The Wichita city council will consider expanding an existing TIF, or tax increment financing district.
Tomorrow the Wichita City Council will consider expanding the boundaries of an existing tax increment financing district in downtown Wichita. 1
According to city documents for this agenda item,
Expanding the District would allow the Developer to capture the additional increment generated by the increased value of the Ice House building for pay-as-you-go reimbursement of eligible TIF expenses within the TIF district. The Developer would also be reimbursed for the TIF eligible costs related to redevelopment of the Ice House building.
Further:
The project includes up to $317,170 in infrastructure improvements that would be TIF eligible. The Developer proposes that tax increment financing be used to pay for eligible redevelopment project costs on a “pay-as-you-go” basis, for site preparation and infrastructure improvements.
This may be confusing, so here it is in a nutshell: The city will be diverting up to $317,170 in future property tax paid by the developer. Instead of these taxes going to pay for operations of the city, county, and school district, these taxes will be given back to the developer.
Usually, economic development incentives such as tax increment financing, or TIF, are justified because they create jobs. For this building, according to Wichita Eagle reporting from August, the two tenants that will occupy most of the space are existing companies that are moving from other parts of Wichita.
In addition, Gary Oborney, Manager of Union Station, LLC and Ice House, LLC, the company that is receiving the benefit of tax increment financing, has made these recent campaign contributions, according to campaign finance reports filed in July:
Of note, all three are seeking reelection this year.
There is nothing illegal regarding these campaign contributions based on Wichita and Kansas law. Some jurisdictions, however, have laws known as pay-to-play. These laws may prohibit political campaign contributions by those who seek government contracts, prohibit officeholders from voting on laws that will benefit their campaign donors, or the laws may impose special disclosure requirements.
In general, these laws prohibit government officials from enriching their campaign contributors. That seems like a simple concept that makes sense.
While there is no such law in Wichita, wouldn’t citizens appreciate officials acknowledging the campaign support they have received from people with business before the council?
City of Wichita City Council Agenda for October 8, 2019. Agenda Item No. V-1, Public Hearings Considering an Expansion of the Union Station Tax Increment Financing District and Considering a Development Agreement for the Union Station Project Area 3 Plan (District I) ↩
The amending of a retail lease tells us a lot about the economics of downtown Wichita.
This week the Wichita City Council amended a lease for some retail space at 360 East William in downtown Wichita. This is the retail space on the ground floor of the Block 1 parking garage at the northwest corner of Topeka and William.
Block One retail space sits half empty. Click for larger.
The first lease, passed by the council in 2011, refers to “ground level of the Parking Structure retail space containing approximately 8,400 square feet of surface floor area.” 1 The lease was between the city and a master tenant, which was Douglas Place, LLC. The master tenant, it was thought, would find retail tenants and earn profits based on the difference between the rent it collects from them and the rent it pays to the city.
Earning profits seemed virtually guaranteed for the master tenant, because the rent it paid to the city for the entire 8,400 square feet was to be according to this schedule (along with my computations of rent per square foot, the common way commercial rents are quoted):
First five years: $1 per year
Years 6 through 15: $21,000 per year, or $2.44 per square foot
Years 16 through 20: $63,000 per year, or $7.33 per square foot
So for the first five years of the lease, the master tenant faced virtually no cost in obtaining and controlling rentable space. Other commercial landlords must pay to build structures in order to collect rent, but not this master tenant.
The deal was even better than that for the master tenant, as the city would pay for tenant build-out. This is the cost of making space ready for tenants by building things like walls, floors, ceilings, restrooms, heating, air conditioning, etc.
According to the lease, at the end of 20 years, the master tenant could either continue to manage the property for the city for a fee, or purchase the property for $1,120,000, or do nothing.
The amended lease the council passed this week holds these terms for rent: 2
First four years: $1 per year
2024 through 2035: $10,000 per year, or $1.16 per square foot
2036 through 2043: $20,000 per year, or $2.33 per square foot
At the end of this term, the tenant has the option to purchase the property for $400,000. That’s a reduction of $720,000, or 64 percent, from the option price in the 2011 lease. As part of the amended lease, the city will not pay for tenant build-in.
