Wednesday, April 17, 2013

The Brywood Centre strip mall defaults on its bonds; investors stuck with the tab

The TIF-financed shopping center falls short.

Posted By on Wed, Apr 17, 2013 at 12:08 AM

Brywood as planned.
  • Bond offering
  • Brywood as planned.

In Kansas City, Missouri, the use of tax incentives to develop private projects is often described as an investment, a means to grow the tax base. And sometimes that happens. But Kansas City is also haunted by economic-development opportunities that didn't pan out as originally described. The latest entry to that list: Brywood Centre shopping district.

On April Fools' Day, bondholders who supported tax-increment financing for Brywood Centre at 63rd Street and Blue Ridge Cutoff learned that their bonds were in default. Almost in Raytown, Brywood Centre is a small strip center in Kansas City's 5th District. Its main tenant is Price Chopper, which benefited, in part, from taxpayer assistance for a $3 million makeover.

Brywood as it is
  • Brywood as it is

TIF is a way for new taxes - such as sales and property taxes - to go back into a project to offset some of a developer's costs. Typically, a district is created, and its revenues go into an account that a developer can access over time for reimbursements. In some cases, like Brywood, bonds get sold to investors as a means to drum up quick money in advance, and those investors eventually get paid back.

But those who invested about $4 million in Brywood Centre shouldn't count on getting their money soon, if ever.

The project isn't generating enough money to make payments to bondholders. By April 1, about three years after the bonds were issued, bondholders got a message that was the equivalent of an ATM user getting the "insufficient funds" notice on the screen before them.

From the city's standpoint, it's not on the hook to make payments as it has been for some TIF projects, such as the Power & Light District.

Heather Brown, executive director of the Tax Increment Financing Commission of Kansas City, tells The Pitch that neither Kansas City nor the TIF Commission guaranteed the bonds in any way. So at least there's that, Kansas City taxpayer.

Adding the fact that the developer, an affiliate of Illinois-based Tri-Land Properties Inc., slipped into bankruptcy last year, there appears to be little recourse for those bondholders, whose identities are not publicly known. But the TIF was structured in a way that made these investments attractive - not so much for the well-heeled, who might be better positioned to absorb a loss, but rather to mom-and-pop investors.

The project also benefits from being within a community-improvement district, a status that tacks on an additional sales tax used to make TIF payments, according to a budget submitted to the city for its plans on how to spend that additional sales-tax revenue.

The bond offering for Brywood, sort of a prospectus for potential investors, relayed overly optimistic projections for how improvements would affect sales and property taxes.

The document predicted that total retail sales would reach nearly $33 million in 2012, up from a projected $21.3 million in 2010. Actual financial results paint a dim picture of Brywood compared with those sunny prophecies. While the project in 2007 made $24.6 million in total retail sales, the 2011 figure was just $18.9 million. Last year's financial information was not available; it's difficult to imagine that $18.9 million grew to the supposed $33 million in 2012.

The struggling nature of retail markets during the recession certainly has had a role in pinching Brywood's sales; the TIF doesn't appear to help the project much. Making matters worse is that the developer successfully challenged the center's property valuations to Jackson County and lowered the amount of property tax it generates.

Renderings of the project when it was announced in 2009 show a relatively swank new shopping district after remodeling.

"We look forward to delivering a renewed, high-quality project to this great community," boasted Hugh Robinson, Tri-Land vice president, in a 2009 press release.

Part of the promise of TIF is that it will lead to new and exciting projects like Robinson suggested - projects that wouldn't otherwise happen on their own. Brywood Centre looks like any ordinary strip mall with mostly ordinary stores. Aside from the Price Chopper, its tenants include payday lender Advance America, nail salon Modern Nails, a Dollar Tree and discount clothing retailer Citi Trends.

Those with critical roles in the Brywood TIF are keeping quiet about the latest developments. David Frantze, a well-known real-estate lawyer who represented Tri-Land Properties when Kansas City approved TIF for Brywood, could not be reached for comment.

Neither could Robinson, the Tri-Land executive.

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