City board balks at, then approves, tax incentive deals for new KC hotel, apartments

Members of a Kansas City redevelopment board grilled two sets of developers for close to four hours on Wednesday over requests for large tax incentives to fund an apartment building overhaul and an extended-stay hotel before approving both of them.

Members of the Land Clearance for Redevelopment Authority board voted unanimously to grant a 10-year 90 percent tax abatement to convert the Mark Twain tower into apartments and a 10-year 100 percent tax abatement followed by a five-year 37.5 percent abatement for a new Hyatt House extended-stay hotel in downtown’s garment district.

Both tax breaks exceeded the city’s normal 75 percent ceiling for property tax break for development, a point noted by LCRA Board Chairman Steven Hamilton. But the ordinance, championed by Kansas City Councilman Quinton Lucas, has exceptions for projects in distressed areas. Developers argue the Hyatt House will fall in one of those areas.

The Mark Twain apartment project doesn’t need city approval and therefore does not have to follow the ordinance, Hamilton said, because it’s in an area already marked for urban renewal.

The Mark Twain renovation was also fast-tracked for approval because a new developer has taken over the $50 million project.

Two years ago, developers announced plans to redevelop the historic tower at 11th Street and Baltimore Avenue into apartments, but the project never made it to construction. Now, The Bernstein Companies — based in Washington, D.C. — are in charge.

But to take advantage of state historic tax credits granted to the previous developer, the project needs to spend upward of $5 million by Dec. 15, said Phil Aftuck of Bernstein Companies.

The company plans to create about 200 apartments with rents around $1,500 for one-bedroom units and $2,100 for two-bedroom apartments. The tower’s ballroom, large tile pool and basketball courts will be maintained as amenity space along with the tower’s historic facade.

Aftuck said Bernstein was drawn by the historic feeling of the building and its upscale ballroom and pool.

“And then it has unparalleled views from the top floors and crown molding that — I’ve been doing this over six years and I’ve never seen before in my life,” Aftuck said.

Mark Twain Tower has been home at various times to the Kansas City Athletic Club, the Continental Hotel and the local Playboy Club.

In addition to the property tax abatement, the project also received sales tax exemption for the purchase of construction materials.

Hamilton said that while the project could exceed the 75 percent tax abatement cap because it was in an area marked for urban renewal, he questioned why the developer would pursue a project that, according to an analysis prepared for the board, would not generate large returns — even with assistance.

But Aftuck said the company likes Kansas City and plans to own and operate the building for the long term.

“Although the returns don’t jump off the page, we’re fine with that because we’re going to be here for a while,” he said.

Developers initially requested 100 percent, but staff with the Economic Development Corporation recommended a 90 percent abatement.

Shannon Jaax, director of planning and real estate services for Kansas City Public Schools, said the school district preferred the 90 percent abatement level.

“I mean the level of deferred maintenance that we have on buildings, the amount of teachers that we would like to have and support staff in buildings — 90 percent is definitely more appreciated than 100,” Jaax said.

Meanwhile, the Hyatt House extended-stay hotel project developer also faced questions from authority members.

The hotel was approved for a 100 percent abatement for 10 years that would drop to 37.5 percent for another five years after that.

The board also granted a sales tax exemption on construction materials, and developers will seek funds from a community improvement district that would have to be approved by the city.

Colorado developer Scott Pedersen is planning to spend $39 million building a 13-story, 153-room hotel on what is now a surface parking lot at 900 Broadway. To him, Kansas City is what Denver was seven or 10 years ago, he said, pointing to the growth in downtown Kansas City population.

“That growth combined with increasing the size of the convention center and then building the convention hotel, combined with redoing the airport — all of those factors together — offering developers incentives to help achieve the goals downtown, I think that the city has done a really good job of providing carrots to help achieve the long-term goals,” Pedersen said.

He called the project good “in-fill development” and said the extended-stay model would provide convention guests with another type of accommodation in the downtown core in addition to the convention hotel currently under construction.

Pedersen also pushed back against notions that Kansas City has a surplus of hotel rooms going up, arguing Denver is still adding downtown hotel rooms, which he said started when the city built its convention hotel.

Jaax said the taxing jurisdictions that receive funds from property taxes, including schools, mental health services, the library and others, had been briefed on the hotel only last month. She urged commissioners to approve a lower level of property tax abatement so schools and other jurisdictions would receive proceeds sooner.

Hamilton raised concerns that the project exceeded LCRA’s typical incentives because the board would take ownership of the property and lease it back to the developer to make the abatement possible. He called that “the ultimate incentive that this board can possibly grant” and said it had been reserved for “high-impact” projects.

“This project got an average impact score ... it’s not housing. It’s not on the east side,” Hamilton said. “So as a matter of policy, the question for my fellow board members is — is this the kind of project that we want to go and offer, if you will, what is in fact our ultimate incentive?”

Author: Allison Kite