Preliminary Feasibility Study

Kansas City, Missouri September 2015

Prepared for The City of Kansas City, Missouri

ARTSPACE

250 Third Avenue N., Suite 400 Minneapolis, MN 55401

612.333.9012 www.artspace.org

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Introduction

ansas City has long been an important destination, and it is even more so now. With more than 460,000 residents, it is the largest city in Missouri and the center of a metropolitan area with a population of more than two million. Celebrated for its

jazz, blues, and barbeque restaurants, today’s Kansas City also claims an abundance of major nonprofit arts organizations and a well-established independent arts scene. The economic impact of Kansas City’s arts and cultural activity is huge, according to Arts & Economic Prosperity IV, Americans for the Arts’ fourth national study of the arts economy in Kansas City and 181 other regions across the country. The recently published study found that the nonprofit arts and culture are “a significant industry in” the five-county Kansas City area that “generates $273.1 million in total economic activity, supports 8,346 full-time equivalent jobs, generates $237.4 million in household income to local residents, and delivers $21.8 million in local and state government revenue.” An even more positive estimate was provided by Dr. Michael Frisch in his 2008 report The Status of Artists in Kansas City, who wrote:

Artists are a significant part of the local economy. Visual artists alone in 1999 earned almost $100,000,000, and artist households in 1999 had over $400,000,000 in income. Artists in Kansas City are much less likely to live in poverty than artists in the rest of the United States. However, income by artist discipline varies in Kansas City just as it does nationally. Visual artists in Kansas City make more than the national average, while performing artists make less. Writers and musicians in Kansas City earn about the national average. Artists in Kansas City are much more likely to be employed by the private sector than artists in the rest of the country. More than 6,000 artists live in the KC metro region, with a combined household income of over $400 million dollars; more than 5,000 are employed in multiple disciplines and by multiple sectors of the local economy.1

This Preliminary Feasibility Study was triggered by an inquiry from a private developer interested in having Artspace assess the feasibility of transforming a former hotel in the

1 The Status of Artists in Kansas City, Dr. Michael Frisch and Darren Bohrer, 2008. Dr. Frisch has nearly

completed a follow-up report, Kansas City Artists in the 21st Century, which finds, among other things, “an increase in artist entrepreneurship in Kansas City relative to the nation since 2000. The Kansas City area has faster rates of growth than the national average in artist self-employment and in enterprises engaged in art and creative industries. In contrast, employment growth in art and creative occupations, industries and firms has been slower than the national average. Kansas City remains an important mid-continent center of arts and creative activity – but the character of this activity is shifting. The results suggest that more and more artists are going into business as a result of necessity and opportunity.”

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Midtown area into a mixed-use project for artists. When Artspace suggested a broader scope, the developer brought the City to the table. The result was a two-day Preliminary Feasibility Visit of which this report is the written record. The visit took place April 7-9, 2015. Artspace was represented by Wendy Holmes, Senior Vice President for Consulting and Strategic Partnerships, and Roy Close, Vice President for Special Projects. The City’s interest is twofold. One concern is gentrification, which tends to follow close behind the artists who colonize industrial areas, driving up prices until the artists can no longer afford space there – the “SoHo effect,” as it is widely known. This force is already at work in the Crossroads, the largest and most vigorous of the city’s arts districts, and some civic leaders think it is beginning to impact values in the West Bottoms, the historic warehouse district west of downtown. A permanently affordable live/work project for artists in the Crossroads or West Bottoms would guarantee their presence in that area over the long term and forge a relationship between the arts and commercial, market-rate communities that would assure strong attraction to these areas for years to come.. City officials recognize that the arts can be a catalyst for driving economic revitalization in distressed neighborhoods. Tapping this potential in the 18th and Vine Historic District, along the Main Street or Troost Avenue corridors, or in the Historic Northeast with its abundance of historic residences, is high on the City’s wish list. The City’s active engagement in this issue was evidenced by no fewer than eight city staff members at our first Core Group meeting including City Manager Troy Schulte, who commented, “If there’s any way we can be a partner, count on us.” This report contains our findings and recommendations for next steps. Special thanks to City Council members Jan Marcason and Jim Glover, who provided funding for this study; Megan Crigger, Director of Creative Services in the City’s Office of Culture and Creative Services; Joshua Best, Business and Real Estate Development Services Specialist with the Economic Development Corp. of Kansas City; Kerrie Tyndall, Assistant to the City Manager; and Katherine Carttar, Economic Development Analyst. Thanks, too, to the other City staff members, elected officials, community members, and housing and real estate professionals who participated in the process.

