Title
Presentation: Conceptual Economic Development Incentive Request for Pathways at Kensington Farms; Petra Development, applicant.
Body
Issue/Request:
The applicant is requesting that the Council consider using Chapter 100 to provide the following incentive benefits to the multifamily (townhome and apartments) components of the project:
(1) Sales tax exemption on the purchase of construction materials used for construction of townhomes and multi-family residential units.
(2) Real property tax abatement through Chapter 100 with a fixed PILOT starting at $1600 per unit, which is approximately 55% abatement, for ten years.
Background:
Neighborhood Improvement District
In 2006 and 2007, the City of Lee’s Summit, Missouri (the “City”) was working with Pulte Homes of Greater Kansas City, Inc., an affiliated company of Pulte Homes, Inc., a publicly traded company listed on the New York Stock Exchange, on the development of approximately 320 acres expected to be built into four neighborhoods in two phases to include over 700 homes (the “Development”). By January 1, 2007, the Developer acquired the site and made significant site development improvements within and adjacent to the Development including: (i) construction of a water storage facility and water distribution and water transmission lines, (ii) construction of road infrastructure, and (iii) construction of storm sewer, sanitary sewer, electrical and related utilities. The Developer entered into an agreement (the “Development Agreement”) with the City that provided, among other things, for the funding and dedication of various public improvements.
On July 13, 2006, the City established the Kensington Farms Improvement Project Neighborhood Improvement District (the “District”). The District was formed after a petition by the Developer to provide for the construction and financing of public improvements, primarily street and road improvements (the “Project”), benefiting the property within the District. A NID is not an entity that is separate from the City and does not have a board of directors like a TDD or CID. The NID is created by the City and facilitates a financing for public improvements.
Bonds (the “Bonds”) were issued in April 2007 by The Industrial Development Authority of the City of Lee’s Summit, Missouri (the "Authority") in the amount of $5,500,000 to finance the Project, with the Bonds to be paid from special assessments levied for a period of 20 years against the privately owned real property within the District benefited by the Project. The Developer divided the Development into eight areas for different types of housing. Each area was allocated a designated percentage of the final assessments to be imposed for the costs of the Project. The special assessments for the Project to be imposed on property within the District were projected to range between $507 and $913 per lot annually, depending where the lot is located, and subject to minor adjustments based on an increase in the Consumer Price Index. Undeveloped/unplatted land was assessed based on the total land area and was expected to provide for an allocation of special assessments for lots as they developed in the projected range discussed.
In 2008, the economy took a downturn and the Development faltered. The Developer eventually stopped the Development and sold the property to another development group, but little additional construction has occurred beyond completion of lots that had initially been finally platted by the Developer. The Developer and its successor have failed to pay the special assessments and taxes owed on property within the Development and the Bonds went into default. The Bonds are currently held by a small group of investors, and the bonds are managed by the trustee for the Bonds (the “Trustee”).
Starting in 2017, bond counsel for the City was in contact with the Trustee’s legal counsel about a possible restructuring of the NID. The Trustee conducted a tax sale for payments due and has expressed the intent to “right size” the bonds. The land now proposed for development was purchased from by the Trustee in satisfaction of the portion of the outstanding debt that was intended to be funded by the special assessments should have been paid by the property owner of this land.
NID Status Today
The money received from the land sale was in partial satisfaction of the outstanding debt. The NID assessment payments continue to be paid by the properties in the area that has been developed. The lots and tracts in the platted areas are paying approximately $156,000 each year in the aggregate. The total outstanding amount of the NID debt is about $626,023 today. The NID debt is expected to be fully paid after four more years of assessments, in 2028.
Developer Request
The applicant requests approval of a preliminary development plan (PDP) for five hundred forty (540) total residential units on 113.35 acres. The development includes three phases:
Phase 1 - 235 single-family residential units. This phase is not eligible for Chapter 100 because this is not commercial development.
Phase 2 - 177 townhome units. This area is considered commercial development as a matter of state law and would be eligible available for Chapter 100.
Phase 3 - 128 senior-restricted duplex units and three clubhouses with amenities. This area is also considered commercial development as a matter of state law and would be eligible for Chapter 100.
The attached presentation slides provide detail about the requested incentives.
Presenters
Andrew Kovar, Project Attorney, Spencer Fane
Tyler Burks, Managing Director of Development, PETRA
David Bushek, Chief Counsel of Economic Development and Planning