When you get in bed with the CDC-KC, you get screwed
For 38 years, Steve Frisbee has done something few have accomplished: He has held on to a business on Prospect Avenue.
At its peak, City-Wide Auto Repair had eight employees on its payroll and kept three bays busy with repairs. “We used to do more inspections than anybody in the state of Missouri,” he boasts.
Now his business has become a dumping ground.
Frisbee steps out of the bright-yellow building on a recent Thursday morning and surveys the cracked pavement that people often heap with debris overnight. But the businessman doesn’t blame the predictable mess on vandals. And he knows that his block looks abandoned.
“I’m in the middle of no-man’s land,” he says. “There are only three businesses left between 59th and 63rd, and each one is slowly going out of business.”
If promises had been kept and contracts paid out, Frisbee would have been long gone, too.
By now, the area was supposed to be home to a sprawling shopping complex. The $106 million Citadel Plaza, proposed by the Community Development Corporation of Kansas City (CDC-KC), promised a supermarket and niche amenities such as a day spa. There were to have been jobs by the hundreds and new hope for a depressed neighborhood.
The city of Kansas City bought into that vision. In 1994, it tagged the area as part of a massive tax-increment financing plan. Such a tactic promises developers a portion of future tax revenues as an incentive to rebuild blighted areas. The CDC-KC was tapped as the developer, using private, federal and city funds to clear the way for the shopping complex.
Frisbee’s business stood in the path of progress.
In early 2007, representatives from the CDC-KC told Frisbee that the group needed his land. He had two options: Negotiate a sale or let the CDC-KC wrest it from him through eminent domain. Frisbee bargained and got what he considered a fair price: $220,000.
“I’ve got three contracts,” he says.
Frisbee keeps the contracts and letters from William Threatt Jr., then president of the CDC-KC, in a smudged folder on his workbench. In June 2007, Threatt wrote that the purchase of Frisbee’s shop would be complete within the next 30 days. As that closing date came and went and two others followed, Threatt made similar pledges in letters sent in January and February 2008.
Meanwhile, Frisbee found a good deal on a new location in Raytown. He dismantled the pricey overhead lift that he used for repairs and prepared for the move. “We talked all the way along, until the time came for closing, and then I couldn’t get them on the phone,” he says of the CDC-KC.
He never received a cent. The building in Raytown went to another buyer. Now Frisbee is stuck, and business is bad. He has trimmed his staff to three mechanics, two of whom are his sons. He has lost the liability insurance on his building; no carrier will cover him in this increasingly unsettled neighborhood. Since the CDC started demolition in the area, Frisbee has fallen more than $45,000 into debt keeping his business alive.
“I’m surprised I made it through the winter,” he says. “This has put me so far in the hole. And, you know, I’ve only been here for 38 years.”
Frisbee isn’t the only one who has been stiffed. Business and property owners say somebody has to pay for the dismantling of their neighborhood.
The city trusted the CDC-KC despite numerous warning signs.
In the early 1990s, big-name developers weren’t interested in an ambitious project in the bull’s-eye of gang violence and blighted housing stock. By nature of its mission, the CDC-KC stepped in.
Community-development corporations grew out of a federal push in the 1960s to revive commerce in declining urban cores. Donald Lee knows the redevelopment business well. He worked at the CDC-KC for 15 years, from 1979 to 1994. He returned in 1999 as a member of the board of directors. CDCs, Lee says, are nonprofit entities that rely on outside institutions and resources. “They need to work in partnership with governmental entities to facilitate development,” he says. “We’ve always seen ourselves as a partner with the city in this process.”
As a partner, the city advanced the CDC-KC nearly $5 million from 2005 through 2007 to buy up and tear down housing in the Citadel footprint. At the same time, though, city leaders made a habit of turning a blind eye to recurring missteps by the CDC-KC: a habit of not paying its property taxes, a history of defaulting on loans, a track record littered with lawsuits. In 2006, state regulators cracked down on the CDC-KC for improperly handling dangerous asbestos in the demolition of houses, saddling the group with expensive cleanup costs and a $450,000 financial settlement. In 2007, the U.S. Department of Housing and Urban Development raised questions about how the corporation was spending federal dollars.
