RED Development gets a financial boost from Lee's Summit for Summit Fair development.
Perhaps the worst of the storm has passed, but it’s a story that one man believes still needs to be told.
Dave Wilson would like to see a recent Lee’s Summit city decision placed on a referendum, allowing the city’s taxpayers to make the final call. Wilson, assistant director of organizing for the Carpenters’ District Council of Kansas City & Vicinity, was one of about 150 union workers who protested the May 14 Lee’s Summit City Council meeting in shirts that read “No bailout for RED.”
That night, the divided council approved an $8.7 million loan to reimburse a private development project’s costs for public improvements, specifically for the construction of Ward Road and Blue Parkway. The loan will repay a portion of the private financing that RED Development obtained from KeyBank, the developer’s lender.
Mayor Karen Messerli voted “yes” to break the city council’s 4-4 tie. According to a Lee’s Summit city staff report published in March, the city has never provided an annual appropriation pledge to back tax increment financing revenue bonds issued for a private developer. In 2006, the Lee’s Summit City Council approved TIF for RED Development’s shopping center Summit Fair near U.S. 50 and Interstate 470.
The union’s concerns first started when RED Development hired a subcontractor based in Georgia rather than one in the Kansas City area, Wilson said.
“Usually, when you have an out-of-town contractor, they’ll bring their workforce with them, and the local folks who need the jobs right now won’t get the work,” Wilson said. “For us, there should be some requirement in these developments for the use of local workers. We’re competitive, but when you get a low-wage contractor from the South with a wage that’s 40 percent lower, that throws up red flags and makes us think something is wrong.”
Local contractors have provided 74 percent of total work among RED Development’s last five development projects in the Kansas City metropolitan area, including The Legends in Kansas City, Kan., said Dave Claflin, RED’s vice president of marketing.
“It was bid to local workers, and we preferred to have local workers,” Claflin said. “We were surprised to see the few local unions that bid come in significantly higher than the lowest qualified bidder. Normally, it’s less expensive to have local workers.”
James Hallam, District 1 council member, said the issue “is a deep subject and complex process that few people have gone through the process to understand.” Voting “yes” allowed Hallam to make “the less risky choice,” he said.
“This is a deep financial issue,” Hallam said. “It gets to be a decision of whether you want a shopping center to sit empty or make a loan.”
Initially, Hallam had leaned his vote in opposition because he needed absolute proof that JCPenney and Macy’s would open as Summit Fair’s two anchor tenants. He later received proof in writing that the two stores would open prior to the entire shopping’s center completion, which boosted Hallam’s confidence.
“I just didn’t want to take the word from anybody,” he said, adding that signs advertising the stores’ opening and need for employees “wasn’t enough proof.”
Summit Fair’s sales tax revenues will repay the city’s $8.7 million loan through a process called “coverage in financing.” For example, if the development expected $100 a day in sales based on historical data, Summit Fair would only have to yield $50 a day in sales and the city would collect those sales tax dollars.
Tightening credit markets have affected RED Development’s ability to secure private financing for the Summit Fair project. If the Lee’s Summit City Council had not approved the loan agreement, there is a risk that the project could have sat vacant, Claflin said.
“The economy has affected this project greatly in that all financial markets got much, much tighter in terms of restrictions and requirements, and we were not immune to that at all,” he said. “We had to get much greater equity into the project than we had previously, and that’s affected it across the board.
“In our leasing efforts, we started this project almost at the perfect time to hit the financial meltdown. Retailers across the country pulled up their plans to expand and go into markets, and they’ve taken a wait-and-see approach, so it’s definitely slowed our approach to get these tenants signed and rolling.”
In fall 2008, RED announced that retailers Coldwater Creek, DSW, Ulta, JoS. A. Bank, American Eagle and Victoria’s Secret had committed to locations at Summit Fair.
According to a Lee’s Summit city official who wished to remain anonymous, the opening of Macy’s at Summit Fair will likely lead to the closing of Macy’s at Independence Center. The two Macy’s locations would be located about 10 miles apart.
However, Macy’s spokesman Jim Sluzewski said the department store currently has no plans to close any U.S. Macy’s locations. Les Morris, corporate public relations manager of Simon Property Group, declined comment regarding any effect on the Independence Center and referred all questions to Macy’s corporate office. Simon Property Group owns and manages the Independence Center.
JCPenney and Macy’s are both scheduled to open the first weekend in August.
“Whenever we’re leasing up a center, the availability to get tenants is at the foremost in our minds,” Claflin said when asked of the Independence rumor. “I can’t speak specifically to Macy’s and the location of other Macy’s, but we wouldn’t build a center if retailers weren’t interested in being there.”
So, was the approved loan a “bailout”? According to Merriam-Webster’s Collegiate Dictionary, a bailout is “a rescue from financial distress.”
Hallam and Claflin both view the approved loan as a restructuring of already-approved TIF funds. The approved loan will release funds to Key Bank, with the bank then releasing the funds for RED to finish the development.
“In fact, the city is making money on it. I don’t consider this to be a high-risk maneuver because I know where the money is coming from – it’s coming from the revenue generated by JCPenney and Macy’s,” Hallam said. “How can it be a bailout if you’re already paying someone for work that’s already been done?”
Bob Johnson, District 4 council member, said his “no” vote was based on his belief that cities approving loans for private development is against the Missouri Constitution. He also said the 21-year loan is unfair to Lee’s Summit taxpayers and will set a dangerous precedent for other developers requesting city funds.
“There’s no justification of that loan under any economic situation,” Johnson said. “It’s just wrong. It’s terrible public policy.”
A former Missouri state representative and state senator, Johnson did not serve on Lee’s Summit City Council in 2006 when the initial TIF contract was approved.
“I don’t accept that,” Johnson said when asked about the loan’s previous approval under the TIF agreement. “The conditions of that agreement were made in 2006, and why should we change them? These developers are very sophisticated, and they knew what was approved in 2006. We haven’t changed anything for anybody else, so why should we for them?”
To view all city documents affiliated with the Summit Fair project, visit lees-summit.mo.us/content/Public_And_Reports.cfm.