Ted Ihde's Blog: Ted Ihde author of “Thinking About Becoming A Real Estate Developer?”, page 5

…the confluence of two rivers, two famous pioneers, and the annexation of towns – the Sunflower State’s KC.

In 1806, as their expedition took Meriweather Lewis and William Clark to the confluence of two major rivers – the Missouri River and the Kansas River – historians have written that, upon arriving at this future settlement, William Clark noted in his journal that the riverfront location they found would be the perfect spot to build a fort and set up a trading post.

As Lewis and Clark established their foothold in what would grow, evolve and
become Kansas City, the origin for the Kansas City which is located in the State of Kansas was really triggered by an act of Congress.

What laid the foundation for the establishment of Kansas City, Kansas was, many will argue, the Kansas-Nebraska Act. The Kansas-Nebraska Act was passed in 1854.

Seven years after Congress passed the Kansas-Nebraska Act, Kansas was incorporated as a state. That year was 1861.

By 1880, as westward expansion continued, the population of “old” Kansas City, Kansas had been just a little over 3,000. Fourteen years after the formation of “old” Kansas City, Kansas – in 1886 –
“new” Kansas City, Kansas was incorporated. Four years later, the population of Kansas City, Kansas reached 30,000.

“New” Kansas City, Kansas is really the result of a merger – a merger of towns.

In 1886, “new” Kansas City, Kansas was created when “old” Kansas City, Kansas, Wyandotte City, Armstrong, Riverview and Armordale combined to form one city – Kansas City, Kansas.

Twenty-four years after the formation of “new” Kansas City, Kansas, Argentine
was added to the mix…annexed by Kansas City, Kansas.

Argentine became part of Kansas City, Kansas in 1910. By that time – in 1910 – the population of Kansas City, Kansas topped 80,000.

During the latter part of the 19th Century, Argentine – which is now a neighborhood in Kansas City, Kansas – was an independent town.

The growth of Argentine was triggered by two catalysts: a) smelting and mining plants which were established in Argentine, then grew, and b) Argentine’s location along the Santa Fe Railroad.

Argentine borders Kansas City’s Rosedale neighborhood.

Prior to its annexation by Kansas City, Kansas, Rosedale had been The Town of Rosedale.

The Town of Rosedale traces its origin back to 1872.

Rosedale was annexed by Kansas City, Kansas in 1922…after having been an independent town for forty years. At the time of Rosedale’s annexation, the population of Kansas City, Kansas was over 100,000.

Quindaro – now a neighborhood in Kansas City, Kansas – was originally a free state port. A port situated along the Missouri River. At one time, Quindaro was an important Underground Railroad “station.”


Quindaro was annexed by Kansas City, Kansas in 1923.

Three miles to the west of the Kansas City you’ll find in Missouri…you have Kansas City, Kansas. Nineteen years younger than the Missouri city Kansas City, Kansas was named after. Two independent cities…sharing the same name. Located where the Kansas River meets the Missouri River. Connected by the Buck O’Neill Bridge.

Just as much so as through their shared name, the two Kansas Cities are connected by a shared history. By westward expansion. And by a journal.

This journal? One kept by a famous early 19th Century pioneer – Meriweather Lewis.

And by Meriweather Lewis’s journal notes. Notes taken by Lewis in the dawn of the 19th Century. Notes which show all of us just what he and William Clark found, where two rivers meet – The perfect location for a fort and a trading post.

Troost Avenue

There is quite an interesting – and a historically significant – 10-mile street in Kansas City, Missouri which runs from 4th Street to Bannister. The Kansas City, Missouri street I am referring to here is Troost Avenue.

Among the Kansas City, Missouri neighborhoods which border Troost Avenue are…Beacon Hill, Longfellow, Squier Park, Rockhill and Hyde Park. All are fabulously sought-after KC neighborhoods.

Troost Avenue was named after a doctor – Benoist Troost. Dr. Troost, as well as being a prominent Kansas City physician, had been a pronounced civic leader in KC. Troost Avenue.

Troost Avenue was once home to “Millionaire’s Row.”

Early in the 20th Century, “Millionaire’s Row” in Kansas City, Missouri had been a strip of stunning mansions constructed all along Troost Avenue. These were Kansas City mansions which adorned Troost from 31st Street to 34th Street.

