Recent new stories that a prominent Wichita office building developed and owned by Real Development suffers from severe problems should cause the City of Wichita to halt any new partnerships being considered with the company, and to seek to remove itself from agreements that exist.
The problems with the Wichita Executive Center — ranging from no air conditioning to malfunctioning elevators — have been extensively reported on by the Wichita Eagle. (See Developer pledges to fix all of downtown building’s problems.)
The city’s involvement with the building is in the form of facade improvement loans made to the building’s owner. The city is confident that the loans will be repaid, as the principle and interest are assessed against the building as special taxes.
But in what surely is a case of “putting lipstick on a pig,” Real Development spent extensively on the facade and a lobby renovation, but hasn’t been able to supply tenants with essential building services like air conditioning, elevators, and clean water.
The Eagle reported that Mayor Carl Brewer was surprised to learn of the problems, but now pledges to oversee the city’s investments more closely.
This problems with the Wichita Executive Center are not the first the “Minnesota Guys” have faced in Wichita. Some of the office condominiums the firm established have plummeted in value in just a few years.
In May the Wichita Business Journal reported on this decline: “Prices on two bank-owned floors at the Broadway Plaza building — at the corner of Douglas and Broadway — were reduced last week to just $59,000 apiece. … They are just two of a handful office condo floors that originally were developed by Minnesota-based Real Development Corp. Most of them were sold to California investors, and many of them subsequently landed in foreclosure. Prices since then have plummeted.”
Some of these floors carried mortgage loans of over $400,000 not long ago.
Tax values on these properties have fallen, too. According to Sedgwick County records, one floor of the Broadway Plaza building that is owned by a bank was appraised at $388,000 in 2007. Its appraised value dropped to $210,900 in 2008, where it has remained since then. Another floor in the building went from $385,000 to $180,000 at the same time. This drop in real estate values is not reflective of the general trend of office values in downtown Wichita. A survey by two real estate firms shows rents for both class A and class B office space holding steady in downtown over the same time period.
While the floors in question are not currently owned by Real Development, and that company did not default on bank loans, the projects were developed and marketed by Real Development.
Another project developed by Real Development suffered problems dealing with ordinary issues. In 2009 a condo building that was developed by this company required special waivers of city policy in order to provide special assessment tax financing for facade repairs. Such repairs are the normal course of business, but this condominium association was not able to deal with the situation, and had to appeal to the city for help.
The problem that the City of Wichita faces is that it has entered into an agreement with the Real Development concerning the Exchange Place project. The amended redevelopment plan calls for the city to contribute $10 million in tax increment financing to Real Development.
While work has not started on Exchange Place, it could at any time. In effect, the city is in a partnership with Real Development, and the city should be watching this company’s performance carefully, even if it is not required to. Based on that track record, the city should seek to revoke the tax increment financing redevelopment plan for Exchange Place.