(Editor’s Note: With rumors circulating in the community, Peabody Main Street Director Shane Marler addressed questions pertaining to the city project of renovating the former Baker Furniture buildings in downtown Peabody.)
Which buildings have been purchased by the city?
Marler: The buildings are all on the west side of Walnut Street in the 100 block. The addresses are 115 through 125 North Walnut Street. The building immediately north of Jackrabbit Hollow north except the last one, the former Walker’s Corner Store, which still belongs to Jack and Betty Walker’s family.
Why did the city decide to do something like this with the economy the way it is and budget problems in the news all the time?
Marler: The city decided to be pro-active about the buildings, choosing to make something happen rather than waiting and hoping something would happen. Since Bakers moved out, the buildings have continued to deteriorate and there has been no action to correct that issue by the owner. There was little likelihood of anyone being able to recruit a business to put in any of the buildings because of the deteriorating condition. It is tough to convince someone to move into something that leaks on their head every time it rains.
Plus the buildings are Peabody’s unique asset. They are what set us apart from other small towns. There are few communities anywhere around that have so many original buildings intact. Nothing else makes us unique.
There seem to be many stories floating around about where the money came from to buy the buildings. How did the city acquire it?
Marler: Seventy-five percent of the funds came from the sale of the industrial park on highway U.S. 50 and a direct $20,000 grant from Kansas Main Street. Development at the industrial park was stagnant and there was no infrastructure in place. The city simply decided to shift the industrial park emphasis to the downtown, which does have infrastructure and buildings. The balance of the money came from projects by the Peabody Economic Development Committee during the past three years such as the sale of the former city shop, revenue from the city’s agreement with Pixius, and other ventures. The total amount of the purchase was $100,000.
There was a developer from Kansas City who was going to buy and develop the properties. What happened to him?
Marler: Tony Krsnich was the developer who was interested in the project. However, before the purchase could be made, he became busy with larger projects in Kansas City and Hutchinson. Because of the size of his investment in the other projects, the Baker building project got pushed to the back burner. In the development world, the Peabody project is small potatoes even though it seems very big to us. The cost of developing the other projects is in the tens of millions of dollars.
In December, Krsnich called me and said he didn’t really have time to do the Peabody project. This was devastating news to Peabody Economic Development. It looked as though the buildings would set vacant forever with nothing happening. After discussion between PED and the city council, the council decided to pursue the possibility of the city itself acting as developer.
I contacted Christy Davis of Davis Preservation, the state’s leading historic preservation consultant, to see if she would act as a fee developer and she agreed. A fee developer receives a percentage of the project financing — that is how they get paid. But they don’t maintain a long-term interest in the property. However, Krsnich would have owned the properties. Davis helped us develop a team to put financing in place to restore the buildings.
First, we completed a study for a housing development project in the upper stories. That project will be funded by Section 42 Federal Housing Tax Credits and state and federal Historic Tax Credits. Thirteen apartments will be developed upstairs in the Baker buildings; four will be two-bedroom apartments and nine will be one-bedroom apartments. The units were laid out in floor plans developed by Treanor Architects, the state’s leading historic preservation architectural firm.
Can we fill that many rental properties or will they remain empty?
Marler: In order for the city to qualify for the Section 42 Federal Housing Tax Credits, a housing study was required. We contracted with Development Initiatives to perform the study. The study said the local market would support the creation of 205 units. The city is only proposing 13. The apartments will be marketed to low-income tenants as part of the Section 42 Tax Credit application. Low-income tenants does not necessarily mean welfare tenants.
The apartments could easily accommodate new teachers just out of college or young couples starting out who don’t want to mow a lawn. People who work downtown and make minimum wage would likely be eligible as would older folks on a fixed income who no longer drive.
During the construction stage, work crews will need to eat, they will buy gas and snacks before heading home, and they will shop while they are here. After their work is completed, the people who live in the apartments will add to the foot traffic in the downtown area and increase sales of groceries, gifts, pharmaceuticals, and other items. Sales tax will go up.
The city would like to have seen the Tax Increment Financing proposal passed because an investment of this scale will likely make an increase to the property value of the Baker buildings. The corresponding incremental increase in those values would have been spent on infrastructure improvements downtown in the TIF district.
How will the project be funded?
Marler: This is how the big-time property developers make their money. The project in Wichita or Kansas City that costs tens of millions of dollars is funded this way (as example the Broadview Hotel in Wichita). The difference for us will be that the city — as the developer — will make the money instead of an individual developer.
The city has no tax liability. So for the city to get historic tax credits from the development does the city no good. Other institutions and some individuals, however, do have a tax liability. They buy historic tax credits from entities that do not need them and either use them for their own tax liability or sell them to someone who does need them.
The federal government established historic tax credits to encourage people to save historic buildings. The tax credits come from the development of historic properties — they are federal and state incentives to make projects like saving the Baker buildings happen. The property has to be listed on the National Register of Historic Places to qualify. Most of Peabody’s downtown is on the historic register.
In addition, federal tax credits are made available to individuals or entities that create low-income housing such as Indian Guide or the duplexes we have around town.
Since the city has no tax liability, it will have tax credits it does not need. It will sell the tax credits to an equity partner. The city has a commitment from Commerce Bank in St. Louis to purchase the Kansas Historic Tax Credits.
The city also has a commitment from Midwest Housing Equity Group in Omaha to purchase the federal Historic Tax Credits and the federal Housing Tax Credits. The credits are sold. The ownership structure of the city properties becomes a limited liability corporation (LLC) with MHEG becoming a part owner of the properties. This ensures that the properties remain on the tax rolls.
When will it get started and are there any other options?
Marler: Kansas Housing Resources Commission allocates the Housing Tax Credits in May 2011. The standing No. 1 priority on their list of proposed projects receiving tax credits are projects that take place in communities of fewer than 5,000 people. Not many cities that size jump into the competition and that means Peabody’s project will compete very, very well with the others before the KHRC.
What we are doing is kind of unprecedented because normally small towns don’t have the resources to work on a project of this scope. But thanks to the network of experts provided by Kansas Main Street we have been afforded the chance to meet and work with developers, preservationists, architects, and accountants to solidify our project.
Not many small communities have the chance to do what we are planning to do. There are lots of people across the state watching this project to see how it pans out; lots of people are excited about it.
After finishing the first phase — the second story development — the city will make money on day one. That money will be used on lower level development and the city will not have to raise money to do it. The federal government is paying us to do this.
Is there another option? Sure. We can sit back and do nothing. The buildings are empty, no one is going to repair them, so no one will locate a new business in any of them. They will continue to deteriorate. Eventually they will become a nuisance and someone (probably the city) will have to condemn them and tear them down.
Then there will be absolutely no place for a new business to locate. If we don’t make some effort to protect our community and property values, eventually no one will be able to sell a home or a downtown business. If we don’t protect and develop our assets, no one else will.