While today, Troost Avenue is experiencing keen interest – as well as a tasteful renaissance of redevelopment – Troost Avenue once had a long and storied history of disinvestment. And of decline. Prior to Troost’s renaissance. So what led to Troost’s decline?

Disinvestment. But real estate disinvestment was not the primary catalyst which led to Troost’s
mid-20th Century decline. Real estate disinvestment certainly was one catalyst which led to Troost’s decline. But real estate disinvestment was not the primary catalyst which led to Troost’s decline.

Disinvestment in public schools east of Troost was the primary catalyst which led to Troost’s decline.

Starting off in the late ‘60’s, the School Board in Kansas City, Missouri consistently requested increases in education funding for Kansas City, Missouri schools located east of Troost Avenue. For this topic, there were in the range of twenty such education funding requests made by the Kansas City School Board during this time. These were education funding requests consistently made throughout 1960’s. Throughout the 1970’s. For twenty years.

The additional school funding would have gone to Kansas City, Missouri schools east of Troost Avenue. The school funding requests were voted down. The result? White flight.

Families – those having the means, that is…meaning, predominantly, white families at that time – moved. Families moved outside of the underfunded Kansas City, Missouri School District. Schools east of Troost were underfunded.

White flight. Neighborhood home values decreased. One prominent Kansas City mayor once referred to Troost Avenue as, “…the demarcation line in a war zone.”

The problem – east of Troost – wasn’t the legal segregation of schools. Nor was the problem – east of Troost – the illegal segregation of schools. The problem – east of Troost – was school funding. Or a lack thereof.

Long before round after round after round after round of failed requests were submitted to secure funding for Kansas City, Missouri public schools east of Troost, those same public schools were in fact desegregated. Yet school desegregation didn’t really solve this problem in Kansas City east of Troost. Because while school desegregation based upon race was the national mandate after Brown v. the Board of Education, decisions made which affected education funding were – and are – made at the local level. And therein was the problem for public schools east of Troost. At that time.

In 1954, the United States Supreme Court unanimously ruled in Brown v. the Board of Education of Topeka, Kansas that state-sanctioned segregation of schools was unconstitutional. Prior to this 1954 Supreme Court ruling, in Kansas
City, Missouri – east of Troost Avenue – Lincoln High School had once been the only high school which provided post-elementary education to Black students. One high school.

In 1955, one year after Brown v. the Board of Education, the Kansas City School Board enacted a “segregation” of schools, in a different way. This was kind of a “de-facto segregation.” Not based upon race. But rather, this was a different form of segregation which was based upon attendance zones. Not race.

Yet, do we recall the aforementioned white flight east of Troost? The white flight which took place east of Troost as round after round of funding requests for schools east of Troost were voted down? Which led to panic selling? Which led to block busting? As white families relocated out of the Kansas City, Missouri school district?

So, Kansas City, Missouri public schools east of Troost were not segregated based upon race after the 1954 Supreme Court decision. But yet, in a practical sense, they kinda still were.

The city’s expansion…

Beginning in the 1950’s, and extending onwards through the 1960’s, Kansas City, Missouri – as a city – grew. During this time, Kansas City, Missouri added over 200 square miles to the city’s footprint. Yet, during this same time, what about Kansas City, Missouri public school sizes? What about Kansas City, Missouri public school teacher count? What about Kansas City, Missouri public school classroom
sizes? What about Kansas City, Missouri public school classroom capacity?

None of those public school categories grew in a commensurate way – east of Troost, that is – to Kansas City’s population growth. Nor to Kansas City’s expanding public school education requirements. During the city’s expansion in the ‘50’s and ‘60’s – east of Troost – Kansas City, Missouri public schools remained overcrowded. And underfunded. The city’s expansion just made it worse.

In real estate, developers often utilize – and benefit from – tax abatements. And, on Troost Avenue – and east of Troost – there is a genuine renaissance which has taken hold. It’s long overdue. And it’s welcomed.

So let’s go back for a moment to the topic of Kansas City, Missouri public schools, east of Troost. To the underfunding of public schools, east of Troost. To classroom sizes…

The definition of a tax abatement is, the reduction of, or the exemption from, taxes granted by a government for a specific period, usually to encourage certain activities.

