Community Builders of Kansas City (CBKC) puts all its chips on the table to get its mixed-use commercial and multi-family projects off the ground. 

That is what you do if you are a developer building competitive, high-quality projects east of Prospect and your capital stack does not include participation by banks, equity partners or the philanthropic community. 

Former Fifth District City Councilwoman and attorney Alissia Canady said at a local August summit on Opportunity Zones that investors are likely to make the greatest impacts in communities where they feel least comfortable, like financing projects east of Prospect Avenue.

Part of that discomfort for equity partners is the lower return-on-investment on urban core development. A project will have the same quality design and build-out while construction costs are frequently higher and rents lower.

As an example, The Rochester is the first market-rate, multi-family development east of Prospect in generations. CBKC is intentionally working to hold monthly rents so that living in The Rochester is affordable for more families, accommodating those at 80 percent of the area medium income ($55,000 for a two-person household). While it strives to be affordably priced, The Rochester is not targeting the “affordable housing rents” that you find in Low-Income Housing Tax Credits (LIHTC) projects and which require accommodation of tenants at 60 percent of the area medium income ($41,280 for a two-person household). 

To attract investment for inner city projects, equity partners would need a mission statement that included a commitment to participate in and extend opportunity to a community and its people left behind because of systemic racism and poverty. Maybe that’s the issue with the philanthropic community as well. Very few equity funds or philanthropies demonstrate that commitment by investing in projects in the urban core.

Another aspect of that discomfort is lack of familiarity with and experience in investing in Black and brown communities, particularly in projects without heavy public subsidies. Those subsidies fill the gap created by the circular rationale among banks, their boards, appraisers and the regulatory communities that leads to less favorable lending terms to the brown- and Black-owned business, developer or led organization.

An appraiser will devalue a project in a location with less desirable stats particularly as they relate to crime, education, employment and income – but not credit a project for its mitigating factors – length of track record, quality of property maintenance and management, financial performance, management experience or growth. Bankers then point to the appraisal, their obligation to stockholders and regulators and say the underwriting must reflect the higher level of risk. 

The resulting higher interest rates, equity requirements and other less favorable loan terms says to an organization like CBKC that we are not as dependable or trustworthy so we will have to prove with this project that we will be successful, again, as we have been previously. Then, maybe, the next project…

“West of Troost, a project will appraise for more than the cost of development,” said Steve Weatherford, CBKC CFO. “The Rochester will cost $13 million to build but will appraise for less than $12 million. It’s just another fact of financing that we have to overcome so we can put together the resources to mitigate that kind of disadvantage.”

Andre Perry, author of Know Your Price: Valuing Black Lives and Property in American’s Black Cities, is a fellow in the Metropolitan Policy Program at Brookings, a scholar-in-residence at American University and a columnist for the Hechinger Report, a non-profit newsroom focused on education. He was featured in a November presentation hosted by The Kauffman Foundation and KC Public Library, moderated by Emmet Pierson, Jr., CBKC’s CEO. Perry’s study of metropolitan areas where the population is 50 percent or more Black, isolating for all other characteristics but race, showed that those homes are underpriced an average 23 percent or $48,000 per home.

“Homes are a metaphor for other aspects of our life and for Blacks, housing devaluation is an accomplice in the wealth disparities caused by policy,” said Perry. “Many developers struggle to get the financing to develop in neglected urban neighborhoods and uplift people.”

In Kansas City, Perry said homes in similar Black communities are underpriced 20.3 percent or an average $18,000 per home. Across the U.S., the average pencils out to $156 billion property devaluation in communities of color.

CBKC is confident of its projects and its expertise in managing these challenges and others should be, too. The non-profit has parlayed an initial $100,000 investment in 1991 into a more than $80 million diverse, real estate owned-asset portfolio that includes commercial, retail and residential holdings. The debt on the organization’s assets, all of which are located in the urban core, has always been repaid on time and in full, with interest.

“CBKC is not only the largest not-for-profit developing entity in Kansas City, we are the most diverse in our real estate holdings with commercial, retail and residential assets,” said Weatherford, who previously served in varying financial capacities at the federal and state level for the U.S. Department of Housing and Urban Development, Kansas Development Finance Authority, and Kansas Housing Resources Corporation. 

“The properties have performed through every economic cycle including the current pandemic,” he added. “Our headquarters office building is fully leased, our retail is going quite well and CBKC’s recent acquisition of Blue Parkway Sun Fresh is proving a success because the organization knew what it needed to do for it to perform – retain an experienced store manager, which we have in John King, and establish a good working relationship with a leading local grocer.”

Knowing what it needs to do for its properties to perform is a CBKC hallmark. The organization continues to build a strong professional team, adding in just the last 18 months King and Weatherford; Bob Langenkamp, formerly CEO of the Economic Development Corporation of Kansas City, Missouri, as chief development officer; Elizabeth Schultz as director of strategic initiatives and community development; Irving Blue, previously a regional director for multi-state developers like McCormack Baron Management, as senior real estate analyst to provide asset management; and DaRon McGee, as consultant handling community and government relations. 

And for The Rochester, CBCK has assembled a first-rate team of professionals – general contractors, subs, architects and engineers – to build a quality product and make it a success. It has done so also for the Offices at Overlook. In acquiring and redeveloping this property, CBKC has removed the last blighting influence on Swope/Blue Parkway. 

In an article written for the Ewing Marion Kauffman Foundation following the August Opportunity Zone Summit, Bruce Katz, director of the Nowak Metro Finance Lab at Drexel University, was cited:

“(Katz) has worked with 30 municipalities to create prospectuses for their Opportunity Zones. He’s found that people think that Opportunity Zones will bring wealth into their cities from places like Silicon Valley. However, what he sees as the most important capital is that which a city already has from its own corporations, foundations and high net-worth individuals. ‘Any project worth doing is going to have layers of finance in it. And a lot of those layers are going to come from local capital.’”

The city’s Central City Economic Development (CCED) sales tax district dedicates funds from a 1/8th cent sales tax to support development in the area bounded by 9th Street on the north; Gregory Boulevard on the south; The Paseo on the west; and Indiana Avenue on the east. This fund has supported CBKC projects previously and is the type of public subsidy still essential to the complex financing that makes any CBKC development possible. For CBKC to be successful in the future, it has to have the lending community step up and the philanthropic community buy in to its efforts to provide in Black and brown communities the same thing everyone wants in their own community – jobs that pay a living wage, grocery stores that sell fresh food, quality homes and safe neighborhoods for their kids.