City documents now state the amount of retail space as 8,600 square feet, up from 8,400 in 2011.
City real estate administrator John Philbrick told the council that half of the space was built out. (Video is at the end of this article.) Real estate experts told me that build-out costs for space like this could be around $50 per square foot, although there is a wide variation. With 4,300 square feet remaining, this amounts to something like $215,000 in savings for the city.
In summary, with the amended lease the period of nearly free rent ($1 per year for the entire space) starts again, this time for four years. The step-ups in rent to the city have been discounted. Instead of some years when the city would collect $2.44 per square foot, it now stands to collect $1.16. For the next step-up, the city will collect $2.33 per square foot instead of $7.33. The step-up schedule in the amended lease doesn’t precisely align with the original lease, but the step-up rates are much lower.
Besides these aspects, there is a political angle to this matter. See here.
Block One, the origin point for future growth
Click for larger.
Block One, or Block 1, is the downtown Wichita block bounded by Douglas on the north, William on the south, Broadway on the west, and Topeka on the east. The downtown Wichita development agency (formerly the Wichita Downtown Development Corporation, now called simply Downtown Wichita) once billed this block as “the first complete city block of development along the core of Douglas Avenue.”
In promotional material, the agency promoted the area’s bright future: “Block One is the origin point for future growth.”
Block One ribbon cutting, March 2013.
That was in 2013, six years ago. There has been progress. The Ambassador Hotel and its restaurant are still open. The Kansas Leadership Center is complete. But the former Henry’s building languished until this year. Plans call for it to become a culinary school instead of the retail, restaurant, and office center that was originally promoted.
But the retail space on William Street has not been successful. In this week’s city council meeting administrator Philbrick told the council that about half of the space was leased, with the two existing leases at the rates of $4 and $6 per square foot.
Block One promotional material. Click for larger.
How do these rates compare with other downtown retail space? In the Weigand Commercial Retail Forecast for 2012, for total retail space in the central business district, the quoted rent was $9.84 per square foot. For 2015 it was $10.54, with class A space at $14.00. (No quote for class A was given for 2012.) For 2019 it was $10.65, with no quote for class A space, $11.59 for class B, and $5.35 for class C.
For the entire city, the Weigand forecast reports that class A retail space rents for $19.81.
Why has this retail space been difficult to lease? Philbrick told the council, “[The] market at the time was not strong and it continued to weaken.”
With the city proposing to rent the space for $1 per year for four years, then increasing according to the schedule shown above, Council Member Jeff Blubaugh (district 4, south and southwest Wichita) asked Philbrick if this is a market rent, saying if the value of the building is $400,000, the monthly rent should be about one percent of that.
Blubaugh’s valuation of $400,000 may be reasonable. (Or maybe not, as it is the option price to purchase the property after the lease expires in 2043. Currently, Sedgwick County appraises the property at $620,600.) If it is, a landlord should be able to collect $4,000 rent per month, or $48,000 per year. With 8,600 square feet of available space, that implies rent of $5.58 per square foot.
Philbrick replied: “The two current leases are at very low rates. I mean, the two current leases are at, I think, four dollars per square foot triple net and six dollars per square foot.”
Blubaugh followed up: “So there’s just not … it’s just not competitive down there, then?”
Philbrick: “There’s very, very little demand.”
That is the most sobering realization, that after years of subsidy, investment, and promotion, downtown Wichita is not doing well. That’s about the only conclusion we can make when we see the city renting nice retail space for nearly zero rent, and doing this not just once, but twice.
Other indicators
For downtown population, Wichita economic development officials use a convoluted method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. See Downtown Wichita population.
The assessed value of property in downtown is not growing very rapidly. According to data compiled by Downtown Wichita, assessed value hit a recent low of $78,573,959 in 2012 – 2013. 3 For 2018 – 2019 the value is reported as $85,766,869, an increase of 9.15 percent in six years, barely more than one percent per year. Assessed value is the property tax base, the building of which officials tell us is an important goal. It’s how the city pays for services, they say.
