After six years, the financing appears to be in place for the oft-delayed Exchange Place apartment project downtown.
The Wichita City Council agreed Tuesday to increase the city’s tax increment financing, or TIF, to $12.5 million for the $66.6 million project, a $3.9 million increase that the city said was made necessary by interest rate hikes. The foundation of the project’s financing is a federal loan for $29 million from the Department of Housing and Urban Development. TIF districts divert future taxes on a property to help pay for improvements.
The approval didn’t come without a minor flap over the no-bid nature of a parking garage in the project, built with TIF proceeds and then handed over to the developer. That goes against a two-year city policy against no-bid construction contracts.
Exchange Place originally was the centerpiece downtown project of Michael Elzufon and Dave Lundberg of Real Development, better known as the Minnesota Guys. But as the two developers ran out of cash, fell behind on their bills and became the subjects of an as-yet-unresolved securities case in Kansas, they passed the project on to veteran developer John McWilliams, who city officials said is an expert in HUD residential projects.
It includes work or demolition on four long-vacant and dilapidated downtown buildings at Douglas and Market: Exchange Place, site of a vandalism fire; the Bitting building across Market to the west, and the Michigan and Lerner buildings just east of Exchange Place. In this case, the TIF proceeds would fund:
The additional TIF money is needed because rising interest rates created an almost $4 million funding gap in McWilliams’ financing plan, according to city documents. The higher rates led to a smaller Housing and Urban Development loan for the project, according to city staff.
Alan Bell, the city’s urban development director, told the council that the city is able to increase the amount of TIF funding because a new project plan is being adopted.
Bell said the project’s financials include a little more than $29 million in federal loan funds, $12.5 million in TIF revenues from the city, $19.3 million in historic tax credits and $5.6 million in private equity.
McWilliams will receive an $8.86 million development fee from the financing package.
McWilliams’ Exchange Place plan includes 230 apartments in two vacant buildings and a new addition, and the construction of a 273-car automated parking structure.
The parking garage will not be bid in accordance with city policy, since the project has been in progress for six years under a contractor, Wichita-based Key Construction. Also, HUD loan regulations fix the cost of the project, with all cost overruns borne by the contractor.
Susan Estes, a spokeswoman for Americans for Prosperity-Wichita, urged the council to put the project out for bid “to save taxpayers’ money.”
But Bell said a separate contractor for the garage would be impossible with Key building other parts of the project, which share common walls along with Douglas with the planned garage – located on the site of the old Michigan and Lerner’s buildings downtown.
City officials estimate that the increased tax revenue from the Exchange Place improvements would more than double the assessed value of the project, to $17.3 million.
The financing hurdle is the latest obstacle in a six-year effort to revitalize the deteriorating downtown buildings. The council first approved a TIF district to help finance the project in May 2007 for Real Development
Their 2007 plan called for the construction of a multi-level parking garage and the conversion of the vacant building into 91 residential condos, residential parking and ground floor retail space.
The sale to McWilliams, which included compensation to Real Development for its work lining up tax credits for Exchange Place, removed Elzufon and Lundberg from the pair’s most visible pending Wichita project. The group’s other main Wichita project, the Wichita Executive Centre at 125 N. Market, has been taken over by the Security National Insurance Co. of Salt Lake City, the primary creditor.