by Mary Wilson, mwilson@jcadvocate.com
The developers of Gateway Village are asking the City of
Grandview for an investment into the private development before the project can
proceed. On Tuesday, March 6, representatives of the project met with the
Grandview Board of Aldermen, leaving an $8 million question on the table.
“Basically, we are at the end of our rope, to be brutally
honest,” said Greg Cotton, President of PG, LLC, Gateway’s development company.
“Hopefully we can move this project that has been a big dream for the past
several years into reality. Quite candidly, we’ve heard that there might be
some bad blood between the Board and our development group and maybe some deal
fatigue setting in. It’s a quarter-of-a-billion-dollar deal, and that takes a
lot of time. That’s not the type of partners we want to be.”
Cotton added that his team believes in the power of a
public-private partnership. Gateway is asking the City of Grandview to make a
contribution into the infrastructure of the development, including roads,
lighting, grading, gas and sewers that would in-turn be owned by the city.
In 2016, the Board of Aldermen approved a tax-increment
financing (TIF) plan, and while the project scope has stayed roughly the same
since then, there have been a few changes. The 250-acre site, owned by PG, LLC,
located off of 150 Highway and Byars Road, will feature 15 synthetic soccer and
sporting fields, a multi-sport fieldhouse, approximately 400,000 square feet of
retail, 540 hotel rooms, 864 new residential units for over 2000 new residents
in Grandview, and would bring in roughly 1.8 million visitors annually.
“We had an agreement a year and a half ago, and now you’re
asking for something different,” said Mayor Leonard Jones.
Currently, the property generates $1000 per year in property
taxes. Over the lifespan of the TIF, Cotton said that the City could see $155
million in projected new tax revenues from the development. PG also estimates
around 400 new jobs will be created between the construction of the project and
openings associated with the commercial retail and soccer operations.
“This is a project that is fully designed and shovel ready,”
said Cotton. “The reason that this project is here is that we, as a development
team, are the beneficiaries of a 25-year market-rate lease with Heartland Soccer
Association. That is, without a doubt, the most lucrative youth sports contract
in the United States. That supports a certain amount of debt repayment.”
All of the money from the Heartland lease has been pledged
to repay the private debt that will be incurred to pay for the fields.
Heartland Soccer Association requires, according to Cotton, that those fields
be opened as soon as possible.
“They want it by the fall of 2018,” said Cotton. “We are
under intense time pressure to get that done.”
According to Cotton, every other area soccer complex has been paid for using public funds. Because the market has been accustomed to these developments being paid for publicly, bank underwriters have not seen a private development of this scale.
“What we’re talking about here is the very first live, work,
play and entertainment zone complex, truly, in the country,” said Cotton.
“We’re calling this Soccer 3.0. It will attract a huge volume of people that
are all looking for commercial opportunities.”
The development will be constructed in phases, and the first
phase was discussed last Tuesday. The first part of phase one, called project
one, includes the soccer field installation and commercial development that is
ancillary to the soccer portion of the complex. Approved in 2016, the
pay-as-you-go $43.7 million TIF agreement and CID (community improvement
district) plan must be pledged to the lending organization in order to repay
private debts incurred, according to Cotton.
“The developer, as the plan is situated today, takes 100
percent of the risk of operating this facility,” said Cotton.
After the TIF was approved, the developer was unable to
obtain financing on the entire phase one. Multiple lenders suggested that the
first phase be broken down into two projects. The construction costs for
project one came in around $38.5 million, which included $9.2 million in
infrastructure expenses.
“The consensus was, after meeting with 15-18 different
lenders, that the city didn’t have any skin in the game up front in terms of
real cash,” said Matt Webster, Senior Vice President of George K. Baum and
Company, who has served as a financial advisor for the developers. “The banks
didn’t really have any interest in lending on the roads and improvements to
those roads that would ultimately be dedicated to the city.”
The $9.2 million infrastructure cost was shaved down to $8
million in order for the developer to feel comfortable with the repayment
sources, and the banks felt that an infrastructure contribution from the city
was vital to financing the development, according to Cotton.
“We are asking the City for $8 million in infrastructure
cost improvements, whether built by the city, built by us, or whatever process
the city would allocate or create,” said Cotton. “We came to that number from
the total infrastructure costs being $9.2 million, then meeting with the banks
and our experts and getting the loan to cost ratios to a level that the banks
would say yes. This $8 million is critical.”
Cotton said that while the City’s TIF agreement with the
developers is a significant investment, underwriters do not view that as a
direct contribution into the project. Besides the pressure to complete the
fields from Heartland Soccer, the developers are also feeling pressure from the
banks, as the predevelopment line of credit has been exhausted. $7 million of
the developer’s private funds have been invested into the project as payments
continue to be made on that preconstruction loan.
“We were at the end of our rope when we met with the
Aldermen last time, and we’re even more now,” said Cotton. “Over the past seven
or eight months as we’ve tried to get this project started, that’s real money
that has racked up. $7 million of
private investment in Grandview is a significant amount of money. We can no
longer afford to continue making those payments.”
With the $8 million ask, the City of Grandview’s total
investment into phase one of the project would be around 21 percent, or three
percent of the completed development. The total development expense for the
entire Gateway Village project is $234 million. The City of Grandview
previously suggested that a neighborhood improvement district (NID) be
implemented in order to help cover the investment costs the developer was
requesting of the city. According to Cotton, lenders viewed this is a developer
debt and not equity. In February, the developers received a final offer from
the City of Grandview that included $3.7 million of infrastructure costs, which
the developer deemed insufficient.
The developers suggested that the City of Grandview carve
out portions of funds from other allocated sources to cover the $8 million
infrastructure costs. According to the City of Grandview’s economic development
director Troy Nash, the city does not wish to incur any new debts for the
project and create liability or obligation. Alderman Sandy Kessinger stated
that the developer should consider decreasing the already-agreed-upon TIF
amount by $8 million, which already included reimbursable infrastructure costs.
“I work at a bank, and I know that infrastructure costs are
usually factored in,” said Kessinger. “I think it’s interesting that you say
you’ve talked with 20 banks who say they won’t finance the infrastructure. To
my knowledge, since I’ve been on the Board, we’ve had a lot of private
development projects come across and we’ve never had another company ask us to
finance infrastructure.”
Previously, the City has been told that the developer did
not wish to change the initial agreement, and that the $8 million infrastructure
costs are over and above the agreed-upon TIF plan. Through conversations last
Tuesday, the developer has now agreed to adjust the TIF plan accordingly should
the City of Grandview decide to fund the infrastructure for the development.
Cotton said that the project is unique and should be considered
a community amenity, which will benefit more than the private developer.
“Deron Cherry is giving a gift, in many ways, to the
citizens of this city,” said Cotton. “He is putting his own private money where
public entities have only put their money before. There are probably 8 million
reasons not to do this. We know and we’ve been told that the city can’t afford
it since day one. This is a city that prides itself on fiscal conservatism and
has managed its budget extremely well over the years, and you should be proud
of that. But, at the end of the day, this is a project that doesn’t land in
your lap very often. This is an opportunity to create a project that is truly
transformative.”
The City of Grandview’s general fund, which has not seen an
increase in the last 10 years, is approximately $15 million annually. City
Administrator Cemal Gungor said that because the City is responsible for taking
care of 26,000 residents who have other needs than soccer fields, $8 million is
a scary figure to try and allocate out of that general fund. Ultimately, a
decision will be made one way or another by the Board of Aldermen later this
month on how they plan to proceed with Gateway’s request.
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