But assessed value has barely grown in downtown Wichita despite hundreds of millions in investment, both public and private. And some of the assessed value is captured by tax increment financing districts and diverted away from paying for the cost of government services.
View video of the council meeting with added commentary below, or click here to view at YouTube.
—
Notes
Wichita City Council Agenda Packet for September 13, 2011. Exhibit 1, Parking Structure Retail Lease, page 205. ↩
Wichita City Council Agenda Packet for October 1, 2019. Agenda Item No. V-4, Assignment and Amendment of Lease of Retail Space at Block 1 Garage, 360 East William (District I). ↩
Citizens may not have noticed that a campaign contributor to Wichita Mayor Jeff Longwell received a large benefit from the city this week.
This Tuesday the Wichita City Council voted to amend an existing lease. In a nutshell, the city council voted to lease to a tenant 8,600 square feet of retail space for $1.00 per year.
Not $1.00 per square foot per year, but $1.00 per year for all 8,600 square feet. That’s for the first four years of the lease.
Computed as rent per square foot, which is the common way to quote rent for commercial space, the rent is $0.00. Essentially free, that is.
According to the lease, the rent will increase in future years, first to $1.16 per square foot, then to $2.33.
The Block 1 garage on East William Street in 2014.The real estate is at 360 East William in downtown Wichita. It’s on the north side of William between Broadway and Topeka. This is the first floor of the Block 1 parking garage built as part of the Ambassador Hotel project.
It’s been difficult to rent this space. According to John Philbrick, the city’s real estate administrator, half of the space has been leased to two tenants. One lease is at $4 per square foot; the other at $6. According to the Weigand Commercial Retail Forecast for 2019, for total retail space in the central business district, the quoted rent was $10.65 per square foot. Across the city, class A retail space rents for $19.81, from the same source.
Who is the new tenant that will pay essentially no rent for four years, then steeply discounted rent thereafter? It is Douglas Market Development, LLC. Its manager is Sudha Tokala. According to its annual report, the only person who owns more than five percent of the company is her.
Tokala is notable for her involvement in the redevelopment of the former state office building, the former Henry’s building (which is next to the 360 East William Street retail space), and other nearby buildings.
These developments are receiving various forms of government subsidy, which might be justified for fostering economic growth in downtown.
But free (nearly free) rent? Is that really necessary to promote development in downtown Wichita?
Then, there’s this. On March 21 of this year, a company named Natman Real Estate International LLC contributed $500 to the campaign of Wichita Mayor Jeff Longwell. That’s the maximum amount allowed by law.
According to the company’s annual report, the only person who owns more than five percent of the company is Sudha Tokala. That’s the same person who is receiving four years of (almost) free rent, courtesy of the City of Wichita, Jeff Longwell, Mayor.
It’s good that buildings in downtown Wichita — or anywhere in Wichita, for that matter — are being put to productive use. We should be able to celebrate the initiative and accomplishments of entrepreneurs who do this.
But when there is such a close linkage between a campaign contribution and the conveyance of a large economic benefit — well, reasonable people will wonder. At least, they should.
Pay to play
There is no law in Wichita or Kansas prohibiting what happened here. But wouldn’t you feel better if Mayor Longwell had abstained from voting on this matter? Or if he acknowledged that he received campaign contributions from someone who is asking for a favor from the city?
Some jurisdictions have laws known as pay-to-play. These laws may prohibit political campaign contributions by those who seek government contracts, prohibit officeholders from voting on laws that will benefit their campaign donors, or the laws may impose special disclosure requirements.
In general, these laws prohibit officials from enriching their campaign contributors.
Kansas and Wichita have no such laws. In my experience, there are few elected officials in favor of a pay-to-play law.
Wichita economic development officials use a convoluted method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates.
How many people live in downtown Wichita? The answer, according to Downtown Wichita, is 2,749.