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Findings

uring a Preliminary Feasibility Visit, Artspace gathers information about six main issues: project concept, artist market, site feasibility, financial feasibility, local leadership, and sustainable community impact.

1. PROJECT CONCEPT Of these, the starting point – and the most all-encompassing – is the project concept, the vision that the community hopes to bring to life by means of an Artspace development. If the project were a train, the project concept would be the engine. Some communities are clear about what they hope to accomplish. It may involve preserving a specific building, or it may involve a broader concept such as economic revitalization of a neighborhood. Other communities, however, look to us to guide them through the process

of determining whether an arts project makes sense for them – and, if so, what kind of arts project it should be. Still other communities have a general idea of what they would like to achieve but seek professional advice about how to proceed. In Kansas City, neighborhood revitalization is at the top of the list. Although the city as a whole is thriving, some attractive neighborhoods are not experiencing as much economic growth. These include the storied historic district of 18th and Vine, renowned as the birthplace of the Kansas City jazz scene and still home to the 500-

seat Gem Theater; the American Jazz Museum; the Negro Leagues Baseball Museum; and a number of bars and nightclubs. Although the City has invested more than $30 million in the area since the late 1980s, it remains seriously blighted. Other areas of concern include the north-south commercial corridors of Main Street and Troost Avenue, the Midtown neighborhood through which they pass, the warehouse-rich West Bottoms, and the Historic Northeast, an old residential neighborhood that has begun to attract artists and young urban professionals. The Artspace team visited these

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Gem Theater in the 18th and Vine district

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neighborhoods as part of an extensive three-hour bus tour. Two other areas, though not part of the itinerary, were brought to our attention by focus group participants: the Marlborough neighborhood in southeast Kansas City, and the Crossroads area east of Grande Avenue, an area with more industrial building stock that has not yet reached the level of redevelopment seen on the west side of Crossroads Arts District. As a means of driving economic revitalization, an affordable live/work or mixed-use project in the Artspace mold would probably make sense for any of these neighborhoods and could have significant economic impact in at least two of them. We will discuss these at more length in the Site Analysis section. Neighborhood revitalization is less of an issue in the Crossroads, where gentrification has been occurring for more than a decade. The argument for an Artspace-like project makes sense as a means of preserving the presence of artists in the area. In short, we think both project concepts are sound. 2. ARTIST MARKET During a Preliminary Feasibility Visit, Artspace uses an Artist Focus Group and a public meeting as primary means for gathering anecdotal information about the needs, trends, and vision of the area’s arts community. Where time permits, we also visit individual artists in their studios and galleries. Perhaps the most telling statistic we heard about Kansas City’s arts community came from a representative of the Arts Council of Metropolitan Kansas City, who cited a recent survey that found a 33% increase in the number of artists in the metro area over the last decade, with some 6,000 “identified artists” now in the Kansas City region. The same survey found that there is no shortage of affordable artist studio space and that most artists can find working studio spaces for less than $1 per square foot per month – but also that there is little, if any, “true live/work space” (that is, residential space with sufficient room for a working studio) in the Kansas City area. The Artist Focus Group drew more than two dozen attendees representing a broad range of artistic endeavors, including painting, sculpture, photography, literature, music, theater, film, glass making, arts administrators, quilting, blacksmithing, and bread making. Metal fabrication, we were told, is a “niche” art here, having evolved from heavy industry into what is now a widely practiced form of sculpture. Culinary and other food arts are a “growing area of interest.” Among the space needs they identified are performance space, especially “mid-level” space, and rental studio space in the range of $250 to $400 a month. The western area of Crossroads is increasingly too expensive for many artists. Most of the historic buildings in the West Bottoms are now underutilized, but artists have begun to gravitate to the area and larger-scale redevelopment is beginning to occur. The underpopulated West Bottoms is a

