HERE apartment complex to pay for Fambrough Drive project, must forgo hundreds of thousands in incentives

The first phase of a new parking lot for the HERE apartment and retail complex, background, is pictured July 3, 2017. The parking lot will enable additional bedrooms to be occupied, but the Chicago developers of the complex cannot begin collecting incentives from the city until the second phase of the parking lot is built.

The city has approved a construction contract to realign Fambrough Drive, and the HERE apartment and retail complex will be footing the bill.

The project will align Fambrough Drive with 11th Street, providing room for the seven-story complex at 1111 Indiana St. to expand its existing parking lot. HERE needs the added parking to lease all its apartments and begin collecting tax rebates from its multimillion-dollar incentives agreement with the city.

City officials said that arrangement is by design.

“The incentives were created in a way that they miss out on those years that they don’t have a completed project,” said Scott McCullough, director of planning and development. “It does not push everything forward.”

The construction contract, approved by the City Commission Aug. 15, states that HERE will construct the road and parking lot next summer. Without the required parking spaces the complex cannot receive its final occupancy permit, meaning that the Chicago-based developers will forgo at least two years of property tax rebates.

Originally, the city estimated the developer’s property tax rebates, provided through the Neighborhood Revitalization Act, would provide about $5.7 million of rebates over the 10-year incentive period. The rebates would have been worth hundreds of thousands of dollars annually, but as of Monday afternoon the city did not have a more precise figure available.

The previous City Commission provided the HERE project an 85 percent, 10-year property tax rebate after the development group touted the mixed-use complex as being a major benefit for the city’s economy. Developers also received Industrial Revenue Bonds, which provided a sales tax exemption on construction materials that saved the project about $2.4 million.

The construction contract also penalizes HERE if the parking and realignment project doesn’t stay on schedule. The contract states that HERE will begin construction no earlier than May 14 and finish no later than Aug. 3. If HERE fails to complete the work by that date, then HERE has to pay the University of Kansas and the city $1,500 each for every day it goes over.

“It’s linked directly to the completion date to ensure that we’ve got an open road for the (first week of school),” McCullough said.

Originally, the development was to have a robotic valet parking garage that would have had the capacity to serve the entire complex, but the company responsible for producing that robotic system went bankrupt.

The completion this summer of the first phase of HERE’s accessory parking lot enabled HERE to lease all but 21 of its 624 bedrooms, according to McCullough. He said those apartments are routinely inspected to ensure they remain vacant.

The apartment complex opened last summer after several delays, and the retail space on its ground floor currently houses Edible Arrangements and Toppers Pizza. HERE was responsible for and paid all property taxes due on the project in 2016, which amounted to about $260,000, according to the city’s economic development report.

The majority of the property that will make up the HERE parking lot is owned by the KU Endowment Association, which will lease the new lot to HERE. Construction of the first phase of the parking lot also required the demolition of two houses.

The construction contract for the project is between the city, HERE and KU, and on Monday was in the process of being finalized, according to McCullough.

The contract requires city engineers to review the project’s construction plan with KU, and the work to be completed to city standards and subject to city approval.