Kansas City has an expensive habit of paying for every developer’s champagne wishes and caviar dreams.

Lifestyles of the Rich and Subsidized 

Kansas City has an expensive habit of paying for every developer’s champagne wishes and caviar dreams.

Luxury has taken residence in downtown Kansas City.

And as fabulous condominium projects grow in number and opulence, City Hall continues to offer generous incentives to developers -- effectively forcing everyone who lives in Kansas City, Missouri, to subsidize the Jacuzzis, the fitness centers and even the on-site dog groomers enjoyed by downtown's newest, richest residents.

Making downtown an inviting place to live is a worthwhile objective. More residents mean animated streets, busier restaurants, less sprawl.

By one count, downtown has added 1,600 residential units since 2000. From its offices at 17th and Main streets, the Pitch has had a prime view of downtown's re-emergence. As people move into lofts and condos, we've happily noticed more people out on the streets -- at night, even, and not just on First Fridays. We've enjoyed being able to walk to more restaurants. We've even advocated spending taxpayer dollars on big-ticket dreams such a downtown ballpark -- even if a Kansas City resident isn't a baseball fan, we figured, ballparks have economic ripple effects an entire city can enjoy (Kansas City Strip, "Let's Play," February 10).

An event such as the Urban Homes Tour the first weekend of May would certainly have been a sad exhibition if not for the sorts of tax breaks that Kansas City gives to developers rehabbing downtown. Instead, buses shuttled curious visitors from building to secured building, where smiling sales reps showed models and dispensed glossy brochures.

Jason Townsend, for example, needed only a short time in a downtown office tower to realize it could be a spectacular condominium project. The granite floor, the marble walls and the bank of elevators spoke to him. "I was in here about 15 minutes, and I kept saying, 'Yes, this works. Yes, this works,'" Townsend tells the Pitch.

He was standing in the lobby of what used to be known as the Mercantile Tower (later the U.S. Bank Tower) at 11th Street and Walnut. Made of bronze-colored steel, the tower joined the downtown skyline in 1975 -- not exactly a golden age of architecture.

A modern building may lack charm or history, but Townsend isn't selling those ideas. He rechristened the building Wallstreet Tower and is marketing it as a sleek, sophisticated choice for downtown condo buyers. "We're taking advantage of what I call the Friends experience or the Sex in the City experience," he says.

At 33, Townsend is younger than the actors in those TV shows. A graduate of Rockhurst High School and the University of Kansas, Townsend was the president of a tech company and the vice president of his family's engineering business before he got into real estate.

And his instinct about the Wallstreet Tower is proving correct. Out of 145 units, ranging in price from $170,000 to $640,000, only 27 remain unsold. That's a testament to Townsend's salesmanship -- and to each unit's expansive bank of windows. "Here, the cityscape is your wall," Townsend says.

If the views don't cinch it, Townsend can tease prospective buyers with an annual property-tax bill he says will run between just $200 and $300.

A $250 property-tax bill is a pittance. The owner of a house on Olive Street, where one of the Prospect corridor murder victims was discovered last summer, owed $512 in taxes last year. Kansas City firefighter Stephen Johnson paid $1,150 in taxes on the East 79th Street home demolished by a crew from Extreme Makeover: Home Edition. Across Jackson County, the recent reassessment of property values has homeowners shrieking at the size of their new tax bills.

Townsend, by contrast, had City Hall's blessing and help locking in minuscule tax bills for his future tenants. More specifically, he had the assistance of an obscure public agency called the Planned Industrial Expansion Authority. The PIEA operates out of a second-story office in the City Market. Its executive director is a tanned Staten Islander named Al Figuly, who is also the president of the equally obscure Greater Kansas City Foreign Trade Zone.

Despite its humble trappings, the agency wields great power. The PIEA can take control of private property using eminent domain, and it can issue bonds and administer tax breaks. For developers, the PIEA is like a strongman with a sharp machete, clearing a path to profits.

The PIEA is the go-to agency for many condominium developers. And the city continues to be especially helpful when it comes to the high-end projects. City Hall operates as if the housing boom were a faint murmur, offering tax abatements to developers like dowries for a homely daughter.

