Looks like Kansas City bet long on downtown projects and came up short. The Wall Street Journal reported yesterday:
"The tab is mounting for this Midwestern city on a bet it made during the real-estate boom on an $850 million entertainment district meant to breathe new life into its struggling downtown.
While the eight-block restaurant, nightclub and retail complex named the Power & Light District is mostly complete, traffic and sales are well below initial projections when construction started in 2006....
But the Power & Light District stands out because it was financed through a technique that seemed like it would pay for itself. Kansas City directed future sales and property taxes in the district to pay back the $295 million in bonds that the city issued for the project, which went toward infrastructure and to directly support the development. In the event there weren't enough taxes, the city agreed to pick up the difference.
Today, the project, which sits near the onetime headquarters of Kansas City Power & Light Co., generates less than one-third of what is needed to cover the debt service on the bonds. The city is setting aside $12.8 million in its budget for the fiscal year that starts next month to cover the gap, a notable hole in a $1.3 billion budget that calls for $7.6 million in cuts to the fire department..."
However, don't think they despair up in Kansas City. This was considered a success:
"But Mr. Wagner and backers of Power & Light—including the district's private developer, Cordish Cos.—say the development was successful as part of a broader effort to re-energize the city's downtown. Under initiatives pushed around the same time, H&R Block Inc. built a new 17-story headquarters, and the city funded the bulk of a new $276 million arena, the Sprint Center.
"We are extremely proud of what we and the city of Kansas City have accomplished," says Nick Benjamin, executive director of the Power & Light District for Baltimore-based Cordish...
Some cities followed similar models, such as Rockford, Ill., which has been paying hundreds of thousands of dollars each year in debt service to cover gaps for a set of planned housing and retail-development projects that stalled with the downturn. The city expects the deficits to narrow or turn positive as the economy recovers.
Other cities, such as New York, subsidized transformative projects that are now fully or partially stalled, producing few taxes while not delivering what was envisioned.
These dashed hopes are contributing to broader fiscal problems. Kansas City's high debt was cited by Fitch Ratings in February when it warned of a potential downgrade. "The city's debt load has increased substantially over the past decade resulting from an aggressive infrastructure and economic development expansion plan," the ratings firm said..."
Sound familiar? What website has been warning you about bonds for the last few years?
Keep reading.
"The redevelopment efforts came after decades of decline in Kansas City. Population shifts to the suburbs left the once-bustling downtown littered with parking lots and few restaurants or residents. The grand vision was for an arena surrounded by stores, restaurants, apartment buildings and offices..."
This part, well, I don't need to say it, do I?
"But property-tax collections have been lower than expected, given lower rents and real estate values. Sales-tax revenue is also off. Cordish has blamed this partly on the lack of a professional sports team at the arena. The apartment buildings that also would have boosted traffic have stayed on the drawing board.
The city's new mayor, Sly James, said last week that while debt is a concern, he has embraced Power & Light for what it has done for the downtown. "There was a value judgment made to make that investment," he said. "I think it was valid then, and I think it is valid now." Article
Yup. If we can just get that sports team, all will be right with the city.
Tuesday, April 24, 2012
Kansas City bets long & comes up short
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11 comments:
It never ceases to amaze me at the number of Real Estate experts that exist nationwide.
No city should ever support any development project that is not funded with a large portion of the developers money. OOPPS, I forgot, only an idiot would invest in these urban shitholes, so that leaves who else? The cities who continually try to "push a rope" in these crime infested jungles by promising good things in order to get votes from the dumbasses who live there, while lining their pockets.
Can you say "Farish Street"?
The KE and SL buildings are nothing more than subsidized housing. Watkins will sell the whole project before all the tax giveaway schemes expire.
@6:55 and @8:00 - what's with all the Watkins hating? How in the world can you say the KE and SL are "nothing more than subsidized housing?" What special information do you have that Watkins will sell "before all the tax giveaway schemes expire?" Do you even know what you're talking about? What "giveaway schemes"?
