a MWM CRE event recap
Roxsen Koch, shareholder with Polsinelli PC, and Jason Swords, principal with Sunflower Development Group, joined moderator Christine Johnston, CPA, CGMA, CMA, partner with MarksNelson LLC, for a live webinar discussion hosted by CREW KC this Tuesday.
The panelists discussed tax increment financing (TIF) in Kansas City, Mo., economic development incentives and future challenges facing developers in a post-pandemic world.
Koch began with explaining that TIF is an economic tool enabled through the State of Missouri which allows developers to capture the tax increment that a real estate project generates in order to finance a project which otherwise might not be financially feasible.
Although TIF has been used by developers on many prominent projects in Kansas City, Mo., its future use may be more limited, especially to finance any hospitality and retail project in the immediate future, according to Swords.
“I think that’s the tool for keeping jobs,” Swords said.
Koch, who was involved with the financing of the Loews Kansas City Hotel project, said TIF financing along with several other economic development tools, were incorporated into the hotel project. Although its opening was delayed, the hotel recently opened amid the pandemic.
“Obviously, timing is everything. We were very fortunate to obtain the financing when we did. In today’s market, I don’t think you would see the project come forward. Any project of this nature in Kansas City, Missouri really would be substantially on hold until we knew more about what the world in the future would be,” said Koch.
According to Koch, there are a lot of challenges amongst successfully financing a project today.
“You need to have investors who want to have a certain return on their investment to be committed to the project. You have to show you have a team that’s knowledgeable in the construction of that particular project and the operation of that particular project,” said Koch.
Swords predicts that getting a deal financed in the next few years is going to be tough.
“We’re only seeing the beginning of the triage that is out there. Fifty percent of our small business tenants aren’t going to make it. I think there’s a lot of money on the sidelines waiting for distressed assets,” said Swords.
Both Koch and Swords agreed that TIF will always be a tool for developers in Kansas City.
“If policymakers do not embrace the use of TIF on projects that the city wants to see developed, then investors will simply take their money someplace else and they won’t invest in Kansas City,” said Koch.
Swords acknowledged that although obtaining incentive tools from Kansas City, Mo. is not an easy process, the city has been a leader in spurring redevelopment.
The duo agreed that the one market segment where consumer demand remains strong is housing.
“I think that everything else is too spec, too tough, too difficult. Housing is the only kind of project we’re working on today,” said Swords.
Koch added that developers still need economic development tools to make housing projects happen. Although TIF is not typically used to finance housing, Koch noted that there are other economic development tools available to developers such as tax abatement.
“I think that the important thing is to sit back and be prepared for what’s to come. None of us really knows what that looks like right now,” Koch said.