This value comes from the 2019 State of Downtown Report, published by Downtown Wichita. 1 It is for zip code 67202, which is commonly recognized as greater downtown Wichita. While this report highlights the number of people living in downtown Wichita, it no longer reports the number of people working in downtown. 2
How does Downtown Wichita arrive at the number of residents in downtown? An endnote from the report gives the details:
The 2010 U.S. Census states the population in the 67202 area code [sic] is 1,393. Per Downtown Wichita records, 1,228 units rental units have opened in the Downtown SSMID district since 2010 when the Census was taken. Per data provided directly from the Downtown residential rental properties, the absorption rates of the market rate units has an average of 85%. Per the U.S. Census Bureau, 2013-2017 American Community Survey 5-Year Estimates, the average size of renter-occupied units is 1.3 persons. Therefore, an estimate for the current population is 2,749. 3
What Downtown Wichita has done is to take a reliable figure (the 2010 decennial census) and extrapolate forward to 2018. (Presumably 2018, as the report doesn’t say.)
There is a problem with this approach. The DW calculation makes use of two estimates, absorption rate 4 and size of renter-occupied units. Each of these is an estimate that has its own error probabilities, and those errors compound when multiplied.
There is no need to go through this roundabout calculation, as the Census Bureau has provided an estimate for the population of downtown in 2017. Data from the American Community Survey 5 estimates that the population in downtown Wichita for 2017 was 1,587, with a 90 percent confidence interval of plus or minus 221. 6 This means the Census Bureau is confident the population of downtown Wichita in 2017 was in the range of 1,366 to 1,808, that confidence factor being 90 percent. (2018 values should be available soon.)
But Downtown Wichita says the population of downtown is 2,319, which is far — really far — outside the range the Census Bureau gives for the 2017 population. While Downtown Wichita’s population estimate is probably for 2018, it still lies far outside the range of probability, based on Census Bureau estimates.
A nearby chart plots the Census Bureau’s population estimates (labeled ACS, for American Community Survey) with the lower and upper bounds of 90 percent confidence levels. This is compared with Downtown Wichita’s population estimate. From 2015 to 2017, Downtown Wichita’s population estimates are far above the Census Bureau’s estimates. The probability that Downtown Wichita’s figures are correct is vanishingly small.
It’s curious that Downtown Wichita, if it wants to know how many people live in downtown, doesn’t simply use the Census Bureau estimate of population. That estimate is available annually in the Bureau’s American Community Survey. Downtown Wichita didn’t use that number, but it relied on the same body of data to get “average size of renter-occupied units.”
Why would Downtown Wichita use the Census Bureau for one datum but not another, especially when the Census Bureau data reports the statistic Downtown Wichita is trying to estimate in a roundabout manner?
It’s simple. DW’s calculations produce 2,319 people living in downtown. The Census Bureau estimate is a much smaller number: 1,587.
By the way, DW’s calculations start with the 2010 Census Bureau population for downtown. Of the downtown population of 1,393 that year, 253 were men living in institutions like the Kansas Department of Corrections Wichita Work Release facility at Emporia and Waterman Streets. It has a capacity of 250. 7
“Absorption is the amount of space or units leased within a market or submarket over a given period of time (usually one year). Absorption considers both construction of new space and demolition or removal from the market of existing space.” Institute of Real Estate Management. Calculating Absorption. Available at https://www.irem.org/education/learning-toolbox/calculating-absorption. ↩
U.S. Census Bureau, 2013-2017 American Community Survey 5-Year Estimates ↩
Despite heavy promotion and investment in downtown Wichita, the number of jobs continues to decline.
The United States Census Bureau has a program known as LEHD Origin-Destination Employment Statistics, or LODES. According to the Bureau, “The LEHD program produces new, cost effective, public-use information combining federal, state and Census Bureau data on employers and employees under the Local Employment Dynamics (LED) Partnership. State and local authorities increasingly need detailed local information about their economies to make informed decisions. The LED Partnership works to fill critical data gaps and provide indicators needed by state and local authorities.”
Data is available by zipcode. This allows isolation of downtown Wichita, which usually recognized as zip code 67202. Data was released at the end of August for calendar year 2017.
What does the data tell us about downtown Wichita? As can be seen in the nearby chart, the trend in jobs is down, and down almost every year. Most notably, the number of private sector jobs has declined by 28.6 percent since 2002. (Click charts for larger versions.)
Since 2010, about the time Wichita started more aggressive promotion of downtown, the number of private sector jobs has fallen by 9.4 percent.