Over one six-year period – between 2017 and 2023 – Kansas City, Missouri public schools lost in excess of $200 million in potential education funding which could have gone (but didn’t go) to Kansas City, Missouri public schools. Funds redirected away from Kansas City, Missouri public schools due to development incentives given out. Development incentives coming from tax abatements.

Public schools in Kansas City, Missouri have accrued nearly $400 million in deferred maintenance. Underfunded.

While those of us who love Kansas City applaud the spectacular redevelopment which is taking place on Troost Avenue – and east of Troost – it’s not really a stretch for any of us to take a moment to think about what led to Troost’s decline. It was the schools.

So if the #1 goal is redevelopment and private schools…all good.

While panic selling and block busting were two factors which contributed to neighborhood disruption east of Troost long, long ago, neighborhoods east of Troost will experience no such disruptions this time. As the “Troost pendulum”swings all the way…in the other direction.

What we’ll see is, not decreasing property values east of Troost. We’ll see increasing property values east of Troost.

We won’t see panic selling east of Troost. We’ll see home sellers fetching ever-increasing prices for their homes, east of Troost.

We won’t see blockbusting, east of Troost. We’ll see continued investor interest in homes, east of Troost.

What we’ll also see – east of Troost – is community members being priced out of their neighborhoods. We’ll see gentrification. We’ll see investment. Not
disinvestment. We’ll see tax abatements.

We’ll also see hundreds of millions of dollars in deferred maintenance which has already been incurred by Kansas City, Missouri public schools.

We’ll see challenges in education. Different education challenges. Not segregation. Not the same challenges as before. But challenges in education east of Troost, nonetheless.

If redevelopment on Troost Avenue – and east of Troost – and private schools are THE ONLY answer…all good.

If not, maybe we read a little bit about our local Kansas City history? Focusing on this topic: public schools east of Troost.

Troost Avenue

There is quite an interesting – and a historically significant – 10-mile street in Kansas City, Missouri which runs from 4th Street to Bannister. The Kansas City, Missouri street I am referring to here is Troost Avenue.

Among the Kansas City, Missouri neighborhoods which border Troost Avenue are…Beacon Hill, Longfellow, Squier Park, Rockhill and Hyde Park. All are fabulously sought-after KC neighborhoods.

Troost Avenue was named after a doctor – Benoist Troost. Dr. Troost, as well as being a prominent Kansas City physician, had been a pronounced civic leader in KC. Troost Avenue.

Troost Avenue was once home to “Millionaire’s Row.”

Early in the 20th Century, “Millionaire’s Row” in Kansas City, Missouri had been a strip of stunning mansions constructed all along Troost Avenue. These were Kansas City mansions which adorned Troost from 31st Street to 34th Street.

While today, Troost Avenue is experiencing keen interest – as well as a tasteful renaissance of redevelopment – Troost Avenue once had a long and storied history of disinvestment. And of decline. Prior to Troost’s renaissance. So what led to Troost’s decline?

Disinvestment. But real estate disinvestment was not the primary catalyst which led to Troost’s
mid-20th Century decline. Real estate disinvestment certainly was one catalyst which led to Troost’s decline. But
real estate disinvestment was not the primary catalyst which led to Troost’s decline.

Disinvestment in public schools east of Troost was the primary catalyst which led to Troost’s decline.

Starting off in the late ‘60’s, the School Board in Kansas City, Missouri consistently requested increases in education funding for Kansas City, Missouri schools located east of Troost Avenue. For this topic, there were in the range of twenty such education funding requests made by the Kansas City School Board during this time. These were education funding requests consistently made throughout 1960’s. Throughout the 1970’s. For twenty years.

The additional school funding would have gone to Kansas City, Missouri schools east of Troost Avenue. The school funding requests were voted down. The result? White flight.

Families – those having the means, that is…meaning, predominantly, white families at that time – moved. Families moved outside of the underfunded Kansas City, Missouri School District. Schools east of Troost were underfunded.

White flight. Neighborhood home values decreased. One prominent Kansas City mayor once referred to Troost Avenue as, “…the demarcation line in a war zone.”

