September 9, 2012

City Council members not happy with developer’s e-mail criticizing policy

A prominent Wichita developer angered several Wichita City Council members with a recent e-mail that blasted the city’s new tax abatement policy for speculative commercial buildings as “government cronyism.”

A prominent Wichita developer angered several Wichita City Council members with a recent e-mail that blasted the city’s new tax abatement policy for speculative commercial buildings as “government cronyism.”

Wichita commercial developer Steve Clark, a longtime opponent of public subsidies for private projects, said city policy has forced him to accept economic development incentives to produce competitive projects downtown. He is among the principals seeking a tax-increment financing district and a $1-per-year lease of public property for a West Bank residential project near Second and McLean.

“You may take these thoughts for what they are worth and do with them what you wish, but this type of treatment of those in town with significant risk based investments that are paying substantial property taxes — and I might add year after year whether the property is full OR vacant — will not be soon forgotten,” Clark wrote.

In August, the council approved 10 years of tax abatement for new speculative industrial buildings without specific job creation requirements. The reason for the policy shift is simple, council members said: The city is 0-for-20 in industrial recruitment in 2012, unable to bid projects because of a lack of readily available warehouse space.

Site selectors aren’t looking for a commitment to build; rather, they’re looking for buildings ready for a business to move in with ceilings as high as 28 feet, council member Pete Meitzner said.

“We’re drastically short of available space to even get into the game with these companies,” he said.

“We are not competitive,” council member James Clendenin said. “The whole point is to make the city of Wichita competitive. It’s our job to make sure the city is poised for growth in every single area.”

But Clark said the abatements put existing Wichita building owners at an immediate rental disadvantage, building in the equivalent of a $1-per-square-foot subsidy for a $5-per-square-foot lease in a real estate business that has small margins.

In an interview, Clark doubled down on his opposition:

“We think it’s a huge mistake to offer these incentives as they’re doing,” he said. “There’s no way to not distort the market. It’s quite clear we can’t compete with someone who’s getting city incentives ...Once you condition the market to accept these incentives, there’s nothing someone else can do to remain competitive but accept them yourself. Like the things we’re working on with the city, now we have to accept incentives or we’re out of business.”

Clark’s position, and the e-mail, angered a majority of council members, some of whom also pointed to an Aug. 5, 2008, tax abatement and $9 million industrial revenue bond issue approved by the council for Clark and his longtime partner, Johnny Stevens, for Hoover Road LLC, a speculative commercial building project that eventually fell victim to the 2008 economic downturn.

Council members declined to comment on the record about Clark’s comments, since Clark’s downtown project proposals — characterized as a downtown multi-family project on the west bank of the Arkansas River and others — remain the subject of closed sessions with city staff and have not been discussed in open session.

Clark said some specifically targeted city incentives have a place in downtown’s redevelopment.

“I think they’ve got some infrastructure problems and in order to redevelop downtown, they have to offer some sort of incentives,” he said.

But such incentives need to be closely vetted, Clark said, a process council members think they’ve tightened in the wake of the city’s investment problems at WaterWalk and with the Minnesota Guys’ portfolio of office buildings downtown.

“To come up with these grandiose plans of the past that are unsupported economically is no way to do it,” Clark said.

He proposed that the city resign itself to the realities downtown that “adaptive reuse” — the rehabilitation of old buildings — isn’t economically sound business.

“The way to take on downtown, I think, is to implode a lot of the older buildings. Not all of them, for sure, but there are plenty that need to be torn down,” he said. “Then make the land available for free for developers to bring their own skin in the game (capital) downtown. Because when you take on an old building, and its complicated cost issues, it’s a project that will never work economically without incentives and tax credits.”

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