Of note, for the three age groups this data tracks, the jobs in group “age 55 or over” is growing, although it is numerically the smallest group.
The City of Wichita and the Wichita Metropolitan Statistical Area are not doing well. According to the same data set, the rate of job growth has been declining since 2012, and was near zero or negative for 2016 and 2017.
Because of the public policy aspect of this data, I asked both candidates for Wichita Mayor for a response. Wichita Mayor Jeff Longwell did not respond to repeated requests. Challenger Brandon Whipple provided this by email:
Under current city leadership, our sister cities are all growing at a higher rate economically than Wichita. Wichita’s recent job growth is at .5%, compared to Oklahoma City at 3.4%, Omaha, NE at 1.9% and the national average at 1.6%. The current Mayor brags that our unemployment rate is at 3.9%, but that’s the same as the national average, which means it’s nothing to brag about. Omaha, Tulsa, Oklahoma City and Des Moines all have lower unemployment than Wichita and the national average.
Wichita has competed and beat our sister cities in the past economically. We need leaders who are not afraid to compare Wichita not only to our past, but also to other mid-size cities and have the vision to again become an economic leader among them. There is no silver bullet but the first step towards economic growth is recognizing we have room to grow.
Also we’re not gaining jobs, we’re losing people. That’s nothing to brag about.
For the two institutions planning and developing policy for downtown, the city’s public information office did not respond. Jaimie Garnett, Executive Vice President of Strategic Communications, Greater Wichita Partnership provided this:
Based on how the Census Bureau collects LEHD data it can be difficult to get a true comparison of year-to-year numbers especially in smaller geographic areas. Our understanding is that how a company reports its workers can vary and that the Census Bureau gives data in each category what they call a “noise infusion” to protect individual firms’ confidentiality. When we have talked with economic groups such as WSU’s CEDBR, they consider the LEHD data the best data available while also recognizing these issues.
We’re excited about many recent Wichita area announcements from downtown to the region. For downtown Wichita, we’re pleased by the fact that the private sector made 90 percent of the investment in 2018 and over the past 10 years, the private sector made 77 percent of the investment. In addition, downtown is experiencing corporate investment and there are companies relocating to the core.
While these concerns about LEHD data are valid, I don’t believe they explain the long-term trend. Additionally, both the city, its agencies, and WSU’s CEBDR have made gross errors in using LEHD data. 12
Wichita city hall again places a controversial matter on the consent agenda, where it might pass without notice.
Should the City of Wichita lease part of a new park to a private entity for its exclusive use? That’s what the Wichita City Council will consider this week. But there are issues apart from the lease itself.
The subject of the item this week is Naftzger Park in downtown Wichita. The new building on the east side of the park has ground floor retail space, including a restaurant. To have an outdoor patio area in which alcohol is served, the restaurant’s patio must be fenced in. Furthermore, the proposed patio sits on park land, which requires execution of a lease.
The problem is that plans for the fenced patio were not known by the mayor, the city council, or the public until last week when the city council agenda for its September 10, 2019 meeting was released.
Not only that, the item was placed on the consent agenda. That’s a section of the meeting where a number of agenda items are considered and voted on in bulk without discussion, unless a council member asks to “pull” an item. The consent agenda usually holds non-controversial items.
But the redesign of Naftzger Park has been controversial. There was much community discussion about the design, and not everyone was happy. The park and the surrounding development have received millions in taxpayer subsidy, which adds to the controversy.
So it’s surprising that anything involving this park would be handled on a consent agenda. But in February the council considered an error in the park design, correction of which cost $115,000. That was passed on the consent agenda with no discussion.
Where is the fence? Click for larger.Now, another matter regarding Naftzger Park was placed on the consent agenda, and it is definitely controversial, as is any plan to lease city park land to private interests. Credit to Wichita City Council Member Bryan Frye (district 5, west and northwest Wichita) for objecting to the consent agenda placement, according to Wichita Eaglereporting.
The city has had other trouble with its consent agenda. This summer the lease of airport land to a hotel developer was placed on the consent agenda. The lease was found to have errors and the matter was delayed twice.