The problem – east of Troost – wasn’t the legal segregation of schools. Nor was the problem – east of Troost – the illegal segregation of schools. The problem – east of Troost – was school funding. Or a lack thereof.

Long before round after round after round after round of failed requests were submitted to secure funding for Kansas City, Missouri public schools east of Troost, those same public schools were in fact desegregated. Yet school desegregation didn’t really solve this problem in Kansas City east of Troost. Because while school desegregation based upon race was the national mandate after Brown v. the Board of Education, decisions made which affected education funding were – and are – made at the local level. And therein was the problem for public schools east of Troost. At that time.

In 1954, the United States Supreme Court unanimously ruled in Brown v. the Board of Education of Topeka, Kansas that state-sanctioned segregation of schools was unconstitutional. Prior to this 1954 Supreme Court ruling, in Kansas
City, Missouri – east of Troost Avenue – Lincoln High School had once been the only high school which provided post-elementary education to Black students. One high school.

In 1955, one year after Brown v. the Board of Education, the Kansas City School Board enacted a “segregation” of schools, in a different way. This was kind of a “de-facto segregation.” Not based upon race. But rather, this was a different form of segregation which was based upon attendance zones. Not race.

Yet, do we recall the aforementioned white flight east of Troost? The white flight which took place east of Troost as round after round of funding requests for schools east of Troost were voted down? Which led to panic selling? Which led to block busting? As white families relocated out of the Kansas City, Missouri school district?

So, Kansas City, Missouri public schools east of Troost were not segregated based upon race after the 1954 Supreme Court decision. But yet, in a practical sense, they kinda still were.

The city’s expansion…

Beginning in the 1950’s, and extending onwards through the 1960’s, Kansas City, Missouri – as a city – grew. During this time, Kansas City, Missouri added over 200 square miles to the city’s footprint. Yet, during this same time, what about Kansas City, Missouri public school sizes? What about Kansas City, Missouri public school teacher count? What about Kansas City, Missouri public school classroom
sizes? What about Kansas City, Missouri public school classroom capacity?

None of those public school categories grew in a commensurate way – east of Troost, that is – to Kansas City’s population growth. Nor to Kansas City’s expanding public school education requirements. During the city’s expansion in the ‘50’s and ‘60’s – east of Troost – Kansas City, Missouri public schools remained overcrowded. And underfunded. The city’s expansion just made it worse.

In real estate, developers often utilize – and benefit from – tax abatements. And, on Troost Avenue – and east of Troost – there is a genuine renaissance which has taken hold. It’s long overdue. And it’s welcomed.

So let’s go back for a moment to the topic of Kansas City, Missouri public schools, east of Troost. To the underfunding of public schools, east of Troost. To classroom sizes…

The definition of a tax abatement is, the reduction of, or the exemption from, taxes granted by a government for a specific period, usually to encourage certain activities.

Over one six-year period – between 2017 and 2023 – Kansas City, Missouri public schools lost in excess of $200 million in potential education funding which could have gone (but didn’t go) to Kansas City, Missouri public schools. Funds redirected away from Kansas City, Missouri public schools due to development incentives given out. Development incentives coming from tax abatements.

Public schools in Kansas City, Missouri have accrued nearly $400 million in deferred maintenance. Underfunded.

While those of us who love Kansas City applaud the spectacular redevelopment which is taking place on Troost Avenue – and east of Troost – it’s not really a stretch for any of us to take a moment to think about what led to Troost’s decline. It was the schools.

So if the #1 goal is redevelopment and private schools…all good.

While panic selling and block busting were two factors which contributed to neighborhood disruption east of Troost long, long ago, neighborhoods east of Troost will experience no such disruptions this time. As the “Troost pendulum”swings all the way…in the other direction.

What we’ll see is, not decreasing property values east of Troost. We’ll see increasing property values east of Troost.

We won’t see panic selling east of Troost. We’ll see home sellers fetching ever-increasing prices for their homes, east of Troost.

We won’t see blockbusting, east
of Troost. We’ll see continued investor interest in homes, east of Troost.

What we’ll also see – east of Troost – is community members being priced out of their neighborhoods. We’ll see gentrification. We’ll see investment. Not
disinvestment. We’ll see tax abatements.

