Real Development's ambitious Exchange Place condo project in the heart of downtown is moving forward. After a flurry of last-minute negotiations, Wichita City Council members approved a total of $10.3 million in city financing Tuesday. That gives the Minnesota-based developers the assets they say they need to secure a $30 million, federally backed loan.
Developers needed five votes to get there. They barely got them.
Council members Paul Gray and Jim Skelton voted against it. They warned that the city is taking too much risk on a project that both city staff and a Wichita State University real estate expert said would need several optimistic factors to align to succeed.
At least two other council members were undecided until Real Development co-founder David Lundberg said that he had secured $700,000 from an anonymous investor and would chop $200,000 more from the developers' profit margin.
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Another $414,000 was trimmed from the parking garage by taking one level —25 spaces — out of it.
"We just had to go back to everybody we knew and get more money for the project," Lundberg said.
Supporting council members pointed to the guarantees that would let the city recoup any shortfalls in repayment from Exchange Place LLC and development partners Lundberg and Michael Elzufon.
Lundberg said he was "extremely grateful" for the council's willingness to negotiate on the fly.
"We understand the risks, too," he said after the vote. "We don't want to start a project that's going to fail either."
If the council approves the deal in a second-reading vote next week, construction would begin Aug. 6, Lundberg said.
Important to downtown
Council member Janet Miller, who appeared to be the most adamant advocate of the project, said that Exchange Place is vital to the revitalization of downtown. It brings about 230 apartments that will one day become condos, more than 240 parking spaces, ground-floor retail and more.
She said the city staff report and WSU's analysis were conservative and don't include some of the fringe benefits, such as the projected $17 million in construction labor that involves about 250 jobs over 16 months. She also said the project should generate about $650,000 in sales tax.
"This is going to be a catalytic project," she said.
But even Miller said that the city was going "out on a limb" by approving the deal.
That's because the council's vote assumes the most optimistic of scenarios presented in a report that Stan Longhofer, director of WSU's Center for Real Estate, created over the weekend.
The scenario assumes that the apartments will be converted into condos after five years and that all of them will sell within five years of becoming condos.
Rapid sales would translate to a rapid growth in property values. That increase in property taxes would be used to repay the city for its investment.
Vice Mayor Jeff Longwell, who had voiced skepticism about the project, said he is convinced that providing more city financing will draw private investments and spur more development downtown.
The project is about $46 million total. Longwell said that's close to $19 million in private investment in exchange for the city increasing its financing from $9.3 million approved in 2008 to the $10.3 million approved Tuesday.
"That's a pretty darn good ratio," he said.
Several downtown businessmen advocated on Real Development's behalf, telling council members that the developers are dramatically improving downtown and that their project provides critical parking spaces and could help jump-start more development.
But the developers also faced opposition from Americans for Prosperity and other advocates of limited government.
Susan Estes, a field director for the group, said she was glad to hear that Real Development's moves downtown are generating competition and leading some property owners to reduce rents or make improvements.
But she said that it's not fair when one of the developers is receiving government financing.
"Sometimes we're really not considering how we're giving one person an advantage over another," she said.
Before the council's vote, council member Gray noted that the national financial meltdown was fueled by lenders offering people and businesses money without requiring much collateral. Using the most optimistic scenarios opens the city up to more risk, he said.
"If we're going to be a bank, we have to act like a bank," he said. "Banks are conservative with their money right now and they have to be."