The New Grain Valley Marketplace - Slight of Hand

The new Grain Valley Marketplace – 50,000 square feet of retail space for lease

Slight of Hand - now you see it on paper, now you don't ever see it built

S.G. Property Management is looking for tenants for this new retail space at Interstate 70's interchange with Main St. (Buckner-Tarsney Rd.).

In the entire region of Eastern Jackson County in 2008, 554,498 square feet of new retail space was built (Eastern Jackson County by the Numbers 2010).

S.G. Property Management's figure is slightly less than one tenth the size of what was built in Eastern Jackson County during the real estate bubble year 2008.

What is going on?

Developers sketch out on paper configurations of retail strips and pads that someone could fit into area of land.  The Mayor is impressed.  The Aldermen are impressed.  But unless there are likely tenants and financing is available, what appears on paper will never be built.  Never.
The financing won't materialize until real tenants are lined up.  I should only live so long to see tenants for 50,000 square feet who are intending to do business in Grain Valley near the interchange.

Serious development starts out with a fifteen-year pro-forma calculation of income and expenses.  The initial income is not what you or I would call income.  It is what banks will realistically loan for the project, what investors will sink into the project, plus the proceeds from municipal bonds and tax credits for the development.  In the early years, the expenses are for purchasing land and construction and for beginning to pay interest to the banks for their loans and to pay dividends to the holders of the bonds.

In this pro-forma spread sheet, income must always equal or exceed expenses for these first fifteen years.  Otherwise, the project will never receive any bank loans.  Foolish investors may pony up money to invest in the project.  Silly public servants may issue municipal bonds.

Financed by these last two sources, bulldozers will appear and concrete might be poured.  And then construction slows and finally stops.  Taxpayers are left with the liability for paying back the bonds.  Some investors go bankrupt or, if they are luckier, write off the losses.

Along Roe Ave. in Leawood, KS, I watched a sign for retail leasing go up in 2008, and I saw bulldozers stirring up dust.  The city built a road extension that was in their master plan anyway.  Then the sign came down.  The land was leveled and planted with grass.  As I write, the land is kept mowed – economically dormant for who knows how long.  This development was planned for a stretch of Roe Ave. about one mile north of the huge Leawood Town Center Plaza and the Hawthorne Plaza Shopping Center.

Speculation, speculation, speculation.  Bust, bust, bust.

Consider that the land for Sni-A-Bar Community north of Sni-A-Bar Blvd. has yet to be improved, not to mention built.  This is 20 acres with a proposed residential plan which was supposed to be part of the Sni-A-Bar Community. 

Also, the Ryan Meadows development is less than half built-out.

For the next few years, though, the number of new residential households in Grain Valley is forecast to grow only about 1.4% per year.  See Grain Valley Vital Statistics - 2009.

Inappropriate Establishment of a TIF District

It's Inappropriate to Establish a TIF District for the Development of Land That Is Empty

A city's economic development council (EDC) should establish a TIF district where economic activity already exists

It's inappropriate to develop the Grain Valley Marketplace northeast of the I-70 interchange using TIF funds.

This special taxing district is useful to existing business people because it spreads the costs of improvements over a repayment period of 15 to 20 years.  When the properties generate an increase in property taxes, the property owners in the district are assessed payments from this incremental increase to pay off the revenue bonds which the city sold for the district.

Instead, the City of Grain Valley is using the TIF district almost entirely for speculation that new businesses might establish themselves.  Only one existing (and successful) business, McShop, is within the TIF district.

In the City of Grain Valley, the authority for this district is the Grain Valley Industrial Development Authority, MO.  This public/private venture is an administrative organization.  It is financed by the City of Grain Valley, which bears the ultimate financial risk of development and redevelopment.

City taxpayers, though, immediately begin to pay interest to the investors who bought the bonds.  This is like your 30-year mortgage.  Your monthly payments are almost entirely interest.  You'll notice that you acquire equity in your home at a rate that is much slower than the actual monthly mortgage payments that you've been making.

Reserve Fund Policy for the Marketplace TIF

A Special Allocation Fund Reserve Policy for the City of Grain Valley’s Marketplace TIF

City of Grain Valley Board of Aldermen Special Meeting - July 31, 2012

A policy that addresses the City’s approach to risk management as it relates to the Marketplace TIF financial bonds

°  TIF- Tax Increment Financing

A way of financing a development project by setting up a special taxing district for planning and developing the project.

The district may function as an independent authority or as a public/private venture.  In the latter case, the district may be governed by a city governing board sitting as the district board.

This special taxing district is useful to developers because it spreads the costs of development for a repayment period of 15 to 20 years.  When [and if] the property generates an increase in property taxes, the property owners [the property owners in the district] are assessed payments from this incremental increase to pay off the revenue bonds that the district sold.

[In the City of Grain Valley, the authority for this district is the Grain Valley Industrial Development Authority, MO.]

Securing financing involves bank fees, services of bond counsels, underwriters, rating agencies, insurers, and other specialists.
Establishing special districts requires a considerable amount of time and talent.

- from Real Estate Development: Principles and Process. Urban Land Institute. 2007. "The Roles of the Public Sector" - Chapter 13. pp. 318-19.

Issuance of bonds was approved by the Board of Aldermen on May 21, 2012. *

Compensation for all the above professionals immediately flows out of Grain Valley from the city's taxpayers since these professionals rarely live in Grain Valley itself.

The city itself takes the full risk whether or not the development will ever generate property tax increases to pay off the bonds and interest, not to mention to recoup the up-front fees which it paid to the professionals.

This redevelopment project is located at the northeast corner of Buckner-Tarsney Rd. (Main St.) and I-70.

*  Neighborhood Improvement District Limited General Obligation Temporary Notes - NID Notes