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district that presents opportunities for expansion of housing in the downtown area. The Historic Northeast and the Troost Corridor, by contrast, are interesting areas that are still affordable for artists. 3. SITE ANALYSIS Although Artspace usually looks at buildings and sites in the course of a Preliminary Feasibility Visit, identifying the “perfect” candidate for a project is not an objective at this early stage. Even in communities that are focused on a specific building, we prefer to look at others as well, if only to obtain a sense of the possibilities in the event that the first choice proves unavailable at a price we can afford, too contaminated by hazardous materials, structurally unsound, or otherwise unsuitable. Site selection is properly a function of predevelopment, when we have established a preliminary project scope and space development program for evaluating building and site capacity. In Kansas City, we visited at least half a dozen different areas of the city, each with its own character, problems, and prospects. Although three individual buildings were on the itinerary, our focus was necessarily on the larger neighborhoods and corridors, not specific development opportunities within them. Accordingly, in what follows we will for the most part limit the discussion to the areas themselves, listed here in the order of the tour. WEST BOTTOMS The West Bottoms is Kansas City’s oldest industrial area, a sprawling expanse of factories, warehouses, and railroad tracks in a flood plain – the last major flood occurred in 1993 – at the confluence of the Missouri and Kansas rivers. Although some buildings are vacant, many remain in active use. The West Bottoms consists of three districts. The heaviest concentration of buildings is in the Historic Core, a true warehouse district with many large warehouses in a small geographic area. To the north and west (much of it is on the Kansas side of the state line) is the Industrial/Employment District, with many functioning industrial uses. In the southern Stockyard District, the buildings are more spread out and mixed in use. West Bottoms was the focus of a 2011-12 study conducted by the Urban Land Institute’s Rose Center for Public Leadership. The land use challenge was: “How can Kansas City

The historic Kansas City Live Stock Exchange

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leverage the history, heritage, and recent investment in the West Bottoms, along with the new spirit of bi-state collaboration, to create a sustainable, successful future for the area?” Although the ULI’s report is arts-friendly (one short-term recommendation for the area is “support arts/cultural activities”), it focuses mainly on infrastructure, transit, signage, branding, and other issues – the kinds of improvements, in other words, that would have the greatest impact on making the West Bottoms attractive for residential development. We toured one building in the West Bottoms: the Kansas City Live Stock Exchange, a most impressive 1910 edifice that has been sensitively renovated and now provides the city with more than 200,000 square feet of office, studio, and retail space on nine floors overlooking the Kansas River. It is fully occupied, and deserves to be. Nearby stands the vacant Kemper Arena, site of the 1976 Republican National Convention, now facing an uncertain future. The City just issued a Request for Proposals from developers interested in tackling a creative redevelopment of the Kemper facility and/or site. Artists have begun to colonize West Bottoms. We visited several studios in the Live Stock Exchange, which offers many amenities. Other artists have chosen the rawer spaces available in the Historic Core and the Industrial/Employment District. City staff members think this trend is likely to continue, and we agree. The West Bottoms reminds us of Minneapolis’ North Loop twenty years ago, when the latter was still overwhelmingly industrial; now it is a rapidly developing residential neighborhood with many popular restaurants. Most of the North Loop’s artists have been driven out by gentrification. West Bottoms is just beginning to see redevelopment, and displacement is not yet an issue for artists there. But gentrification could be an issue in the future. HISTORIC NORTHEAST Consisting of several smaller neighborhoods, the Historic Northeast is one of Kansas City’s oldest districts. A measure of its strong sense of self-identity is that it has its own historical society, a volunteer agency dedicated to collecting and preserving historical material related to the area. Our impression is that after decades of decline, the area is beginning to recover. Artists and young urban professionals have begun to move in, drawn by its vintage charm, low prices, and an easy 10-minute commute to downtown. While there are still many properties in need of renovation, the Historic Northeast appears to be building positive momentum. Asian Americans for Equality, a nonprofit based in New York, is four years into Hardesty Renaissance, a major redevelopment project involving an 18-acre site with 572,000 square feet of space in six former government buildings. The first phase of the project will focus on food-related businesses, among other commercial activities; affordable housing is planned for a subsequent phase. The Kansas City Museum, a regional history museum, has been located since 1940 in a former mansion on Gladstone

