By Duke Dennis

When it comes to Tax-Increment-Financing (TIF) in the context of commercial real estate, it is best to focus on the gap between “theory” and “reality” or, said differently, “does theory always yield the expected results?”  A recent financing assignment in the suburbs of Kansas City, which featured a TIF component, is the perfect example of how the intentions of public policy are yielding the desired outcome.

Tax-Increment-Financing

A quick recap on TIFs:  Tax Increment Financing is a form of subsidy offered by municipalities to encourage and support private development and redevelopment, in pre-defined areas, by reducing the cost of the development, thus helping the developer complete the project.

In the late 1990’s a TIF district was passed in the town of Lenexa, Kansas, with the vision that one day this TIF would change the landscape of the city.  The city’s objective and intent behind the TIF is to “promote, stimulate and develop the general and economic welfare of and quality of life in the city.

In the heart of Lenexa’s TIF district is Lenexa City Center, which is turning into a “new” downtown of Lenexa that will serve as a commercial and residential hub with nearly 3 million square feet.  If positive outcomes are truly the goal, Lenexa is on its way to a “Home Run” with the following new developments currently under construction or completed:

  • The Hyatt Place Hotel – A 127 room hotel featuring a 14,000 SF conference center. Opened in Q2 of 2015.
  • Penrose Place – The city of Lenexa has approved over $16MM in city funding for Marriott to develop a 124-room hotel with ground-floor retail and apartments. This development broke ground in the Q4 of 2015.
  • Lenexa Civic Center – A 5-acre, 200,000 SF mixed-use facility featuring Lenexa City Hall, ground floor retail, outdoor plaza, 500-space parking garage, indoor track & aquatic center, gymnasium, art room, child play area, art gallery, 250-seat public forum, and will serve as home to several municipal departments. The $75MM Civic Center is currently under construction and expected to open in Q2 of 2017.
  • Lexmark Enterprise Software HeadquartersTwo 4-story office buildings to house the firm’s 750 employees.
  • E. Smith Headquarters – In 2012, B.E. Smith, a full-service healthcare leadership solutions firm, bought a newly completed 71,000 SF mixed-use office building that houses 200 employees.
  • Domain at City Center – A 200 unit apartment project that is currently under construction.
  • North Village Townhomes – A 61-unit townhome development that is expected to break ground in the 4th quarter of 2015.

It is apparent through these new developments, along with the newly created jobs, that TIF theory works!  By offering incentives to developers and employers to make new development less costly, Lenexa was able to recast the landscape of their city.  By creating a Public/Private Partnership, everyone wins: City, Developer and Tenants.  This same tape is being played in municipalities all over the country.  And, TIF incentives can come in many forms, including:

  • Up-Front Equity Injection
  • Utility Cost Sharing
  • Street-Scape Improvements
  • Revenue Sharing
  • Property Tax Abatements
  • Sales Tax Abatements
  • Project Cost Reimbursements

Metropolitan Capital Advisors has successfully capitalized many projects featuring a TIF component and has even negotiated the terms of a TIF agreement with governing municipalities.

To learn more about this topic, please contact the author, Duke Dennis, Senior Analyst with Metropolitan Capital Advisors.  ddennis@metcapital.com (972) 267-0600.