Incentives
Given the concerns about rising costs across the board, Dan Lowe questioned why there seemed to be an apparent shift in many cities away from public-private partnerships. “They want this glorious mixed-use project,” said Lowe, “but they don’t want to help.”
Bob Johnson of The R.H. Johnson Company suggested that the region had come through a ten- or twelve-year period with so many incentive-based projects that basic services have suffered because of them.
That much said, Johnson noted that as new developments continue to mushroom on the outer edges of the area, the older developments within will need help. “It’s going to be very expensive to reclaim these areas,” he added, mentioning the “user tax” as a way of proceeding.
Dan Lowe elaborated that so-called “transportation development districts” [TDD] impose a tack-on sales tax to the establishments within their small bailiwicks.
“The people I have represented going into those districts, they don’t seem to mind,” said Louie Skizas of Rubenstein Real Estate, “as long as there is no competitive disadvantage,” namely a development across the street that is not associated with a TDD.
Owen Buckley observed that development companies, small and large, are accepting lower returns. This is where he thinks TIF can help. He also believes that Mayor Mark Funkhouser’s approach to TIF in Kansas City, Missouri “makes a lot of sense.”
Although RED Development has not done a TIF in Kansas City, Missouri, it has done them in Blue Springs, Lee’s Summit, St. Joseph and elsewhere. “Those cities don’t seem to face the same challenges with TIF that Kansas City, Missouri does,” said Lowe.
“They run a very tight ship and there is no latitude there for abuse. You’ve got somebody looking over your shoulder the entire time, from the day you ask to the day you draw your last dollar.”
“You need to watch the numbers,” Buckley elaborated. “You need to watch the process and make sure it’s being done correctly.”
“The pro forma gets healthy fast if you can achieve the rents that you want to achieve,” said John Sweeney. He noted that there were developments on 135th Street and 119th Streets that were getting $35 to $40 a square foot, “unprecedented in southern Johnson County.”
“We would like to get within ten or twelve dollars of that $40,” countered Dan Lowe. He asked John Parker of Q10 Triad Capital Advisors if a developer comes in with a “sub-prime” whether that makes financing difficult on the permanent market.
“Not if he is willing to put a lot of cash into it,” mused Parker. He explained that his institution has financed deals where the TIF component was essentially the equity, but not necessarily all the equity.
Kevin Nunnink stressed the need to educate various cities on the different risk components that go into developing a project, especially one developed from the ground up. “Cities don’t understand this,” said Nunnink.
Parker agreed. He faulted the media for failing to understand and communicate the risk spectrum. “They don’t do a good job of getting that across,” he contended.
Jeff Haney felt likewise but added that TIF is a difficult subject to explain in any case. “People need to see that a TIF really can be a great benefit for the city, but it’s hard to break that barrier. I think that’s one of our goals.”
Another benefit to a given city, stressed Nathan Vanice of LANE4 Property Group, was the funding of infrastructure costs that a city might otherwise lack the capital to afford.
As to whether only decayed parts of the city should be eligible for a TIF, Kevin Nunnink was adamant that TIFs should be used before an area declines not afterwards when social and economic decay compound the problems.
“If you think about it,” he added, “Country Club Plaza would have gone downhill ten years ago if we hadn’t done a conservation TIF.”
“I think you’re correct to a certain degree,” said Glenn Stephenson. “The TIF on the Plaza did help boost the engines.” Stephenson added, however, that in the last ten years Highwoods has invested an additional $80 million in capital expenses on the Plaza.
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