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Kansas City apartments to get tax breaks for ‘food desert’

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This is a rendering of the Opus Group’s proposed 256-unit apartment project in Briarcliff. It includes 15% of its apartments set at affordable rental rates.

The Opus Group/Port Authority of Kansas City

A proposed apartment development in the Northland’s Briarcliff area that is less than a mile from two grocery stores likely will receive a break on how much it pays in property taxes, in part because of the site’s designation as a food desert — a place without access to fresh, healthy food.

The Opus Group wants to build a $54.5 million, 256-unit apartment project on undeveloped land at the southeast corner of Briarcliff Parkway and Missouri 9. The site is just across the highway from the larger commercial Braircliff development, an upscale district that includes restaurants, a hotel, office space and a GreenAcres grocery store.

Just more than a half mile west of the Opus proposal is a Red X grocery store in Riverside.

Opus-apartments map.jpg
The Kansas City Star

The U.S. Department of Agriculture generally defines a food desert as a census tract where the poverty rate is 20% or greater, the median family income is below 80% of the statewide or metropolitan median, and 33% of its population lives more than one mile from a grocery store.

The Opus apartment proposal is at the extreme northwest corner of a distressed census tract that primarily extends southeast to cover the Harlem neighborhood, the Charles B. Wheeler Downtown Airport and North Kansas City. Taken altogether, 8.6 percent of people in the tract are in poverty and median income is 67% of area median income.

The larger Briarcliff development is in a separate census tract whose southern boundary is Missouri 9.

The Opus proposal satisfies some of Kansas City’s larger development goals, including 15% of its units being set aside for affordable housing.

Commissioners for the Port Authority of Kansas City, or Port KC, on Monday approved a resolution saying the agency would issue $50 million in bonds for the Opus apartments. That would result in the project getting a partial exemption on property taxes and make the developer exempt from paying sales tax on construction materials as it builds the apartments.

Records obtained by The Star through a Missouri Sunshine Law request show that Port Authority staff pushed the developer on the idea that the project was in a food desert.

“Would you reach out to Opus and mention that it would be good to add to the narrative of their presentation that the project is in a designated food dessert [sic] and has a distressed census designation of 68% of AMI?” Port KC executive director Jon Stephens wrote in a Feb. 8 email to James Mulick, the agency’s development finance and asset manager.

“Wow, I wasn’t aware of those designations for this area of Briarcliff,” Mulick responded.

Greg LeRoy, executive director of incentives watchdog group Good Jobs First, said developing apartments in an area thought to be a food desert could — “emphasis, could” — make sense if it’s part of a broader strategy to improve the conditions that caused a food desert, such as adding disposable income to an area that might make a grocery chain believe it’s profitable to open a location near the apartments.

“But hopefully you would then be doing things like having a specific place in mind where the grocery store could succeed and zoning land for that purpose and looking for a grocery chain that is amenable and doing other things as a wraparound for that strategy if you’re seriously addressing that food desert,” LeRoy said.

Otherwise, LeRoy said, cities run the risk of arbitrarily using census tract designations just to qualify a specific project for subsidies.

There doesn’t appear to be a specific strategy to improve access to food in Briarcliff.

“All of our work and public positions roll up to the mission of equitable and accessible economic growth,” Stephens said in an email to The Star. “Rather than develop individual census tract strategies for any reason, we look to the more complete picture of our larger mission for KCMO, that does include supporting projects in designated areas of distress or need.”

Port KC is a Missouri agency that was once primarily responsible for managing land along the Missouri River and serving as the landlord for the Isle of Capri riverboat casino.

Port KC’s profile has grown in the last several years as an agency keen on assisting developers with various projects, including office buildings near the Country Club Plaza, industrial development throughout Kansas City and urban apartment projects.

While Kansas City’s mayor appoints Port KC’s commissioners, the agency itself is independent from the city. It can grant exemptions from property taxes as an inducement to help with financing for development projects.

Stephens, in an email to The Star, said the food desert designation was only “a contributing factor” to the agency’s decision to assist with the Opus project’s financing.

“In the case of housing, our Board Chair has previously stated very clearly that distressed areas and food desert designations are important pieces of information to know for Commissioners when making decisions on these projects,” Stephens wrote. “Staff agrees.”

Port KC attorney Brian Rabineau in an email cited the food desert designation as a driver for the project getting incentives.

“The site is in a food desert and distressed census tract, so the need for incentives was an inherent assumption,” Rabineau wrote.

The Feb. 19 email was to attorney Doug Stone to explain why Port KC had not conducted a financial analysis of Opus’ proposal for incentives.

Stone, a real estate attorney for the Lewis Rice law firm, represents JVM Realty, the owner of a nearby apartment project in Briarcliff where rent ranges from $1,406 for a one-bedroom unit to $1,753 for two bedrooms. Stone requested Port KC’s analysis of Opus’ proposal to see if Opus was seeking an appropriate level of incentives and not receiving so much that it could undercut existing apartment rents.

“We still haven’t heard what the analysis showed,” Stone said at Monday’s meeting of Port KC commissioners.

Other agencies in Kansas City that provide tax incentives to developments hire third parties to analyze developer proposals and whether they receive an appropriate level of incentives. Port KC does its own analysis.

“We have built a staff with significant expertise in finance and development, and believe that following a public process with project-by-project local analysis to be a solid model,” Stephens said in an email. “They analyze the pro forma assumptions provided by developers.”

Stephens confirmed to The Star that it had no written analysis that reflected Port KC’s vetting of the Opus development.

According to Opus’ financial pro forma, which is a summary of the proposal, market rate rents for its project range from $1,050 for studio units to $2,050 for a three-bedroom, two-bathroom unit.

Of the 38 apartments Opus is designating as affordable, 15 units will be studios with a rent rate of $1,050, the same as the market rents for studio units. There also would be 12 one-bedroom units that go for $1,128 a month, which is down from $1,340 charged for market rate one-bedroom units. Finally, there would be 11 affordable two-bedroom units for $1,354 a month, compared to $1,600 to $1,725 per unit for market rate two-bedroom units.

Opus’ pro forma shows it would generate a 5.7% internal rate of return over 10 years if it charged all market rate rent for the project and received no incentives. Internal rate of return is a common calculation for developers to determine the return for their investment.

With incentives and by setting aside 15% of its units as affordable, Opus’ internal rate of return would be 6.3%.

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Steve Vockrodt is an award-winning investigative journalist who has reported in Kansas City since 2005. Areas of reporting interest include business, politics, justice issues and breaking news investigations. Vockrodt grew up in Denver and studied journalism at the University of Kansas.

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