Three Light luxury housing development faces scrutiny

Paul Thompson
Northeast News

The proposed Three Light luxury housing building has been placed under a microscope by the Kansas City, Missouri City Council.

The primary concern is the city’s apparent obligation to appropriate $17.5 million for the construction of a new parking facility to accommodate future residents of the proposed $130 million Three Light development. The obligation stems from the City’s 2004 Master Development Agreement (MDA) with The Cordish Companies to develop the Kansas City Power & Light District and other surrounding residential properties.

Ordinance No. 180057 originally went before the Council in early February, but it was successfully re-referred back to the Finance & Governance committee thanks to a motion and second from 4th District Councilwoman Katheryn Shields and 5th District Councilwoman Alissia Canady, respectively.

City legal staff and representatives from Cordish answered pointed questions about the project from the F&G committee on the morning of Wednesday, February 28.

According to City staff, KCMO has previously contributed $11 million towards the development of the One Light building, and $17.1 million towards the development of Two Light. In order for Cordish to receive the full $17.5 million subsidy for Three Light, the developer would be required to construct at least 267 residential units and 450 parking spaces. Presently, the average annual debt service payment for the city sits at roughly $1 million for One Light and $1.2 million for Two Light. The annual debt service for Three Light has been estimated at $1.4 million, though that figure could be offset in part by shifting parking operations and maintenance obligations to Cordish. The City has estimated an annual General Fund contribution of $437,000 over the course of 20 years, though Canady has publicly questioned those figures.

KCMO Finance Director Randy Landes further acknowledged that the City pays out roughly $13 million annually to KC Live (the Cordish LLC) from the General Fund, and added that those payments are scheduled to increase. Those figures have some City Council members approaching the City’s latest $17.5 million obligation with caution.

“I’m looking very closely at this transaction to make sure that we don’t repeat the same mistakes again,” said Canady.

The MDA with Cordish was executed on April 27, 2004, and 12 amendments to the agreement have followed. The Feb. 28 staff presentations made clear that the under the proposed 13th amendment to the MDA, KC Live would assume “all operational, maintenance and security responsibility for Block 100 and 126 parking garages,” which are the lots used by One Light residents and Power and Light District patrons. The City, however, would maintain responsibility for structural repairs and upgrades to those lots that exceeded $10,000. By shifting responsibility to Cordish for day-to-day operations and maintenance of the parking garages, the City estimates an annual cost savings of $520,000.

“We’ll save the $500,000 a year in routine operating costs,” said Troy Schulte, KCMO City Manager. “Under the agreement, we’re now responsible for the capital costs, but this remains our asset.”

The current scrutiny from the Council invited a series of questions for City staff – a probe of sorts – into the City’s parking obligations stemming from that 2004 agreement. The questions included constitutional concerns; whether the developer was in breach of contract due to the timetable for apartment construction; if the City’s obligation to pay for parking was absolute; how the City can justify a $17.5 million expense for luxury housing when it’s simultaneously facing a shortage of low-income housing; and if pending discrimination legislation against Cordish will impact any agreement with the City.

In short, some Council members are leaving no rock unturned as they examine the latest amendment to the MDA with Cordish. On the question of the City’s affordable housing crunch, 1st District Councilman and F&G Chair Scott Wagner suggested that the issue is separate from the proposed Cordish project to build the Three Light luxury housing development.

“I don’t get affordable housing by simply saying ‘I’m not going to do this project,’” Wagner said. “Somebody is going to have to come forward and say, ‘Hey, I have a way to construct affordable housing.’”

“I think there are people on this Council who look back on an agreement that was made in 2004 and say, ‘I don’t like that agreement,’” Wagner added.

Though Shields asserted at one point that the Council is generally “under the impression that we’re under a legal imperative,” to approve the 13th Amendment to the MDA, City Attorney Brian Rabineau said that the agreement expressly states that it’s subject to the future appropriation of funds.

“You have a number of options in terms of what you do moving forward,” Rabineau said. “One of them, quite frankly, is that this ordinance is simply held until Cordish has proposed a low and moderate income housing policy, as the agreement contemplates.”

Wagner expressed concern, however, about the message it would send to developers if the City reneged in any way on the 2004 agreement with Cordish.

“What is the message that is sent to those who may do business with the City in the future?” asked Wagner.

Rabineau agreed that there could be repercussions if the deal with Cordish isn’t honored, adding that typical city policy has been to honor all agreements.

“There are ramifications, beyond legal, by the choice of action that you choose to take,” Rabineau said.

The proposed Three Light development would include 300 units – 25% of which would be studio units, 45% one bedroom units, and 40% two bedroom units. The development would feature some 10,000 square feet of retail space on the development’s ground floor, along with 15,000 square feet of amenity space that would include an outdoor pool, a theater, a club room, a business center and a fitness center. In addition to the proposed 450 parking spaces for Three Light residents, the parking facility would also house roughly 50 commercial spaces. The City’s $17.5 million parking subsidy averages out to $1.4 million per year, or roughly $39,000 per unit.