According to the minutes of the July 16 council meeting, Mayor Longwell referenced “a mistake made by staff to put this on consent agenda without the knowledge of any Council Member.”
On the same matter, the Wichita Eagle reported: “‘We really don’t like, in this case, last-second changes that are brought to us,’ Longwell said. ‘And it’s not fair to the community to have last-second changes presented to the council and then ask us to vote on it.’” A few days later the newspaper reported, “On Friday, Longwell said he plans to ask the council to change its policies so “every negotiated agreement goes on a regular agenda, not consent.”
Someone didn’t get the message, it seems.
Should the city lease part of Naftzger Park for exclusive private use? That’s an issue worthy of discussion. But two things are certain:
Any lease should have been part of the original discussion on the redesign of Naftzger Park two years ago.
And, stuff like this shouldn’t be on the consent agenda.
“Actually what we found out is when our city fathers put in that park years ago they put the park in on private development land and so the development’s actually not on Naftzger Park. Naftzger Park used to be planted on private development land and so they had to change the boundaries of the park.”
The mayor blamed past city administrations for not being to read a survey. (Click here to view the video starting with this question.)
Chase M. Billingham, who is assistant professor of sociology at Wichita State University, has researched the history of this part of downtown. 1 He submitted a piece to the Wichita Eagle shortly after that episode of Call the Mayor aired. He wrote:
This claim — that the public park was erroneously built on privately owned land — has been one of the most common arguments offered by city officials in favor of their strategy to bulldoze Naftzger Park and rebuild it on a new footprint. This argument has been voiced repeatedly by elected officials and city staff during City Council meetings and public hearings. As the developers of the Spaghetti Works property have begun to build a new mixed-use development there, the city has maintained that it must fix that previous error and restore the developers’ property rights by relinquishing Naftzger Park’s eastern edge.
The claim that Naftzger Park was built on private land is wrong, however, and it epitomizes the disregard for history and due diligence that has characterized much of the city’s disjointed effort to overhaul this key public downtown space.
Billingham then explained the documented history of land ownership in the area, with the upshot being this: “As a result, small areas on the eastern edge of the park did, indeed, sit on privately owned land. But it was not because the park was built on private land; instead, it was because Wichita sold parts of its own public park to private owners for far less than it had paid for the land just a few years earlier.” (emphasis added)
Concluding, he wrote:
When city officials argue that destroying and rebuilding Naftzger Park was necessary, in part, because their predecessors mistakenly built the public park on private land, they are not being truthful. Among other questions surrounding the demolition of that important public space, then, Wichitans deserve to know why their leaders were so eager to relinquish the public access to this land that they had been entitled to for decades.
Why is this incident from March relevant today, two months later? Because on the May 30, 2019 edition of the monthly show Call the Mayor, Longwell repeated the same falsehood.
I’m reluctant to call someone a liar, as a lie means “a false statement deliberately presented as being true” or “something meant to deceive.” But as Billingham wrote, Wichita city officials, including Longwell, are not telling the truth.
Mayor Longwell, along with other Wichita city officials, had an opportunity to learn the truth in both the online and print editions of the largest newspaper in Kansas. If they did not agree with Billingham’s research and conclusion, there are many ways to have a public dialog on the matter. For example, the city has a popular website and social media presences, with the city’s Facebook page being liked by 27,230 people. 2 The city has a communications staff, including a strategic communications director, marketing services director, assistant director of strategic communications, and communications and special events manager. 3 There is a city manager, assistant city manager, six city council members, and a fleet of bureaucrats.
Don’t any of these people care about the truth? Don’t they want to help the mayor of the city present accurate and truthful information?
—
Notes
Billingham is also the author of a fascinating history of the area, but it was published in an academic journal that is not freely available online. See Billingham, C. M. (2017) “Waiting for Bobos: Displacement and Impeded Gentrification in a Midwestern City”, City & Community, 16(2), pp. 145–168. doi: 10.1111/cico.12235. ↩
There is an opportunity for Wichita to break the logjam holding up development at WaterWalk.