But the CDC remained at the helm of the Citadel project (“Your Tax Dollars Not at Work,” January 3, 2008).
After years of hiccuping progress during which the CDC-KC bought and tore down properties, the corporation put out its hand again in 2008. In order to break ground, the CDC-KC wanted another advance from the city — this one much bigger. Jeffrey Yates, Kansas City’s newly hired finance director, made it happen. Former City Manager Wayne Cauthen hired Yates in October 2008. Within two months, Yates had drawn up a financing agreement with Citadel Plaza, committing the city to an advance of $45 million to the CDC-KC. On December 1, Cauthen signed it. Two weeks later, a unanimous City Council gave Cauthen the go-ahead to dish out the first $20.5 million.
Before the CDC-KC got its millions, however, it had to prove that it was clear of lawsuits and was paid-up on its property taxes. Galen Beaufort, city attorney of Kansas City, says it’s common, in the world of real estate, to sign a contract before one party has met all its obligations. Even as the ink was drying, the CDC-KC was in violation. It was in the middle of an expensive court battle that was already six months old. At the time of the signing, the CDC-KC had racked up more than $117,000 in unpaid property taxes on its Linwood Shopping Center alone.
And 2009 was even worse.
In January, a lawsuit brought by CCREA, a Philadelphia real-estate company — which alleged that the CDC-KC wrongly demolished properties it hadn’t yet paid for — resulted in a $2.6 million judgment. By the end of the summer, additional rulings against the CDC-KC boosted that figure to $6.5 million. Other liens and lawsuits, filed by unpaid contractors and engineers, further buried the CDC-KC in debt. The Linwood Shopping Center, the group’s biggest development, edged toward foreclosure.
Still, the CDC-KC retained developer rights on Citadel Plaza.
As the CDC-KC’s court battles multiplied, Yates continued to push the project, coming up with nontraditional ways to fund the advance. In June, he told The Pitch that he was simply following the orders of the City Council, which had passed the financing agreement. Councilwoman Deb Hermann accused Yates of advocating for the Citadel project instead of simply crunching the numbers. Councilman Terry Riley, the development’s biggest proponent, urged his colleagues to figure out a way to jump-start the project that could define his district, even if they had to “get creative” to do it.
As the controversy simmered, Threatt jumped ship. The longtime president tells The Pitch that he retired in April, though official correspondence between the city and the CDC-KC was addressed to Threatt for another four months. (He declined to make any other comment on Citadel Plaza.) Donald Lee stepped in as Threatt’s replacement, but trust between the developer and city officials had already slipped.
“My phone calls to certain council people were not returned,” Lee says.
Finally, after years of second chances, the CDC-KC came under fire.
On July 11, Beaufort sent a letter to Threatt, outlining multiple ways in which the CDC-KC had violated the financing agreement. Beaufort pointed out that the CDC-KC had lied about the CCREA lawsuit and hadn’t paid its taxes. He suggested that the CDC-KC withdraw from the project. “We urge you to strongly consider that option,” Beaufort wrote.
The CDC-KC didn’t have to withdraw; in October, City Manager Wayne Cauthen terminated the agreement. In January, Yates abruptly resigned.
But the CDC-KC still wants its millions.
Earlier this month, the organization sued the city, alleging that the city had breached its contract and still owed the CDC-KC $20.5 million, the first half of funding laid out in the 2008 financing agreement.
Lee says all the CDC’s legal problems, including the CCREA settlement, could have been avoided. “The contracts we had for land acquisition were based on the CDC receiving the financing that the city had promised us so that we could close on those contracts,” he says. “The city was clearly aware of everything we were doing.”
Beaufort doesn’t agree with the CDC-KC’s claims and says the city will fight the litigation.
Meanwhile, property owners are owed millions.
Denise Hayes was a business owner on Prospect for 20 years. She knew that the area needed a face-lift.
As the owner of Niecie’s Restaurant, she welcomed the idea of Citadel Plaza when she first heard about it. Initially, she even considered being part of the development as a tenant. “But once they started tearing up stuff down there, I was slowly drowning on Prospect,” she says.
With business flagging, she agreed to sell her building to the CDC-KC in 2007. According to documents from the Kansas City Finance Department, the CDC-KC offered her more than $300,000. Hayes set her sights on an old Pizza Hut on Troost and planned to use the funds from the Prospect sale to open her new location.
