Bonds a key part of Kansas City redevelopment plan

Bond-financed redevelopment underpins Kansas City, Missouri’s plan to tackle decades-old blight and environmental issues that go back further in the Historic Northeast neighborhood.

Clay County Commissioner Scott Wagner, previously a Kansas City councilman, told The Bond Buyer that “just the sheer magnitude” of this redevelopment project presented a challenge, but it stands a chance of succeeding where previous efforts have fallen short.

“This project’s finance plan offers a number of sources to fill the many gaps that a project of this size typically has,” Wagner said. “By putting together a plan that includes state and local elements, I think it offers the most thought-out plan to take on a project of this size.”

The Industrial Development Authority of Kansas City Monday issued tax-exempt and taxable revenue bonds to fund the city’s Historic Northeast Redevelopment Plan, which involves a mixed-use development with affordable housing, retail space, daycare and parking as well as public infrastructure improvements. The development will span over 43,000 square feet, not including parking.

Stifel priced the first tranche, $52.105 million of unrated tax-exempt economic activity tax revenue bonds, with 5s of 6/2046 at par (+173 basis points to Bloomberg’s BVAL triple-A scale) and 5s of 2054 at 5.15% (+167), callable 6/1/2034.

The second tranche, $1.285 million of taxables, saw 6s of 6/2029 at 6.50% (+300), noncall.

The Historic Northeast Redevelopment Area includes roughly 1,398 noncontiguous acres which host nearly 400 businesses in a neighborhood that has seen multiple revitalization efforts over the years.

There was no alternative to reimbursing the developer, Historic Northeast Lofts, LLC, for certain project costs with public funds, Wagner said. “The market alone cannot bring this site back. It would never [generate the] cash flow to make it worthwhile.” 

But with the right developer, the right plan and public sector help, he said, the project became feasible. 

The $54.63 million of economic activity tax revenue bonds were issued pursuant to a trust indenture between the Industrial Development Authority and trustee BOKF, N.A., a Kansas City-based bank. 

According to an Aug. 23 investor presentation, the Series 2024A bonds are secured from pledged revenues generated within the Historic Northeast Redevelopment Area. 

Those pledged revenues include Economic Activity Tax revenues — the majority of which are sales taxes — consisting of 50% of the incremental EATs generated within the redevelopment area, which have a tax increment financing (TIF) capture period of 23 years. They also include city EATs which are not captured as TIF EATs.

No payments in lieu of taxes are expected to be available for the payment of debt service.

The project plan calls for the Planned Industrial Expansion Authority of Kansas City to become the owner of the redevelopment project site and the existing improvements pursuant to a Chapter 100 bond issue.

A portion of the Series 2024A bond proceeds will then become available to complete the developer’s acquisition and stabilization of the property, according to a preliminary limited offering memorandum. 

According to the investor presentation, conditions for the release of escrowed project funds include that the redeveloper provides proof of equity financing for the residential component of the project; that the redeveloper provides proof of debt financing for the residential component of the project and there has been an initial draw of at least $1 million of the debt financing; and that the redeveloper provides proof of continued ability to draw upon the debt financing and the equity financing in sufficient amounts to complete the residential component of the project.

St. Louis-based PGAV Planners prepared a revenue study, included as an appendix to the memorandum, that assumes voters will reauthorize and extend each of the various sales taxes imposed in the redevelopment area that are captured as part of the EATs and additional city EATs. 

The study also estimates 2% annual growth in taxable sales, which grew at an average rate of 10% from 2018 to 2023. It projects 2% annual growth in food and beverage sales, which grew at an average rate of 8% from 2018 to 2023. It expects 3% annual growth in earnings, which grew at an average rate of 8% from 2018 to 2023. And it assumes 1% growth in utility tax collections, which grew at an average rate of 7% from 2018 to 2023.

Wagner argued the scale of the Historic Northeast area’s challenges required a response of this scope.

“In order to successfully redevelop this site, you are forced to take on multiple buildings at once to remove blight,” he said. “You have to deal with environmental challenges that date back almost a century ago.

“This project is not for the faint of heart,” he added.