Every once in a while, someone at City Hall questions the logic. "Does a $1.5 million condo -- does that individual need a property-tax abatement?" asks Councilman Jim Rowland, chairman of the Budget and Audit Committee.

In fact, the incentives operate on cruise control.

They've been used to preserve pretty, historic buildings -- and buildings not worth remembering.

They've helped build affordable housing for lower-income renters -- and housing affordable to only the very rich.

The PIEA gave a huge tax break to a convicted felon with an enticing floor plan; meanwhile, urban heroes have had to beg to keep their art galleries.

City officials say they're talking about making changes -- grading proposed developments on a tougher curve, turning down the spigot on the incentives.

It may be too late to do any good, though. Acres and acres of hot property have already vanished from the city's tax rolls, only to be covered with shiny hardwoods, slate countertops and saltwater lap pools.

Dale Schulte was one of the pioneers, using the incentives to save historic buildings and offer $325-a-month studio apartments to lower-income renters.

A lawyer and a history buff, Schulte, 58, started redeveloping River Market properties in the 1980s. He completed his first project in 1993, carving apartments out of the Askew Saddlery building on Delaware Street.

Schulte takes pride in saving old buildings (such as the Pacific House Hotel in the River Market, which the Union Army occupied during the Civil War) and in having provided housing that kids right out of school could afford. "Most of them, particularly in the early days, were more adventurous souls," Schulte says of his tenants.

These days, the neighborhood's population has expanded from the young and daring to include essentially anyone without children. One city-hired consultant predicts that, by 2010, downtown households with incomes of $100,000 a year or more will increase by 74 percent.

To meet the demand, Roger Buford, another veteran developer of the River Market and Garment District, is converting some of his apartments into condos.

"If, ten years ago, someone would tell me they're going to sell condominiums downtown, I would have told them they were crazy," Buford tells the Pitch.

Buford says more young professionals are looking to buy downtown because houses in established suburbs have become so expensive.

"If you want to be in an aged area, such as Fairway or Prairie Village, those homes are now in the $200,000 price range for a fairly small two- or three-bedroom home, sometimes with just a one-car garage," he says.

The hype about downtown makes it seem like an inviting place to live, he adds.

"And then you got all the boomers. Their children are gone, and they own a home that's worth half a million to a million dollars in the suburbs. They can sell it and buy a $300,000 condo downtown and a $300,000 condo in Florida and be in the same position with a lot better lifestyle."

Homebuyer wealth notwithstanding, Buford says developers working in the urban core will continue to rely on incentives. An old building may appear to be in decent shape on the exterior, but plumbing and electrical horrors may lurk behind the walls. "You can go out to Johnson County or north of the river and build garden apartments for a lot less money than you can rehab these buildings," he explains.

Tax abatement is a common method of making those urban landscapes more hospitable for developers willing to invest in them.

One of the most common tax-abatement tools is known as Chapter 353. It dates back to 1943, when the state of Missouri passed a redevelopment law at the urging of the St. Louis planning director, who was looking for a way to clear the city's slums. Chapter 353 grants private developers the right of eminent domain and more or less freezes property taxes in the blighted area for ten years, then limits them for an additional 15 years.

Kansas City has made extensive use of Chapter 353. Projects such as Crown Center, the Town Pavilion high rise and the Library Lofts have all benefited from the incentive.

The tool has exempted tens of millions of dollars from taxation, but defenders of Chapter 353 and other incentives say Kansas City would stagnate without them.

"I don't think anybody can take a position -- they could, but they'd be dead wrong -- that the incentives need to go away or they're not worthwhile or that the city is not benefiting or the state's not benefiting or the federal government's not benefiting," Buford says. "You can't lose sight that most of the incentives are for historic structures. The alternative is, tear 'em down and build a flat parking lot."

The emerging neighborhood around the new Central Library, for instance, owes much to Buford and to other developers who have found redemption for the handsome old buildings deserted by office tenants.

But in Kansas City, incentives also help tear down 90-year-old buildings. And they've helped Jason Townsend rehab a building that went up at a time when Captain & Tennille topped the charts. Wallstreet Tower's brochure promises its future residents a place "on the forefront of everything happening in Kansas City."