Critics of city development projects point to WaterWalk as an example of a failed downtown development. Some $41 million of city funds were spent there with few positive results, With the closing of the Gander Mountain store, its fortunes were trending downwards until the King of Freight deal was announced. Although, it is debatable whether offices are a good use for this property, given its promotion as “Wichita’s Next Great Gathering Place,” a center of retail, entertainment, and residence. 1
The King of Freight deal might be a way to get something from a failed development, at least for now. But the city could do more.
The city has many excuses for the failure of WaterWalk. In a recent social media town hall concerning the new baseball stadium and surrounding development, the city’s attitude was clear: WaterWalk is different, the city says. In the social media town hall, the city stated, “Waterwalk wasn’t the deal we put together nor did it have the safeguards of this project. Waterwalk is not a city owned development.” 2
(While the city criticizes the WaterWalk deal for not having safeguards, the protections built in the baseball deal aren’t very strong. And while the city says “WaterWalk is not a city owned development,” neither is the ballpark land development deal. Remember, the city is selling the land.)
What is the meaning of “we?” True, most current city officials weren’t in office at the time of the WaterWalk deal. KFDI reported “Mayor Longwell said it was unfair to “armchair quarterback” the decision that led to the the Waterwalk, especially since everyone on the council, including the Mayor, were not there for the decisions that led to the Waterwalk.”
But there is a grain of truth in the city’s answer. The city granted development rights for the WaterWalk property to a private development group, and there are about 85 years left in the agreement. That group is now headed by Jack P. DeBoer. He is in control of the land and its use.
That’s troubling. Recently DeBoer confessed to being “confounded” by WaterWalk, telling the Wichita Eagle, “It’s a business I don’t know anything about.” 3
DeBoer has had many years to produce development at WaterWalk. He has the ability to earn profit. But having produced very little and being “confounded” by WaterWalk, I think the key to moving forward is for the city to remove DeBoer and his group from the picture.
DeBoer has a long-term development deal with the city. Now he is asking the city to reconfigure a lease in which he is the tenant. Presumably, the changes he wants are worth something to him.
That’s an opportunity for the city to get something in return. I don’t know what that “something” might be, but this is an opportunity for the city to get some type of modification that might lead to progress at WaterWalk.
A Wichita firm plans to move its offices to what was billed as the city’s premier entertainment district.
King of Freight, a Wichita freight brokerage firm, is planning to move its operations to the vacant Gander Mountain building in WaterWalk. This requires a modification to the lease of the land.
It’s important to recognize that King of Freight is not the tenant in the lease. The landlord is the City of Wichita. The tenant is WaterWalk LLC, a Kansas limited liability company, whose president is Jack P. DeBoer. The lease covers only the land, not the building. The city does not own the building. While the city rents the land to DeBoer, there is undoubtedly a deal between him and King of Freight. Details of that are unknown.
When WaterWalk was conceived, the goal was a destination of retail, entertainment, and residences, and some $41 million of tax money was spent. The original lease for the Gander Mountain ground reflected that. Now, that a non-retail firm will be using the ground, a change was needed.
The reason is that the original lease included a provision for “additional annual rent.” If the business — Gander Mountain — exceeded certain financial parameters, the city could collect additional rent. The additional rent clause was never triggered. Other WaterWalk deals with similar provisions have never paid additional rent, either. 1)
The new lease abolishes the additional rent provision, although it could be reinstated if employment goals are not met. Since the additional rent clause is toothless, so there is no real penalty.
The tenant will continue to pay the city $1 per year in rent. King of Freight will pay $15 per month to use city parking spaces. This is perhaps half the market rate for long-term parking arrangements.
Is the move of King of Freight a good deal for the city and its citizens? King of Freight anticipates adding jobs in the future, and the new lease with the city requires certain job goals to be met. But immediately, the effect is simply moving employees from one downtown office to another. When King of Freight occupies new space, empty space will be left behind.
While putting the Gander Mountain building to use is good, its use as office space moves away from the original concept for WaterWalk, once touted as “Wichita’s Next Great Gathering Place.” 2
Will retail and entertainment establishments wish to locate near an office building? They didn’t want to locate in WaterWalk anyway, so maybe there is no change.
