with the current development “boom” in the urban core last? The current momentum for downtown redevelopment is in place, a myriad of economic incentives are being offered in the urban core and developers, land planners and municipalities are learning to think more creatively when dealing with complex sites. All indications are that the boom will continue for many years to come.