Yet just a year ago, the City Council decided that the block the building sits on was blighted.

The blight finding set in motion the process for Wallstreet Tower to receive a Chapter 353 abatement through the PIEA.

In its pure form, the Chapter 353 abatement freezes taxes on land and causes the value of the improvements -- the building -- to disappear from the tax rolls. Kansas City, however, typically asks the developer to pay the existing taxes on the building (however dilapidated) so that the school district and other taxing jurisdictions don't lose the money they've already been receiving.

Townsend asked the PIEA to waive these payments-in-lieu-of-taxes, commonly referred to as PILOTs. To help his request, Townsend hired attorneys at the King Hershey law firm. King Hershey lawyers are wise in the ways of City Hall. Mike Burke, the firm's president, served on the City Council in the 1980s and today is chairman of the Public Improvements Advisory Committee, which recommends ways the city should spend its budget for bridge repairs and other capital improvements.

Without the waiver, attorney Burke and his colleagues argued, Wallstreet Tower residents would have to pay, on average, $1,300 a year in property taxes.

A $1,300 property tax might sound perfectly reasonable to many residents. Bungalows in Kansas City appraised at less than $90,000 can cost their owners $1,300 in annual property taxes. But the $1,300 tax bill was an unfair burden to Wallstreet Tower's buyers, Townsend's lawyers contended, because the residents of the Western Auto Lofts (another PIEA project) were paying only about $100 a year.

But when it comes to bankrolling teachers, cops and sewers, most of the city's less-wealthy residents contribute much more.

At the same time, Councilman Rowland notes that the city has had to cut its budget by $254 million over the past four years. Residents who live in nonabated areas are paying more and receiving less. "I'm one of the people in the southwest corridor," Rowland says. "My property taxes were going up 50 percent."

The PIEA's board of directors consists of 15 civic types appointed by the mayor. Board Chairman Ed Drake thought at first that Wallstreet Tower didn't deserve the waiver. "This is opening the door to breaking the school district," he said at an April 2004 hearing, according to an account that appeared in The Business Journal. The PIEA didn't slam the door on Townsend, however; it asked for an independent analysis of his proposal's finances and brought the school district to the negotiating table. Eventually, Wallstreet agreed to pay the district $20,000 a year for ten years.

Sitting in the living room of a model unit as the movie Titanic plays on a flat-screen TV, Townsend says tax abatement is a "tremendous tool that is passed along to our homebuyers."

Yet the independent financial analysis identified a different recipient of the abatement's benefits: Wallstreet Tower LLC.

The review, conducted by Integra Realty Resources, a commercial real estate appraiser, indicates that developers price their condos based on the size of the abatement. In Wallstreet Tower's case, a waiver of PILOTs would raise the average selling price from $218,162 to $226,448, according to Integra's analysis.

Higher sales prices mean higher profits. The Integra report notes that Wallstreet Tower's investors could expect a 17.65 percent return with a waiver of PILOTs, versus a 14.13 return without. (Developers of condominiums within the central business district expect returns in the range of 15 to 20 percent, according to the Integra report.)

Once an agreement with the school district was reached, work could begin on the office tower. The conversion included the demolition of an old building next door.

Some Kansas Citians might remember that building as the former home of the Myron Green Cafeteria. The director Robert Altman used its interior for a set in 1995 when he shot the film Kansas City.

Neglected by its owners, the 1916 building had fallen into disrepair. Several people offered to buy it, but the owners turned them down; the city eventually obtained a condemnation order.

Another development group thought the building could be saved, however. On April 2, 2004, Jim Potter and Chris Sally wrote a letter to Donovan Mouton, the mayor's point man on urban affairs, imploring him to remove the demolition order. Potter and Sally described their ideas for the building, such as building 16 units of affordable housing or for-sale condominiums.

Preservation-minded bloggers, meanwhile, worried about the fate of the building next door to the Wallstreet Tower. "Anything we can do to help 1115 [Walnut]?" one wrote on the kcskyscrapers.com forum. "Besides chaining ourselves to it singing 'We Shall Overcome'?"

