Amidst fears that the first big development in the College and Metcalf corridor might wither without its help, the Overland Park City Council voted Monday to increase the sales tax on retail that eventually locates in the Galleria 115 project near 115th Street and Nall Avenue.
In doing so, they will increase the amount of tax revenue available to developers by about $13.5 million to turn the well-located but rocky piece of undeveloped land into a mixed-use multifamily housing, office and retail project.
The sales tax added for the area’s community improvement district will become 1.5 percent. That’s higher than the typical 1 percent the council has approved for most other projects. And it comes on the heels of a recent vote to allow a 2 percent sales tax add-on in the downtown Edison district – a move that council members warned would not become a precedent.
“I think the general sense is that one-and-a-half doesn’t bust the threshold,” said Councilmember Dave White after the vote, noting that city has approved a 1.5 percent sales tax before. “This is the beginning of the revitalization of College Boulevard,” he said during the meeting.
White’s sentiments were echoed by six other councilmembers who voted for the increase in public money.
“I was torn on this. I thought long and hard,” said Councilmember Chris Newlin. But Newlin said he was convinced College Boulevard needs something to draw people in. “This is a development that needs to get done.”
The council has been keen to make changes to the heavily trafficked boulevard that will get people out of their cars and into stores, restaurants and perhaps apartments as well as offices. They also hope to develop a flow for pedestrians from future business to the convention center.
In the 7-4 vote Monday, the council pinned its hopes on a project that they believe showed that promise.
The Galleria project proposed for Overland Park’s College Boulevard corridor seemed to have a lot going for it when developers first brought it forward about a year ago. Located on the northwest corner of 115th Street and Nall Avenue, the tract of undeveloped land is close to the Overland Park Convention Center, its nearness to Leawood giving it the promise of high-end clientele for multi-family units and retail.
But things have since hit a snag. Galleria started as a joint venture between Block Real Estate Services and Dallas-based The Retail Connection. The Dallas company was to develop the retail side, with Block working on the multi-family portion.
But in January, The Retail Connection dropped out, said Aaron Mesmer of Block Real Estate, and Block decided to take over the rest of the project. Since then the company has been struggling with difficult topography on the site, he said, adding that the former partner had underestimated the costs of “digging into what is effectively the side of a rock mountain.”
Block also wanted to upgrade the buildings planned, Mesmer said. “Block has a certain reputation in the market and we felt like if we wanted to do something truly class A-plus that was spectacular that was going to attract the sales tax revenue across from Leawood and some other projects we needed to take the dial in quality and click it up a few notches,” he said.
The company also added a parking garage to the commercial part of the project. All of that increased the total cost to $252 million from what was originally estimated to be a $182 million development.
All of those difficulties drove developer Ken Block to ask the council for the increase. He told a recent council committee that without the additional public financing, either the project would not go forward or it would be cut, affecting the quality.
“This is the most risky form of real estate investment you can do,” Mesmer told the council.
The higher sales tax allows the developer to get about $13.5 million more in sales tax revenue within the community improvement district, bringing the total CID revenue to $35.6 million. It also reduced the amount of retail square footage within the district by about 15,000 square feet for phase one and 20,000 square feet in the second phase, though that request was mostly to give developers flexibility to bring in unique businesses with smaller footprints, Mesmer said.
Councilmembers who supported the increase said they were still enthused about the project and noted the sales tax revenue gives the developer incentive to build retail to generate it. The city is not on the hook if sales tax falls short. Councilmember Rick Collins also noted the project would create a pedestrian walkway to the convention center, which has been one big item on the city’s wish list.
But not everyone was on board. Councilmember Faris Farassati said, “I simply don’t see a need here.” The higher-than-expected expenses should be the developer’s problem, not the city’s, he said, and the developer should stick to the original agreement.
Councilmember Gina Burke also was skeptical about risks to the public. The higher sales tax could set the district up for failure, in which case the city might be looking at tax increment financing for it down the road, she said.
Burke, Farassati, Logan Heley and Curt Skoog voted against the proposal. Councilmember Fred Spears was absent.