13 Aug Wichita considers big tax breaks on speculative industrial space

Wichita considers big tax breaks on speculative industrial space

Wichita Business Journal by John Stearns, Reporter

Wichita economic development officials hope up to 10 years of property tax breaks will spur developers to erect large, speculative industrial buildings and help the city attract businesses that are now passing it by.

A proposal tentatively going before the City Council on Aug. 14 would incentivize the construction of modern industrial space of at least 50,000 square feet with at least 28-foot ceilings. When companies call looking for those types of structures, officials say they too often have to turn the callers away. That means lost opportunities for Wichita to compete for new businesses, jobs and tax revenue.

“The need that we’re trying to address in terms of our inventory of economic development tools, or product, is large industrial buildings. This is what we’re being told we need,” says Allen Bell, director of urban development for the city. “That’s sort of a missing ingredient in our quiver of arrows.”

Under the proposal, the larger the building, the larger the property tax abatement. For the first five years, for example, a 50,000-square-foot building would get an abatement of 50 percent, an 80,000-square-foot building an 80 percent abatement, and so on. Spec buildings of 100,000 square feet or more could receive 100 percent tax abatements for the first five years.

For the second five years, the rate of abatement would be based on the jobs created by the building and the developer and tenant’s capital investment in real property improvements and equipment. Tenant or landlord improvements after the initial construction could add to the initial investment, Bell says.

Developers would have to apply for the abatement by Dec. 31, 2014, and use industrial revenue bonds to finance the project.

Lowering risk

Kris Wessel, commercial specialist with Grubb & Ellis | Martens Commercial Group LLC, likes the incentive plan.

“There’s a limited availability of modern, functional industrial space right now,” Wessel says.

Spec building is tough now because low market rents don’t support construction costs, let alone the unknown time the building might sit empty, he says.

“I think the city’s concern from an economic development standpoint, and it’s a valid concern, is that we’re missing opportunities for new companies to come to town if that company is not willing to build ground up and wait the time it takes to do that,” he says. “I don’t see a downside for the city.”

The proposal would help reduce developers’ risk by lowering their holding costs, which could entice more developers to do speculative construction, he says. Wessel says he’d feel much differently if many such buildings were sitting empty on the market.

He sees a lack of buildings available with high ceilings and a good land-to-building ratio that allows room for trucks and future expansion, something he says a lot of potential users seek.

Ted Branson, industrial division director forLandmark Commercial Real Estate Inc., has two opinions on the proposal — one personal, one professional.

Personally, “I like to see less government involvement, and I’m for more constitutional government and free enterprise,” Branson says. “Let the market go its course. Investors will step up at some point.”

But professionally, he understands the competition the city’s facing for companies needing such space, and he’d welcome the new inventory.

“If it’s there, I’ll work it,” he says.

City Councilman Pete Meitzner says spec buildings would at least put Wichita in consideration when companies call. They want answers quickly on space, but “we say no right off the bat,” he says. As a result, the city never knows if it could have competed for the business.

Meitzner knows there are people with land that would build under the program.

So is it a good use of public money, or, in this case, just forfeited tax revenue?

Meitzner says he’d evaluate each proposal on a case-by-case basis.

Bell assists the Greater Wichita Economic Development Coalition on deals and knows what companies want.

“A large majority of the prospects that come through GWEDC … most of them have as their highest priority an empty existing building,” Bell says.

Wichita misses out on opportunities dozens of times a year to entertain companies looking for spaces of at least 50,000 square feet, he says.

“Most of them are looking for even larger — 100,000 and up.