But the time for spirituals had passed. On April 9, the PIEA accepted Townsend's proposal, granting him development rights to the area, which included the Myron Green building.

Earlier this year, a demolition crew tore it down.

Townsend tells the Pitch he spent months investigating possible uses for it, but he concluded that the building was "beyond repair." Besides, he says, "We couldn't find any solution that had a minuscule opportunity of breaking even from a financial standpoint."

Townsend says the land where the building stood may be used as parking, a green space or for a restaurant patio.

The Myron Green building's former suitors, meanwhile, moved on to other projects. Chris Sally told the Pitch in an e-mail that he is "100 percent" behind Wallstreet Tower. He then invited the Pitch to check out 5 Delaware, his condo project in the River Market that is, yes, receiving a tax abatement.

The most luxurious residence of them all stands at 31st Street and Southwest Trafficway, where a California-based developer is turning one of Kansas City's most prominent buildings, the BMA Tower, into One Park Place.

There, $400,000 just gets a buyer in the door. The top-floor penthouse is expected to command $10 million, but Christine Kemper, a marketing consultant on the project, says $700,000 will likely be the building's "sweet spot."

And how sweet it will be. One Park Place will offer such amenities as pet grooming, a wine cellar, a billiards room, an indoor driving range for golfers, a saltwater lap pool and fingerprint scans to keep out the riff raff.

Of course, the views will be wonderful. The tower was built in 1963 on a crest at the edge of Penn Valley Park. Downtown skyscrapers need to be 20 stories tall just to reach the elevation of the BMA Tower's first floor.

Like Wallstreet Tower, One Park Place's developers received help from the city: The Land Clearance Redevelopment Authority froze the building's property taxes for ten years.

Joe Egan, the LCRA's executive director, says the deal is good for the city because One Park Place's owners agreed to allow the building to be taxed at the same rate as commercial properties -- 31 percent -- during the 10-year freeze (as opposed to the 19 percent paid by residential properties).

Problem is, the building today produces only a fraction of the taxes it did a few years ago. Back before its California developers turned it into "luxury's new address," its eroding commercial tenant base drove down the property tax bill from $352,294 in 1998 to $94,792 in 2004.

Not surprisingly, the city had helped drive down that tax base by providing incentives for the BMA Tower's tenants to move out. Butler Manufacturing received $9.6 million in incentives when it built a new headquarters in the West Bottoms. Another tenant, MetLife, left for Briarcliff West, the tax-increment-financed development north of the river.

The developers of One Park Place essentially locked in a cheap price on the taxes. Future residents can expect to owe less than $1,000 in annual property taxes until 2015.

The notion of tax incentives begetting tax incentives rankled then-City Councilman Evert Asjes. When a previous owner of the BMA Tower sought assistance to pay for asbestos removal and other improvements, Asjes recalled for The Kansas City Star the parable of the child who kills his parents and pleads for leniency for being an orphan.

Asjes left the City Council in 2003. During his term, he pushed for the city to develop policies so that incentives such as tax-increment financing weren't abused. Nothing got done.

"The city is getting a lot of debt now, and it doesn't have any policy of how to regulate it," Asjes tells the Pitch today.

Asjes is reluctant to speak too harshly, though, for fear of being of called a hypocrite. He says he's moving into the Crestwood condominiums on Brookside Boulevard -- a new development seeking a tax abatement.

Meanwhile, back at One Park Place, taxpayer help luring rich new tenants may not stop with the abatement. The current owners may also seek historic tax credits, which are available through the state and federal governments. Designed by the famed architecture house Skidmore Owings & Merrill, the tower was recently listed on the National Register of Historic Places as an example of the international style.

Christine Kemper says the building's signature white-cage frame will continue to be lit up at night. But in an effort to spare residents the sensation that their homes are being probed by a searchlight, the bulbs will concentrate their energy on the columns, avoiding the windows.

The developers were smart to hire Kemper, who is married to Sandy Kemper, the former chairman of UMB Bank. (He left the family business to run a company called Perfect Commerce.) A charming Nebraskan who is expecting the couple's fourth child, Christine Kemper seems the type to move gracefully in any social circle. "Apparently, it's great for your skin," she says of the saltwater lap pool, as if to tell her middle-class visitor, "I've never been in one, either."