But the developer never closed the deal. Hayes never saw a penny.
“It was enough where I could have opened the other restaurant and had money left over,” she says. “Now I’m out a lot on loans. It’s one of the reasons it took so long, that I struggled to get the Troost restaurant open, because I was hoping those contracts would come through. But it didn’t happen.”
She’s not alone. Some business owners have made their plights public, such as Wayne Cooper, who plastered his vacuum store with “Going Out of Business” banners and homemade signs reading “On City Time!” Others, like Ralph Woods, who operates his home-improvement business out of a weathered, blue house a block from Frisbee’s repair shop, say they’re too busy making ends meet to speak to a reporter. But they all share the same frustration: They’re stranded in a wasteland.
Hayes knows that the CDC-KC doesn’t have the money to pay her. A lawsuit against the developer, she figures, wouldn’t do much good. “It was the city that made a lot of promises to make this program go through, and then they said that certain council members were not willing to back it,” she says.
When it became apparent that the CDC-KC couldn’t pay him, Frisbee looked to City Hall, too. He wrote to Mayor Mark Funkhouser. “I certainly understand your frustration,” Funkhouser replied in a September 2008 letter. “This project seems to be moving now and will be completed in a timely manner.”
Frisbee wrote to the Tax-Increment Financing Commission, which approved the development agreement with the CDC-KC. “There is still a firm commitment at the city of Kansas City and the TIF Commission to see that this project goes forward,” Joe Gonzalez, director of the commission, told Frisbee in an October 2008 response.
Frisbee called Councilwoman Hermann, who visited Prospect, at Frisbee’s request, to meet with the business owners. She was surprised to learn that they had unpaid contracts. “She said they would take care of the businesses,” Frisbee says, “that they weren’t going to leave us high and dry.”
He called Councilman Riley. The project’s biggest cheerleader didn’t return Frisbee’s calls.
At least one Prospect business took the matter to court.
Jason and Sally Shelby sold their coin-operated car wash, at 59th Street and Prospect, to the CDC-KC in early 2007. According to court documents, the business generated more than $4,000 of profit per month. The facility, including equipment, was worth at least $800,000. The couple settled for $540,000 and signed a contract with a closing date of late 2008.
Again, the CDC-KC never paid.
Lee has a simple response to property owners’ allegations: “Any financial obligation we have not met at this time is related to the fact that the city did not meet its funding obligation to us.”
So, instead of suing just the struggling CDC-KC, the Shelbys aimed their case at the city as well. According to the lawsuit, the city married itself to the project when the city manager signed the financing agreement in 2008 and the City Council approved it. “The city of Kansas City is, in fact, in breach of contract and responsible for funding said contract,” the petition alleges.
Joe Borich, the couple’s attorney, acknowledges that trying to get the city to pay as a third party is “a novel theory.” But there’s a more common claim in the suit: inverse condemnation. By allowing the area to fall into such disrepair, that claim argues, the city has essentially robbed the couple of their business without paying for it. “The area looks simply horrible,” the lawsuit alleges, “as if this area of the city had just been bombed in a war.”
Beaufort discounts such claims. “They knew with whom they had contracts, and it wasn’t the city,” he says. “The city disagrees that it is responsible for anything they allege occurred.”
Hermann isn’t so quick to dismiss the business owners. She recalls her meeting with Frisbee; she saw the contracts that the CDC-KC offered, which she says clearly relied on city resources. “It made me half-sick with the promises that have been made that we did not have the capacity to fulfill,” she says. “All the businesspeople have been treated horribly.”
And not just by the CDC-KC.
On a recent Friday morning, Robert Clark stands in front of the beige brick building that his father built. For 50 years, Granville Clark was a pediatrician, giving away his services for free as often as he charged for care. The beige structure that served as his office was home to dentists and doctors and a pharmacy.
“This used to be a thriving place,” Robert Clark says.
Now the 20,000-square-foot building has been abandoned even by the copper thieves who long ago stripped the structure of its last valuable asset. The door is boarded-up to guard against vagrants and drug dealers. The back lot is a sea of trash and tires.
