Soccer, TIF & The Internal Rate of Return
 By Mark Forsythe The Kansas City Post On September 12 what's left of the TIF Commission will hear the initial proposal from Lane 4 Property Group Inc. regarding a proposed 467-acre development on the Bannister Mall site. Anchored by an MLS stadium for the Kansas City Wizards, the proposal calls for almost three million square feet of retail, offices and a hotel. Developers are of course seeking over $200 million in Tax Increment Financing from Kansas City. The Kansas City Star reports that the developer claims that TIF, plus additional subsidies from the state of Missouri are necessary to provide them with a 12.2% Internal Rate of Return (IRR). Crucial questions that I'm sure no TIF Commissioner will ask of the developer are "What is your assumed hurdle rate?" "May we see your net present value cash flow schedule?" or even a more generic "How did you arrive at that 12.2% figure?" I have sat through many TIF Commission meetings where a developer's representative starts throwing around IRR values and watched in shock as commissioners simply nodded their heads in agreement. "Ask the question!" I would think to myself. "Ask any question" would have probably been more appropriate. Of course the question was never asked. Never challenging a premise often leads to disaster in the world of finance. The problem or advantage, depending on your point of view, is the IRR is dependent on an estimate. In order to "arrive at that 12.2% figure" you have to make an assumption about what kind of percentage return you will get on your cash (discount rate) as you reinvest it. Sound complicated? It can be, so I'll spare you the derivation. For the adventurous, you can do like I did and break out your old text books for a little refresher course. The continued use of the IRR in real estate investment has met with much skepticism in the financial community. The equation does not handle irregular cash flows well, it can be easily manipulated to provide a desired outcome and its very base requires an I like the idea of a professional soccer complex in south Kansas City, but not at the expense of taking a developer at their word. When it comes to economic development incentives in Kansas City, why won't somebody ask the question? |
posted by Mark at 8:55 AM
Comments on "Soccer, TIF & The Internal Rate of Return"
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Anonymous said ... (12:33 PM) :
post a commentWhile I too support the soccer only stadium, I definitely question the retail element. I'm having a hard time figuring how 10,000 people in the area, 15 days a year for Wizards game, is going to support retail when we're replacing an existing mall that closed down. I don't doubt that they need a high amount of TIF money to work, because the plan seems a bit flawed...
Forget the TIF diversion, they are really asking the City to build them a Soccer Stadium for free, after Johnson County voted it down overwhelmingly. Here we go again.
The difference being that JoCo's proposal actually went to the voters.
It is my understanding that the Wizards ownership is putting in half the money for the actual stadium. That's a far cry from the deal the Royals and the Chiefs got from the county!
I would personally like to see just the stadium and accompanying youth soccer complex. That in my opinion is a more reasonable use of public money but I can't be very objective because I want MLS to continue to grow in popularity and I want KC to continue to be a part of that!
So if it's just the stadium, and the soccer fields, does it then become Park Space? Hopefully the Park's Board has no authority there!
I agree on the Soccer thing. I never go (although I've had fun the few times I went) and really have never played much soccer (except on my college fraternity team) -- but I would like to see it grow and for KC to grow with it. I have a huge issue with the retail part of it...
Mark, I think you've hit on two separate issues.
First, we all have to agree what the problem is that we want solved. I don't have a clear idea of what the problem is, other than we've got a vacant mall. Having a place for MISL is important, but creating a venue that is not used for 350 days of the year may not be the right use of taxpayers dollars - I'm exaggerating but you get my point.
Second - there does need to be scrutiny, other than the over-used and easily-manipulated IRR and ROI stuff. There are ten ways to Sunday to scrutinize and evaluate projects, and we should go with the most up-to-date thinking on this....
Well, the plan is for limited retail, so I don't see what the problem is really. The mall lost it's appeal a long time ago, it was a crime infested delapidated old building with no real attraction in the area. If there were a true anchor in that area it would help quite a bit. Lowe's and Target are both fighting to take over the mall real estate as well...not a good idea without the rest of the area being developed with this plan.
Mr. D says......
It would be a Big mistake to build a soccer stadium there. I bet the developers are hoping Kansas will be using it more then what is there now, which is nothing. That is a poor area which was the downfall of Bannister Mall.
I don't think it'll work. I don't understand why they would let them build there when Kansas City wants everything in the downtown area for revival?
Maybe the developers sees something that I dont'.
I personally love how the site plan labeled a strip mall as "mixed use". What's the mix? Parking and retail? This is a bad plan, and I have a hard time seeing how it's nothing but the next future redevelopment project in 15 years.
I have found out that another firm considering development of the property did a study and concluded that what the Wizards are trying to do is not economically feasible.
Mixed use, according to Councilman Sharp, means retail and office, excluding the residential component that planners consider essential.
Such a huge tract of land with no one living on it. I can smell the tumbleweeds even now.
Is there a "but for" here . . .
I don't see one - and not in one TIF report from the state of Missouri is IRR mentioned in the documentation. I'm sure it's used to ensure this in many instances, but no one so bold to say that that is why TIF should be considered.
And what about the return on investment for the city? There is no assurance on our side either? How about they pay us a percentage of their profit over the next 23 years in exchange for their elevated property taxes!! Symbiosis, people!
And hey - really, this would be a park going into a negatively-viewed area - not exactly blighted - that could really use a nice entertainment venue that would bring people in from all over the area and promote physical fitness and youth sports. I'm all for it, but really . . .
Silly developer. TIFs aren't for kids.
OK, I'm going to risk sounding uninformed, but why don't the Wizards play at Kemper Arena?
Do any of you see any similarities between this and the Legends/KS Speedway development in KC,KS? Seems like that's been a very successful development, and not just on game days.
Mr. D says...........
sarahs?
Would you live over there?
Mr Know Something...
Mark you say 467 acres. What? 467 acres?
Sarah's......remember when they build the 71 North and South Highway going to downtown?. People use to live there before the highway came through. Now they all went to the Bannister area and that was the fall of Bannister Mall.
You cannot put poor people in one area.
Village West does not have any neighborhoods around it.
Bannister area does.
What is really sad is that everyone wants to criticize TIF, but they won't show up at a Council committee meeting to testify against the TIF.
If the citizens don't want TIF, then they need to get off their asses and let their council reps know their views!!
anonymous,
Have you ever tried to let your councilmen know your feelings on TIF? Here in the 4th, Jan Marcason can't even spell TIF and Beth Gottstein is buddies with the TIF developers and their investors when she's not lying about imaginary protests outside her gated condo. Why do you think Beth was at the Southmoreland meeting? For the neighbors? Yeah right. Try for her buddy Jack Holland of Oppenheimer who is financing the deal.
This project can't be compared with the Legends in KC,KS. That complex is on a major east/west interstate highway and attracts people both from the metro and interstate travelers. It's a safe bet that US 71/I 435 does not generate that kind of traffic.
Futhermore, other than southeast KC residents, and maybe a few people from Lee's Summit and Independence, who's going to bypass the Plaza area to go shop in the old Bannister area?
Wait, is someone saying that a strength of the Legends is that it doesn't have neighborhoods around it? That seems like a weakness to me. One of the great thins about the Plaza is that it is integrated into the community.
No neighborhoods are better than whats around Bannister Mall. Bannister Mall did not fail because of dilapidated buildings, it was newer than Independence Center. The reasons it failed are still there. And if a sports stadium can revitalize an area will someone please tell me why the I-70 and Blue Ridge Cutoff area sucks.