We’ll also see hundreds of millions
of dollars in deferred maintenance which has already been incurred by Kansas City, Missouri public schools.

We’ll see challenges in education. Different education challenges. Not
segregation. Not the same challenges as before. But challenges in education east of Troost, nonetheless.

If redevelopment on Troost Avenue – and east of Troost – and private schools are THE ONLY answer…all good.

If not, maybe we read a little bit about our local Kansas City history? Focusing on this topic: public schools east of Troost.

FUN MOVIE INFO - KANSAS CITY

Today in Kansas City’s City Market, on weekends, one will find global eateries, gourmet grocery stores, indie boutiques and the Arabia Steamboat. In the 1970’s, the mob ran City Market. While unknowingly also functioning as an idea for Hollywood.

Martin Scorsese’s Casino was released in 1995.

Nick Civella, the character upon whom Casino’s Vincent Borelli had been based, was the then-boss of the Kansas City mob.

In Casino, the Artie Piscano character was based upon Kansas City mobster Carl “Tuffy” DeLuna.

Tuffy DeLuna – born in Brooklyn – was once an underboss in the mob in Kansas City. In Casino, the DeLuna-inspired character dies of a heart attack when the FBI raids his home.

DeLuna’s house was indeed raided by the FBI. In 1979. However, DeLuna did not die of a heart attack during that raid. In real life, DeLuna was sentenced to twenty years in prison. DeLuna was released from prison in 1998.

Tuffy DeLuna died in Kansas City in 2008.

The RFP-Q and a Developer Response

You’ve considered writing a developer proposal. Your intention being, to submit the winning proposal. Thus, positioning yourself – as the developer – to be in contention for consideration pertaining to the acquisition of now non-performing city-owned properties that can be rehabbed.

Ok…

Proposed property acquisitions – as well as debt and equity allocation – should be managed by designated personnel on the developer’s Management Team. This organizational structure-type is provided to a municipality in a Response.

Management Team experience – as well as assigned project responsibilities – will be articulated for the municipality on the developer’s org chart. The org chart is provided to the municipality as a supplement within the Response.

The submission of a proposal will enter the developer – I.e.: the Respondent – into a competitive selection process.

There is a lot that goes into writing a good proposal. Build plans in. Architectural plans in. Design plans in. Lots of minutiae. My opinion? Keep it simple. And one way to do just that – assuming all of your build details are in place – is by illustrating a good understanding of how to effectively couple financing, to equity.

HUD can be a good “partner” for real estate developers

Identifying – and then acquiring – non-performing properties, on which developers can profitably build (or rehab) within neighborhoods which are in the process of being gentrified, has long been cited as one obstacle when it comes to increasing access to affordable housing. Then, once a suitable property has been identified to redevelop, would the developer elect to build affordable housing when homeownership may have been proven to be – historically speaking – difficult to attain for residents who live in neighborhoods where a disproportionately notable portion of potential future home buyers fall within a “very-low” income categorization? “Very low,” meaning, an income at or below 50% of HUD median income.

Lower credit scores for prospective home buyers who live in now-underserved neighborhoods could also be one assumption developers have. This would further exacerbate the limited-access-to-quality-affordable-housing challenge.

This being said, there are potential incentives for those who do choose to invest.

From an access-to-financing standpoint, such incentives may be able to be anchored through benefits such as lower loan costs and dedicated underwriters. For certain FHA loans.

Furthermore, it may be wise for developers to research a few HUD programs. Namely…

Section 207/223(f), Section 220 and Section 221(d)(4) may be eligible for Multifamily Accelerated Processing (MAP).

Section 207/223(f) provides mortgage insurance for FHA loans which can be used to finance existing multifamily rental housing.

Section 220 provides mortgage insurance for FHA loans which can be used to finance rental housing located within redevelopment areas.

Section 221(d)(4) provides mortgage insurance for FHA loans which can be used to finance rental and cooperative housing.

TRENTON

Manufactured goods made in countries which offered lower wages to their workers.…coupled to less regulation. A hollowing out of the City’s property tax base. Suburbanization. Each contributed in their own unique way to Trenton’s continual decline. A decline in industrial output. A decline in the City’s population. But for Trenton, the year 1974 stands out as having a local occurrence of finality, some may say.

