A prominent downtown development group could be forced out of Wichita if the City Council says no to an additional $2.3 million in incentives for a condo project, the city's downtown revitalization consultant warned Tuesday.
Wichita City Council members put off for a week voting on whether to give Real Development a boost to the existing $9.3 million in tax increment financing for the Exchange Place project at Market and Douglas.
"If the TIF is denied, the City runs the risk of Real Development liquidating its assets and leaving Downtown Wichita," Goody Clancy officials wrote April 2 in a two-page letter to the city. "The Douglas 'core' would be seriously threatened."
That would be a major setback to the city's effort to add residential, office, retail and parking to downtown.
Over the next week, the city plans to have a third-party appraiser — as yet unnamed — analyze city cash flow projections to see whether the project will generate enough new property taxes to pay back the city's increased investment.
"The review could go either way," said council member Janet Miller, who proposed the additional work.
The Exchange Place project involves a collection of 230 condos and a high-tech, 298-space parking garage estimated at $46.5 million. It would also have ground-floor retail and improved sidewalks.
If approved, the project would include $11.6 million in public investment and $34.9 million in private, city reports show.
The big issue centers on whether the city should assume in its calculations that Real Development will turn the 230 apartments it plans on building into condos in about five years. The developers are confident they will.
But Goody Clancy warned that there are no guarantees the Exchange Place condos can be sold in a tight credit environment.
"It's a pretty good project," said David Dixon, the principal in charge of planning and design for the Boston-based consultant. "We like it.
"But how can the city be sure the condos will sell like the developers have confidence they will?"
Vice Mayor-elect Jeff Longwell said city staff leans toward conservative projections and tries to be very careful not to have surprise shortfalls on the balance sheets.
"There's very little tolerance for any hiccups," he said.
A third-party appraisal of the project — from Wichita State University or a private appraiser — would give them an unbiased view, he said.
So how did Real Development officials feel walking out of City Hall?
"Without a no. Not necessarily a yes, but a maybe," Real Development partner Dave Lundberg said.
Going into the meeting, city urban development officials recommended giving only $440,000 — instead of the $2.3 million requested.
Goody Clancy officials said flatly in the letter that the downtown market needs low-priced condos, between $99,000 and $225,000.
But they questioned Real Development's optimistic projections that the condos can be sold in a tight credit market.
"While the for-sale option seems plausible, what we struggle with is how can the City be assured that the units will be sold in subsequent years," the four officials wrote. "The city's money will already be in the project."
Much at stake
The TIF request is the linchpin of Real Development's plan to emerge from financial problems.
Real Development — also known as the Minnesota Guys — plans to close May 7 on a $7 million refinance of the Wichita Executive Centre at 125 N. Market, clearing equity to allow the repayment of $2 million in delinquent creditor bills.
Real Development also has a commitment for a $30 million loan for the Exchange Place project from the U.S. Department of Housing and Urban Development.**
TIF districts capture the increase in property taxes generated by new development to pay for land acquisition, demolition and public improvements.
Earlier this year, Real Development partner Michael Elzufon said flatly that the project is dead without the city's TIF approval.
But after Tuesday's meeting, Lundberg backed off that stance, calling Elzufon's pronouncement "premature."
He said Real Development officials were working on a plan to "substantially" bridge the $2.3 million gap, but declined to specify what cuts were being considered or how much they could save.
That statement came after several Real Development advocates told the City Council that project costs couldn't be trimmed with the HUD loan approval in hand.
The city's suggestion that developers create a community improvement district that would allow developers to charge special assessments on tenants and tack on a 2-cent sales tax to retail purchases is apparently dead, officials said.
Council member Paul Gray said the city's decision is important because it could affect how much people support the forthcoming downtown revitalization plan and the public investment it's likely to call for.
"We can't continue to have failures and expect the (residents) to support us when we engage in a plan for downtown," he said. "There's a lot of people that don't trust us now."
These numbers correct dollar amounts that were wrong in the original version of this story, published Monday. Return to story.