As for Farish, so far I don't the the city has invested a dime. I think it has been 100% developer money so far, with his equity and the MDA loans (which he has to pay back).
In short, what's your point? Or do you have one? Or, are you just jealous of Watkins?
What "giveaway schemes"?
Anyone asking the question above and all those other ?s badly needs to catch up on the discussion. I'm neither of the two posters above you but this stuff has been debated at length here at JJ for 3-4 years already. If you are truly interested then do some searching and reading first.
Not all investment is about monetary profit though that is the legitimate focus of The Wall Street Journal.
Shall we list the things we do to improve our quality of life and surroundings without hoping to realize a monetary profit ...even in our lifetimes?
Does anyone not understand if we had " invested" in saving several blocks of the architecturally exceptional homes that once lined N. State Street, there would not have been a short term profit, but today, we'd have a visual asset that would be as priceless one day as the Battery in Charleston?
Can't you imagine the tourist attractions Vicksburg and Natchez would have been if they had preserved a complete historic district as Charleston or Savannah did?
What real estate is more valuable ...I give you a choice between a house in Nantucket and a condo in Destin...which do you want?
Indeed, think about Savannah or Richmond . And, go see how Sugarland is doing. Look at all the empty businesses in an area that could be compared to Madison or Flowood.
Do you go on vacation to see strip malls and office buildings and factories? Or do you head for the " old town" areas?
Not everything is or should be about money.
Mississippi is our home. We should preserve the best of it for future generations. We have some architecturally beautiful and historic buildings in downtown Jackson. We have a rich history that shouldn't be lost to short term profit.
One mark of maturity is to be able to postpone short term gain for long term goals. Another is not to take the familiar for granted. So...grow up everyone.
This warning is all well and good for individual financial investment if that is your only concern. But, it's crap when it comes to investing in our children's and grandchildren's future.
City of Jackson has not put one penny into Farish Street project. It is all money loaned to the developer by the State of Mississippi.
7:55:
That's fine, but the projects that we're talking about ARE designed to achieve net profits. They aren't preserving existing buildings for posterity, they're creating entirely new areas by government fiat in the hope that they'll stimulate private spending that exceeds the public cost.
So the question is: Is that hope founded in objective economic facts, or is it just something we wish could work, like the stimulus bill?
Most of the time, the answer is the latter.
Or, to put all that more briefly, building a daiquiri bar on Farish Street is not "investing in our children's and grandchildren's future."
building a daiquiri bar on Farish Street
That don't fit......
Is go to a daquari bar on farish street... A drive thru daquari bar
12:20 pm Of course, profit is sold as the motivating factor. Indeed, it is nearly impossible these days to sell the idea of investing in the future without a profit carrot as we've become ONLY about the money.
I know you'll find this impossible to believe but my father invested in a development for our town in the 50's that he knew would lose money ( there was a housing bust in the 50's much like today's) because the town needed it, workers needed jobs and he could afford it. It is now one of the most desirable areas in the town. And, he was more proud of that construction project that any of the ones that made money for him.
The WWII generation understood that sacrificing personal interests for the greater good has value. My Daddy thought making his community better when he had the opportunity was something he owed the guys who didn't come home.
What the hell happened to us? We've become penny wise and pound foolish.
9:09:
12:20 here. I'm glad your daddy had money to burn. Since you dropped that tidbit so quickly, I can infer you live in northeast Jackson and sent your kids to JA. If not, you should have.
I digress. Again, what you are describing is fundamentally different from what we're talking about here.
We're talking about developing areas intended to HOUSE PRIVATE BUSINESSES. Businesses that MUST EARN A REGULAR PROFIT TO EXIST.
This isn't a library we're talking about. Even assuming the developer is willing to take a loss, if the underlying economics don't work, you end up with nice brick streets and empty storefronts. That's a waste of time and tax-funded subsidies, and an invitation to further blight.
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