Cordish representatives, led by Power & Light District Executive Director Nick Benjamin, also appeared at the Finance & Governance meeting to defend the latest amendment to the MDA, pointing out that Cordish has estimated less than a 6% return on the project. Benjamin added that One Light apartments are “affordable for people within a broad range of incomes,” arguing that their apartments that rent for under $1,600 are considered low-to-moderate income units. Shields, however, quickly replied that many citizens in Kansas City would struggle to meet rent obligations of even $800.

Wagner conceded after the meeting that the City’s definition of affordable housing stands in stark contrast to Cordish’s.

“I have suggested that our definitions of affordable are very, very different. We’re looking at a percentage below median income; what he’s referencing is a percentage above,” said Wagner. “If one were just to look at the price point, it may fit someone’s idea of affordability, but in the more traditional sense of affordable housing…we look at it differently.”

Zed Smith, the Chief Operating Officer for Cordish, called the Three Light project a fair deal that stems from a long-term partnership with the City.

“We are here for the long term,” Smith said. “We continued to invest when we believed that there were no other developers willing to invest in downtown Kansas City.”

Despite the long-term commitment from Cordish, some Council members feel that the City carries an undue burden under the terms of the MDA.

“It’s clear that this current agreement is very favorable to the developer,” Canady said.

Canady took steps to remedy that agreement on the morning of March 5, when the Ethics and Legal Review committee met to discuss Resolution 180142, which expresses concerns of the City Council related to the Three Light parking garage. That meeting proved particularly relevant, as a bombshell committee substitute was introduced calling for an aggressive shift in the negotiations surrounding the 13th amendment to the Master Development Agreement.

Canady suggested an aggressive approach to a renegotiation of the 2004 MDA, pointing out that the City is currently proposing an annual budget featuring 36 government layoffs, reductions in city programs, and the denial of KCPD’s full budget request for additional dispatchers and patrol officers.

The committee sub would direct the City Manager to pursue new language calling for 15% of KC Live housing units – even current units at One Light and Two Light – to be reserved as affordable units for low-income citizens earning no more than 100% of “HUD’s Median Income calculations for Jackson County, Missouri.”

In addition, new language in the committee sub calls for incentives to cease after the Three Light and Four Light projects are completed. According to the modified resolution, anything thereafter would have to move forward without City incentives. The committee substitute also directs the City Manager to negotiate a concrete date for Cordish to begin construction of Four Light, with a provision that would eliminate any City obligations if Cordish misses the deadline.

KC Live, LLC would be responsible for all maintenance and capital repairs of their parking garages, with the City responsible only for repairs “necessary to the essential stability of the Block 110 and Block 126 garages.” There would also be a profit-sharing mechanism added to the amendment that would allow the City to collect a percentage of parking revenues.

Mayor Sly James objected to the wholesale changes proposed within the substitute, suggesting that the financing agreement didn’t contemplate lower rents at One Light and Two Light.

“I don’t know how you go back and retrofit a deal in this way,” said an incredulous James. “I just think this is a bad idea on some fundamental levels.”

In response, Canady pointed to the commitments related to low and moderate housing that Cordish agreed to in the initial MDA.

“Cordish made a commitment,” Canady said. “We are asking them to make good on that commitment.”

Eventually, City Manager Troy Schulte updated the Council committee on the latest in negotiations between Cordish and the City. Schulte said that the City is working to reduce the term of MDA – currently not set to expire until 2104 – to conclude by roughly 2035. Schulte also described an effort to limit the number of towers to four (concluding with Four Light), along with efforts to strike a deal with Cordish for the developer to proceed with a downtown affordable housing complex prior to moving on to a potential Four Light development.

“The next project that the city would work with Cordish on would be an affordable project at the Midland,” Schulte said.

Following Schulte’s testimony, the committee went into closed session. When the Council members returned, the committee (sans Mayor James) approved a modified committee substitute for Resolution No. 180142 in a 3-0 vote.

Canady spoke with the Northeast News after the Ethics and Legal Review committee meeting to provide some perspective to the committee substitute she introduced. Canady pointed out that the 2004 deal with KC Live, LLC has underperformed expectations.

“The financials have not proven to be as robust as they anticipated, and the city has been left holding the bag,” Canady said.

Canady also noted that the Council didn’t realize the 13th amendment to the 2004 MDA wasn’t explicitly mandatory until she and Councilwoman Shields began asking questions about the deal. The pair found that there is nothing in the MDA which states that the parking responsibilities of the City are explicitly mandatory.

“The issue is that there is no obligation unless there is an appropriation by the Council,” Canady said.

According to Canady, a handful of Council members considered spiking the amendment altogether before the legislation was re-referred back to the Finance and Governance committee. That group fell short of a Council majority, however, leading instead to the pursuit of a contract renegotiation.

While increased scrutiny has indeed been directed to the controversial deal, Canady acknowledged that she’s still searching for allies on the Council who are inclined to take a firm stand against Cordish.

“My understanding is that Cordish has always managed to keep City Hall on a string,” Canady said. “I don’t know what they do to keep people on their side.”

 

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