Tax breaks for Katz Drug Store project in Westport advance despite objections

A Kansas City Council committee this week approved tax breaks for a developer who plans to build new apartments while also fixing up the historic Katz Drug Store Building in Westport.

Lux Living, based in St. Louis, proposes building a six-story, 192-unit apartment building on top of underground parking behind the Katz Building at Westport Road and Main Street. The overall cost of the project is $37.6 million.

The developer sought tax breaks that exceeded what an independent analysis showed was necessary for the project, but the council committee ended up passing a reduced level of benefits Wednesday. The full council was expected to take the issue up Thursday for a final vote, but the matter was delayed until June 24.

The location is seen as the east gateway into the Westport commercial district and the Katz Building and the adjoining clock tower itself is hailed as an historic landmark, owing to its distinctive Style Moderne architecture.

Supporters of historic preservation lauded Lux Living’s plan because it would put the old drugstore back to meaningful, long-term use. The building is currently owned by Redeemer Fellowship Church but is under contract to sell to Lux Living.

The Katz Building itself would be used for a slew of amenities, most of which only residents of the apartments could use. That includes ideas like a fitness center, an audio studio and co-working space. The apartments would include a rooftop pool.

‘Who do you serve?’

It’s partly because of the extensive set of amenities that the Lux Living proposal drew critics for its request for tax breaks that would last for a quarter of a century.

Several people at Wednesday’s hearing of the Neighborhoods, Planning and Development Committee opposed Lux Living’s request for breaks on their property tax bills, saying their development plan creates no benefit to the broader public, includes no affordable apartment units and incorporates a costly underground parking garage. The project is along the planned 2025 extension of the streetcar line from downtown to the Country Club Plaza.

Wilson Vance said her mother was recently priced out of her longtime home in Kansas City after a developer bought the building she lived in, reflecting a broader concern of hers about the lack of affordable housing options in the city.

“Who do you serve?” Vance asked the committee members. “Do you serve the people? Or do you serve developers and their attorneys?”

Meanwhile, Historic Kansas City, an historic preservation advocacy organization, heartily endorsed Lux Living’s plan for the Katz building.

Debate over tax breaks

An ordinance sponsored by City Council member Katheryn Shields originally contemplated giving the developer a 25-year break on the property taxes it would pay if the project went forward without other incentives. More specifically, the project would have 75% of its property tax bill abated for 10 years and then 37.5% for the next 15 years.

That’s more than an independent consultant recommended for the Katz project.

S.B. Friedman Development Advisors, the firm hired by the Economic Development Corporation of Kansas City to analyze development projects, concluded the project could work with a 10-year, 75% tax abatement.

S.B. Freidman’s report said Lux Living included several amenities that went beyond what the local multifamily market usually provides. It also said Lux Living’s early plan charged conservative rent rates that did not reflect the premium that apartment’s can usually ask of their tenants who are so close to the streetcar.

It also said Lux Living’s proposal spends $3 million on amenity spaces that doesn’t make money for the project.

“There’s a $3 million cost but it’s not generating any cash flow,” said Lance Dorn, vice president at S.B. Friedman.

Lux Living also did not apply for historic tax credits, even though the Katz Building is listed on historic registries.

“That indicates historic preservation is not a driving factor,” said Janice Bolin, finance director for the Kansas City Public Library.

Bob Long, a business development officer at the Economic Development Corporation, said the Katz Building would likely have scored low on its evaluation for historic credits because the program in Missouri generally favors commercial projects over residential.

Kansas City Public Schools also objected to the request because the developer wanted more tax breaks than the S.B. Friedman analysis recommended. KCPS is a frequent critic of tax breaks for development because most developments that get incentives occur within its borders. Schools in Missouri rely on local property taxes as a key part of their budgets.

“I know some may think we sound like a broken record, but it’s because something in this city is fundamentally broken when we are considering prioritizing the wants of a private development company over the needs of public school children,” said Kathleen Pointer, senior policy strategist for KCPS, at Wednesday’s hearing. “Especially considering your financial analysis says it’s unnecessary.”

Roxsen Koch, an attorney representing Lux Living, said the development would start producing money for taxing jurisdictions like KCPS once it opens. Because the property currently is owned by a church, it does not pay property taxes.

Koch projected that taxing jurisdictions would make more than $180,000 on the first year of the development.

“When today, it is receiving nothing,” Koch said.

A compromise

Ultimately, the Kansas City Neighborhood, Planning and Development Committee settled on a compromise.

Instead of the 25-year tax abatement sought by Lux Living, it passed a 15-year plan that grants a 75% abatement for 10 years, followed by a five-year period where the abatement level drops to 50%. And after 10 years, the project’s financial performance could be re-evaluated to see if continued tax breaks are necessary.

Koch said Lux Living would have to take the compromise back to its lenders to see if this latest arrangement could meet underwriting standards.

“Doesn’t mean they wouldn’t be back to say they tried and it didn’t work,” Koch said.