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Boulevard in the Historic Northeast. It is now managed by the City, which is renovating it with an eye to making it a cultural anchor for the Historic Northeast. 18TH AND VINE / ATTUCKS SCHOOL The 18th and Vine Historic District, about a mile east of downtown Kansas City, is the heart of the city’s African American community. It looked relatively quiet when we drove through it on an overcast morning; it gets much livelier, no doubt, in the evenings when the Gem Theater has a show and the other entertainment venues are active. It is home to a number of African American businesses and organizations, including The Call, Kansas City’s renowned African American newspaper, the Black Economic Union, the Black Archives of Mid-America, the Negro Leagues Baseball Museum, the American Jazz Museum, Mutual Musicians Foundation, and Kansas City Friends of Alvin Ailey.

We were brought to the area to look at a specific building: the Crispus Attucks School. Located at 1616 E. 19th Street, on the east side of the Historic District, the Attucks School was built in 1905, expanded in 1922, and was still in use in 1991, when the structure was added to the National Register of Historic Places,

but has now been vacant for years. It is owned by the City, which purchased it for $150,000 from the Jazz District Redevelopment Corporation. In September 2013 the City issued a Request for Proposals that generated three responses. The City accepted a proposal from the Dalmark Group, according to the official with whom we communicated, and anticipates signing a predevelopment contract. The Attucks is a 2½-story red brick building with a total area of 49,300 square feet, including a theater and gymnasium. It is served by two large parking lots to the north and east that are regularly used by Gem Theater patrons. The RFP stated that its site is 1.6 acres. We did not go inside the building, which is boarded up; the RFP described its condition as “fair.” At least one of the plywood window covers has slipped far enough to allow pigeons easy access inside the building. Redevelopment of the Attucks School deserves to be a high priority for the City; it is a significant building in a historic neighborhood.

Crispus Attucks School

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TROOST AVENUE CORRIDOR Named for Kansas City’s first doctor, Troost Avenue originally marked the eastern edge of the city. It acquired a residential character in the 1880s, when wealthy Kansas Citians built mansions on what became known as “Millionaire’s Row,” the section of Troost between 26th and 32nd Streets. Now the north-south arterial is widely regarded as the dividing line between the city’s white and black neighborhoods. Kansas City Mayor Sylvester “Sly” James is a strong proponent of neighborhood improvement who believes the City needs to focus its efforts “east of Troost.” We drove part of Troost during our tour and saw much evidence of economic malaise: vacant lots, boarded-up buildings, and underutilized storefronts. We also passed a number of buildings with potential for adaptive reuse, but whether they would be suitable candidates for an Artspace project is a question we cannot answer without further investigation. It is worth mentioning in this context that several artists with whom we spoke expressed interest in a live/work project located east of Troost. This is consistent with what we have found in other large cities – to wit, that artists generally, and younger artists especially, are interested in neighborhoods that non-artists might think of as edgy or less desirable. It should be noted in this context that 18th and Vine is east of Troost and that some of the artists who participated in the Artists Focus Group were very interested in that area. MAIN STREET CORRIDOR / HAWTHORN BUILDING Main Street, about three-quarters of a mile west of Troost, is another long north-south arterial. It originates in the historic River Market area north of downtown and runs all the way to the southern reaches of the city. Along the way, it passes through or close to the central business district, the Crossroads, the upscale Crown Center, and the even more upscale Country Club Plaza – all before reaching Brush Creek, which it crosses at 48th Street. South of the creek, it ceases to be a main street except in name. Although much of Main Street needs no help, in the Midtown area, the 1½-mile stretch between the Crown Center and Country Club Plaza, presents opportunities for additional revitalization. There have already been significant investments, however. One active player in the area is the Main Street Corridor Development Corporation (MainCor) at 3215 Main, a nonprofit CDC working to support commercial, mixed use, and residential development in Midtown. Another positive factor is the presence of two theaters that have relocated to Midtown – the Unicorn Theatre at 3828 Main and the Metropolitan Ensemble Theatre at 3614 Main. A third, on the same block as MainCor’s office, is a large urban big box infill project that includes both a Home Depot and a CostCo store. We stopped at MainCor’s office, where we met Executive Director Diane Burnette and her staff. We came away with a strong sense that the Ms. Burnette and her team are making a