Kemper sits on the board of directors of the Economic Development Corporation, the city-funded umbrella agency to which the LCRA and the PIEA answer. She says she isn't sure when projects such as One Park Place will no longer need the help. The BMA Tower, she notes, had stood empty for two years.

"My sense of it is, you stop offering the incentives when they are no longer needed," she says.

Kansas City's generosity with incentives has attracted developers from near and far. One Park Place Investors LLC is a partnership between SWD Communities in Newport Beach, California, and a property-development arm of the Ayala Group of the Philippines. MCZ/Centrum, the developer of the Western Auto Lofts, is based in Chicago.

Outside investment signals that Kansas City is seen as a land of opportunity.

Or a land of easy money.

The former Vista del Rio apartment building, for instance, is being developed into condominiums by a convicted felon. One of the principal developers of the View, as the Vista del Rio is now known, is G. Wayne Reeder. Reeder spent time in federal prison for his role in the collapse of two insurance companies. He also had connections to various savings-and loan-scandals in the 1980s ("He's No Angel," September 16, 2004).

Choosing to tolerate Reeder's unsavory past, the PIEA granted the View a 25-year tax abatement on the improvements. But Reeder has had a curious way of thanking the nice people who helped him out.

In March, the View's operators agreed to a pay $20,000 fine to the state of Missouri for improper asbestos removal, after the Department of Natural Resources determined that untrained workers were allowed to handle asbestos-tainted ceiling material. The workers sprayed the material with a high-powered washer, scattering invisible and possibly dangerous fibers into the air.

In April, a former contractor at the View sued Reeder and his partner, Richard Turner. The contractor, Timothy Bowman, alleges that Reeder and Turner broke their promise to cut him into another real estate investment in exchange for his work at the View.

Reeder and Turner, the lawsuit says, declared Bowman's work to be shoddy so they could avoid paying him or acknowledging his stake in the other venture. In court papers, Reeder and Turner deny the claim.

"Naturally, it's in litigation, and we hesitate to comment on it, but I can tell you that we will -- as the saying always goes -- we will defend this claim vigorously, and we totally expect to prevail in short order," says their attorney, Doug Patterson.

Bowman is not the only unhappy View contractor. Cates Sheet Metal in Lenexa attached a $9,683 lien to the building last November.

Downtown housing development in Kansas City is a small world. Before he worked on the View, Bowman was the construction manager for the conversion of the Western Auto building. The View and the Western Auto conversions have things in common. Both were developed through the PIEA. Both angered unions. (MCZ/Centrum obtained restraining orders against the Carpenters' District Council of Kansas City & Vicinity, the members of which wore rat suits outside the gate and allegedly threatened workers who entered.) Both left contractors feeling cheated. (JnL Construction of Grain Valley has put a $224,000 lien on the Western Auto building.)

Reeder apparently had designs on another downtown housing development. Bowman believed he was working for a piece of the Brookfield Building at 11th Street and Baltimore. County records indicate that Turner purchased the building last September.

Turner and Reeder planned to rename the building Gotham Tower and convert it into condominiums, according to Bowman's lawsuit. If so, plans changed. Patterson says the Brookfield Building, which is now mostly empty, is for sale.

The con man got a tax break. But the artist who helped distinguish Kansas City for something other than barbecue got nothing.

Jim Leedy is a Crossroads Arts District pilgrim. He moved into the area in 1985, buying a building at 1919 Wyandotte when the area was dominated by warehouses. Leedy, who joined the faculty at the Kansas City Art Institute in 1966, converted space to make four studios and rented them to fellow artists at reasonable rates.

Leedy used their rent money to buy more buildings and add more studios. "We don't make money," Leedy says. "It's a dream."

Twenty years later, the Leedy-Voulkas Art Center stands in the center of a happening arts district recognized by such out-of-town publications as USA Today and the Omaha World-Herald. During First Friday events in the Crossroads District, stroller-pushing young parents mingle among art students who wear costumes and run a raucous rickshaw service.

