Real Development's ambitious condo project in the heart of downtown could be in trouble.
Even in optimistic scenarios, its proposed $2.3 million boost in city financing would put taxpayers at risk, according to an analysis released Monday by Stanley Longhofer, director of Wichita State University's Center for Real Estate.
That — paired with an unfavorable recommendation from top city staff members— gives Wichita City Council members all the evidence they would need to deny the additional financing at their meeting this morning.
But the Minnesota-based developers said they were still working on alternatives even as they flew into Wichita on Monday afternoon.
By the end of today, Real Development CEO Michael Elzufon said, he thinks developers can find a way to reduce taxpayer risk and reach a compromise with City Council members.
"We're going to make it work," he said.
Instead of the $2.3 million currently requested, Elzufon said a retooling of the plan makes the gap more like $1.9 million.
Developers need the money to secure a $30 million federally backed loan.
Elzufon said he wouldn't detail how developers plan to close the gap until today, but he said they have alternatives.
They'll need them.
City officials have not changed their recommendation of giving a maximum increase of $440,000 to the $9.3 million in financing council members approved in 2008.
Meanwhile, Americans for Prosperity-Kansas took out a full page ad addressed to City Council members in The Sunday Eagle.
It calls the proposal a bad deal and called tax increment financing a "zero sum game" that transfers development from one part of town to another and forces others to pay more taxes or have fewer services.
It takes at least five council votes to approve any changes to tax increment finance districts, and several council members have already said they won't approve a deal that looks risky from the beginning.
The project involves renovating the Exchange Place and Bitting buildings into a 230-unit apartment complex with a 298-vehicle garage and retail stores at ground level. The apartments would be converted to condos in about five years.
But last week, city officials and Goody Clancy, the consultant working on a long-range downtown revitalization plan, said the city can't count on the condo conversion.
Council members put their vote off a week and asked WSU's Longhofer to evaluate the project.
His report Monday shows that Real Development made assumptions on rental rates, condo sales and occupancy rates that could be hard to achieve.
Projected apartment rents in Exchange Place are set at $1.12 to $1.48 per square foot. That's higher than any current rents downtown, although Longhofer reports that new projects — the Flats 234 and Finn Lofts — are said to have similar rates.
Developers want to convert the apartments into condominiums starting five years from now. That would triple what's downtown now, and more condos could be sold based on existing real estate studies.
But even with current market rates and quick condo sales, the project might not generate enough property taxes to pay back the city's investment.
That puts more pressure on Real Development to fill its office properties inside the TIF district, and the report says that would require a "substantial influx" of new businesses or a lot of people to move from other downtown buildings.
"You'd need to just have the values of the office properties and the condos to be substantially higher than where they are," Longhofer said in an interview Monday.
Elzufon said that he had agreed to accept the report's findings and he stands by that, although he said it was disappointing.
"We understand what everyone wants to achieve," he said. "We don't want to put the taxpayers or ourselves at any extraordinary risk."
Some council members who had looked at the WSU report said they just can't support the development.
"I love the project. I think it'd be good for Wichita," said council member Jeff Longwell. "But I'm not willing to go out on a limb on a hope and a prayer. We have to have something more tangible than that."
He noted that the proposed deal would make Exchange Place LLC, Elzufon and his business partner, David Lundberg, responsible for covering any shortfalls.
"But we're not there yet as far as I'm concerned," he said.
Council member Janet Miller said the developers need more private money or the council will probably have to say no and force them to restart their application for the federally backed loan.
"There aren't many guarantees in life, and sometimes you have to do what you have to do to go where you want to go," she said.