Of interest is DeBoer’s confession of being “confounded” by WaterWalk, recently telling the Wichita Eagle, “It’s a business I don’t know anything about.” 3
Before that, he told the Eagle that whatever becomes of the Gander Mountain building, it will be “something fun and good for the city.” 4
I don’t think that goal has been realized.
Of note: DeBoer told the Eagle he’s had opportunities to “do a restaurant or something,” but he declined. Former Wichita Mayor Carl Brewer, in State of the City addresses, promised specific named restaurants would be opening in WaterWalk. 5
In more detail
Excerpts from the city’s agenda packet for this item:
“The lease’s current rent requirement, which was drafted for a retail use, would be suspended if the job requirement is met, and would terminate in 10 years if KOF and its entities maintains the presence of 400 net new jobs in Wichita through the 10-year period.”
“KOF has also agreed to pay for parking spaces at an initial rate of $15/month per space. Revenue from KOF’s employee parking is estimated at approximately $70,000/year.”
From the lease agreement: “Section 5.01. Minimum Rent. As of the date first written above, Tenant has paid Landlord a minimum fixed annual rent (“Minimum Rent”) of One Dollar ($1) in one (1) installment covering the Term of this Lease as defined in Article I above.”
“Section 5.02. Additional Rent. The Tenant will also pay, without notice, and without abatement, deduction, or setoff, except as otherwise specifically allowed herein, as additional rent, all sums, taxes, assessments, costs, expenses, and other payments which the Tenant in any of the provisions of this Lease assumes or agrees to pay, and, in the event of any nonpayment thereof, the Landlord shall have (in addition to all other rights and remedies) all the rights and remedies provided herein or by law in the case of nonpayment of rent.”
This section then describes the mechanism of calculating “Additional Annual Rent.” This mechanism was crafted for a retail store so that if “Adjusted Net Cash Flow” was ever positive, the city would be paid 25 percent of that. But the activity of the retail store, Gander Mountain, never triggered the payment of additional rent. 6
The section goes on to modify the additional rent provision for uses other than retail, like an office: “No Additional Retail Rent and no Additional Rent involving any payment of any portion of the Adjusted Net Cash Flow shall be owed for any use of the Premises that is not a Retail Use under codes 4400 through 454390 of the 2017 NAICS.”
The property will be paying property taxes: “Section 6.01. Taxes. Tenant shall pay as additional rent during the Term and any extensions thereof, all ad valorem taxes, and all other governmental taxes or charges that may be levied against the Premises.”
Since the property is within a tax increment financing (TIF) district, the taxes flow to that, not to fund the general operations of government.
“Section 9.03. Parking. The parties agree that Tenant’s employees will have nonexclusive access to the 430-space Parking Garage and the 60 spaces of surface parking under U.S. 400 (“Kellogg”) for an initial rate of $15/month per employee for parking between the hours of 8:00 a.m. – 6:00 p.m., Mondays-Fridays. Tenant shall be responsible for providing a monthly report of the number of employees who are parking in Parking Garage and on surface parking lot under Kellogg, and shall remit $15.00 per employee on a monthly basis. At each one-year anniversary of this agreement, the parking rate shall increase 3%.”
“Section 16.06. Assignment; Sublease. Tenant may freely assign or sublease all or any portion of the Premises without Landlord’s consent.”
In his 2008 address, Brewer promised specific development at the struggling Waterfront development, which is heavily subsidized. Beaming with pride, Brewer said to the audience: “And, great strides are being made at Wichita Waterwalk. The topping out ceremony for Waterwalk Place is scheduled for this Thursday and I invite everyone to this event. I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. … I am pleased to announce two more national tenants that will be a part of the WaterWalk restaurant and entertainment development. Joining Saddle Ranch Chop House will be Funny Bone Comedy Club and Wet Willies restaurant and daiquiri bar. These are just a couple of the fun and exciting tenants that will help make WaterWalk — Wichita’s Next Great Gathering Place.” This address was delivered a year before DoBoer took full control over WaterWalk, although he was involved before that. ↩
Email with Wichita City Manager Layton, May 10, 2019. ↩