In 1979, Granville Clark and other physicians pooled $2 million to build the still-sturdy offices. Granville Clark quit practicing medicine in 2003 but didn’t want to see the building retired. He envisioned a technical school, but when the CDC-KC came along with plans for a shopping center, providing employment and commerce, he was impressed. Robert Clark says the family dealt with Threatt, who asked them to sign over the property to A.K.S. Enterprises. In early 2007, Granville Clark, by then the building’s sole owner, sold the property for $791,000, a price that the doctor now calls “a gift.” The Citadel buyout was supposed to be his retirement nest egg.
A.K.S., a real-estate business, was established in late 2005 by Anup Singh, the owner of a gas station at 63rd Street and Prospect. Robert Clark says A.K.S. wrote a check for $190,000 as a down payment on his father’s building. The rest of the sum was supposed to come in monthly installments, but Granville Clark says he has received only two payments over the past three years. When A.K.S Enterprises secured Clark’s building, the company was in the middle of a buying spree, picking up more than two dozen other properties in the area intended for Citadel Plaza.
The company was poised to make a killing. For instance, in 2006, A.K.S. purchased the lot at 6201 Prospect for $305,000. According to documents obtained from the Kansas City Finance Department, the CDC-KC agreed to pay $525,000 for the vacant lot in 2007.
Robert Clark isn’t naïve now about the company’s intentions for his father’s property. “They were going to sell it to the city and profit half a million outside of paying him,” he says, pointing at his father. “That’s what was going to go down.”
But the city never paid the CDC-KC for property acquisition, and the CDC-KC couldn’t complete its land acquisition. In November, with $314 in the bank and debt in the millions, A.K.S. Enterprises filed for bankruptcy. (Singh scheduled and then canceled an interview with The Pitch and didn’t return subsequent phone calls.)
Now the Clarks are trying to recoup at least a portion of the money that they were awarded through federal bankruptcy proceedings.
“I didn’t really realize we would come to this,” Granville Clark says.
Like the other business owners, Granville Clark thought the city was keeping an eye on the project. “If the city had not mentioned their involvement, I would have never sold the building in the first place,” he says.
“We did it with the thought that the city was involved in this, that they were the ones backing this,” Robert Clark adds. “You’ve got people out here who haven’t been paid for two, three, four years. Everyone is in limbo while they’re playing these political games. I think that’s terribly unfair.”
At the Citadel Plaza site, wooden signs with pictures of the new shopping complex and promises of “Coming Soon!” are so blanched by the elements that they’re barely legible. The illusion that backhoes and bulldozers will soon level the ground has been stripped away; not even a rickety fence keeps passers-by out of the asbestos-tainted development site. The only progress on display is the advance of brown weeds through mounds of cracked foundation concrete. The only sign of life is a lone streetlight that flickers on a ghost avenue with no houses.
Even Councilman Riley, the CDC-KC’s former defender, sounds defeated. He can’t say when or how Citadel Plaza will be completed. When asked if he missed warning signs that the CDC-KC couldn’t handle the task, he says the corporation’s lawsuit makes the issue “touchy” to discuss. “I’m disappointed that citizens have been left out there,” he says. “They expected something, and, you know, it was not delivered. I’m hurt that people are suffering because individuals that were supposed to develop it are not financially capable.”
Lee isn’t ready to give up on Citadel Plaza.
“We have not stepped away from it,” he says. “We are not looking to step aside.”
But if the CDC-KC doesn’t win its case against the city, it will need to find money — and lots of it — to pay off its creditors and make good on its financial promises, something even the attorney for Citadel Plaza, Brian Madden, acknowledges. “Whoever it was — the CDC or Citadel — who signed those agreements with the landowners will still be bound by those agreements,” he says.
Lee admits that the CDC-KC’s board of directors has discussed bankruptcy. “But we’re going to do what we can do to remain viable,” he says.
In the meantime, Frisbee hopes to stay afloat.
On this Thursday morning, the two repair bays are empty. The rectangular windows in the garage doors are broken. Frisbee grimaces at the state of his parking lot, riddled with potholes and gaping cracks. He doesn’t want to sink any more money into a losing business. And there are no customers to complain.
On other thoroughfares, it’s morning rush hour. Here on Prospect, Frisbee’s son peers out the window, watching the mostly quiet street as he smokes another cigarette.