In the midst of the celebration, Leedy and other property owners have had to fight to hold on to their buildings.

The taxes on one of Leedy's buildings shot up nearly 150 percent in 2003.

After the spike, Leedy and others protested to city and county officials. No policies changed, but officials listened; taxes stayed level the following year. "We are survivable now," Leedy says.

But surviving is not the same as thriving -- which is the state of the Crossroads condo market. All of the lofts in the recently converted building at 1819 Baltimore, for instance, have been sold. Because the property sits within a PIEA zone, the lofts enjoyed Chapter 353 abatement. But across the street, the Dolphin Gallery, another Crossroads original, receives no such break.

Artist and self-proclaimed "microdeveloper" David Ford fostered the funky revival around 18th Street and Wyandotte, home to Y.J.'s Snack Bar, Local Harvest grocery, the panties store Birdies, Second Honeymoon Vintage Clothing, the fashion shop Spool, and Lovely skateboards. The photogenic block shows up often in material attempting to display Kansas City's vitality.

Yet Ford's buildings receive no abatement. "I did it the old-fashioned way," he says. "I paid for it all and pay taxes on it all."

But the W Lofts under construction on the other side of 18th Street, where the units range in price from $500,000 to $1 million? Those are abated.

It's an old lament -- artistic types getting squeezed by higher rents once young urban professionals find their neighborhood attractive.

In Kansas City, the trend is more insidious because the city is subsidizing the gentrification.

Leedy says the subsidies for the condos are "terribly unfair." Adding insult to injury, "All the developers have moved in here because of what we have done."

The city is not completely out to lunch. Last December, the LCRA helped sculptor Jeff "Stretch" Rumaner rehab a former hardware store at 18th Street and Locust into Grinders, a restaurant and art gallery. On the west end of the Crossroads, a group of small-business and property owners, including David Dowell, a principal at the hip architecture firm El Dorado, recently worked with the PIEA and qualified for the same abatement the developers receive. "More people ought to do this," Dowell says. "You can critique the system, or you can figure out what it is."

Lacking a consistent policy, though, the city rewards virtually every condo developer who is able to hire experts who can run the game like Mike Burke or Jerry Riffel, another former councilman who is a lawyer.

An incentive program to cover the entire Crossroads District has been in the works for some time. But the arts community has been slow to master the intricacies of such an effort, and city officials have lacked the will to help it across the finish line. "It's such a long, complicated process to do something like this," says Suzie Aron, the president of the Crossroads Community Association.

City officials, Rowland says, typically grant incentives because the developers of new projects argue successfully that they will be unable to compete with previously abated ones. Besides, if adding downtown residents is as critical to the city's fortunes as experts say, the city should probably err on the side of generosity.

"You're far better off spending a little bit too much money and providing a little bit too much incentive than not providing enough, cutting it off too early and killing the market," says John McIlwain, a senior fellow at the Urban Land Institute, an international think tank.

One way to gauge the health of the market is to look at price of the land. "If land prices are still rising and developers are still buying, you probably are able to cut back some on your incentives," McIlwain says.

If what he says is true, Kansas City should have reduced the flow awhile ago.

"I defy anyone to go down to the River Market and buy a building," Roger Buford told Ingram's business magazine in 2003, issuing a stern warning to developers who thought buildings in that area could be bought cheaply. A developer in the Crossroads sounds a similar caution. "Whatever is for sale, good luck making the numbers," says Shaul Jolles, the developer of W Lofts. "They've gotten so expensive."

Joe Egan at the LCRA at least seems to be aware that with each incentive for a luxury condo, the tax burden spreads a little more unfairly. He says the city and its affiliated agencies are looking at the way they nourish incentive-hungry developers. Victories are already being claimed, though they're small ones. Egan says he is optimistic because One Park Place reached for a ten-year -- rather than the 25-year -- abatement.

But where does it end? "At some point," Rowland says, "yes, I think you need to turn off the faucet and simply say that you've built the momentum and now the momentum should sustain itself."

In the rest of the city, the people who live in mere shirtwaists and bungalows look forward to that day.


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