The early Twentieth Century industrial prowess of Trenton – and of Trenton industrialists – owed much sustenance to the City’s ability to utilize newly-built canals and railroads. Railroads and canals transported manufactured goods – made in Trenton – to end markets, such as New York City and Philadelphia.

While Trenton enjoyed a long run as an important American manufacturing hub, in June of 1974, the final 1,400 employees of what had once been Roebling’s Trenton industrial empire lost their jobs. These final Roebling layoffs? The result of numerous failed attempts to revive the then-Trenton plant, which had been controlled by (at that time) Roebling’s acquirer, Colorado Fuel & Iron.

Those two Roebling manufacturing plants in Trenton closed their doors for good in 1974. Marking the end of Roebling’s manufacturing presence in Trenton. And, to some, also marking a finality of sorts, to what once had once been a thriving industrial hub. Trenton.

Mortgage rates dropped. Let’s look at fundamentals that trigger a drop (or a rise) in mortgage rates.

As 10 Year Treasury prices rise – while yields drop in direct correlation to the price increases – interest rates on 30-year fixed rate mortgages will come down.

So how does this work?

When it has been determined – or shall we say, theorized – that we may encounter market volatility in the U.S., there is an inclination for investors to accept lower yields for “loans” they make to the United States government. Through their purchase of Treasuries.

Market volatility? Volatility means government bonds represent a stable place for investors to “park” their money. When compared to alternative investment vehicles. Such as the stock market.

Within a socioeconomic environment where there is a high level of demand for 10 Year Treasuries, bids by investors for Treasuries would (more likely than not) come in at or above the face value of Treasuries.

Increasing bond prices drive down bond yields. This is so because investors are willing to accept lower coupon rates for bonds in exchange for the de-facto “loans” they are making to the United States government. Through their purchase of 10 Year Treasuries.

Are non-performing properties, A) stressors for cities, or B) an opportunity for developers? The answer is both – “A” and “B.”

According to a report put out by the Brookings Institute a few years ago, an estimated 15% of land in American cities is vacant.

Vacant properties located within a municipality – as well as non-performing properties located inside city limits – do not generate adequate property tax revenue for municipalities. All the while, property taxes make up a substantial portion of revenue for municipalities. When property taxes can be collected, that is.

Financial costs and social costs…

A reduction in property tax revenue coming in to a municipality often leads to the cutting back of services provided by the municipality. Impeding day to day life for those who live there. This topic of social costs which are linked to non-performing properties can be its own essay, in and of itself. Or book. And its very unfortunate.

Let’s look at St. Louis, Missouri.

Through the year 2020, it had been reported that St. Louis took possession of nearly 10,000 non-performing properties located within St. Louis city limits – houses, lots and buildings.

The idea in St. Louis? Conveying non-performing properties in St. Louis to developers.

By conveying non-performing properties to developers, St. Louis avoids functioning as the de-facto “property manager” of these non-performing properties.

Snow removal. The mowing of lawns. And so on, and so on. Services St. Louis transfers to developers. Developers who then manage their properties, while renovating them. Or building new. Getting repurposed properties back onto the St. Louis tax roll. As performing properties. As sources of additional property tax revenue for St. Louis.

In the mortgage business, is it wise to be a proponent of the free market? No.

As the economy boomed after World War II, the United States government entered into the housing business.

Post-War, U.S. housing policy backed home loans. When the government enters into any business, that business sector – its size, its shape, its construct, entrants into the business and business behavior overall – changes. Housing is no different.

The Servicemen’s Readjustment Act of 1944 – we know this to be the GI Bill – helped Veterans transition from soldier to citizen. A gateway to the middle class for countless U.S. Veterans was homeownership. Homeownership made possible through no-down payment VA loans.

When speaking about the government’s role in housing, the Department of Housing and Urban Development comes to mind. HUD.

HUD was formed in 1965. See low down payment FHA loans. With low down payments, there will be elevated levels of home purchases. Thanks in no small part to the low down payment.

In terms of homeownership, countless Veterans – as well as those who benefit by obtaining an FHA loan – can and should acknowledge that the “free market” is not the reason they have been to benefit from homeownership. Government is the reason.