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real difference. They invest $600,000 annually in community development projects, oversee a Community Improvement District, and, as Ms. Burnette put it, “get a lot done.” We also stopped at the Hawthorn Building, the former hotel that prompted the original call to Artspace from a representative of Frederick-Lanell Distinct Properties, which owns the building. The Hawthorn is at 3835 Main Street, near the major intersection of Main and 39th Street. Built in the 1920s, it is a 10-story brick structure shaped like a squared-off “C.” It is listed both on the Kansas City and the National Register of Historic Places; it is also part of the 39th and Main Historic District. It has been vacant for more than a decade. Although we walked all the way around it, we did not go inside. Redeveloping the Hawthorn would strengthen not only the immediate vicinity of the Main and 39th Street intersection but the entire Midtown corridor of Main Street by transforming a blighted eyesore into a contributing member of the community. Accordingly the City regards its redevelopment as a high priority. Hotels of the Hawthorn’s vintage are as a rule more difficult to repurpose for artist live/work housing than schools, factories, and warehouses of the same era. They tend to have narrower corridors, lower ceilings, and smaller rooms than artists prefer, and many do not provide as much natural light as artists need. The Hawthorn is a case in point. Although it has many windows, only its west side, which faces Main Street, and the upper floors of its south side have generous access to daylight. Units that face one another in the east-west wings and north-facing units on the lower floors would be especially problematic. This might not have been a problem for hotel guests in the 1920s, but it would be a significant drawback for artists today. The Land Use and Development Plan published by the City in 2003 called for redeveloping the Hawthorn as market rate housing or a boutique hotel. We think this recommendation remains valid, though a market analysis would of course be an essential prerequisite for either proposed use. A mix of market-rate and affordable housing, as Frederick-Lanell has proposed, might also work for the Hawthorn, especially if the City is willing and able to provide incentives. Student housing and resident artist housing have also been suggested as possibilities. We lack sufficient knowledge of the student housing market in Kansas City to know whether student housing in this location would find a ready market; resident artist

The Hawthorn Building, seen from the southwest

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housing requires an organization, such as a regional theater, that regularly utilizes out-of-town artists for extended periods and can afford to house them. CROSSROADS ARTS DISTRICT Strategically located between downtown Kansas City and the renovated Union Station, the Crossroads Arts District is said to be the home of more than 400 artists and 100 independent studios, as well as dozens of galleries, restaurants, stores, design studios, architectural firms, advertising agencies, and other creative businesses. Its First Friday events draw thousands of visitors to studios, galleries, restaurants, and entertainment venues. All of this development has occurred in just three decades, and all of it was catalyzed by the opening of an independent art gallery in 1985. Now, however, the western part of the Crossroads is beginning to experience the downside of success: gentrification. Property is getting more expensive; artists – especially young and emerging artists — are finding it more difficult to find affordable space; and several of the artists with whom we spoke expressed the view that the Crossroads is in danger of losing its identity as a true arts district. One factor that has helped keep the Crossroads affordable to artists is a Planned Industrial Expansion Authority (PIEA) program that exempts from property tax increases those Crossroads buildings in which at least 51% of the tenants are artists. Enacted with a 10-year sunset provision, the program is now nearing its end, and the City faces a difficult decision with respect to renewal. CONCLUSION Communities typically invite Artspace to develop live/work projects for one of two reasons: economic development (often but not always associated with a specific building) or preservation of an existing arts district where artists are being displaced by gentrification. Of the six Kansas City neighborhoods and corridors we visited, only the Crossroads appears to experiencing gentrification; in the others, economic development would be the goal if the City decides to move forward. Each of these areas has something to recommend it, and a case could be made for an Artspace project in every one of them. A project in the West Bottoms would send a strong signal that this historic area has strong residential potential. A project in the Historic Northeast, too, would undoubtedly draw more attention to the area and help hasten the pace of its redevelopment. Around 18th and Vine or in the Troost Corridor, a project could be the catalyst needed to trigger private development, though we think it might be a slow process at first. In the Main Street Corridor, where considerable redevelopment has already taken place, a project could be very beneficial and have more immediate impact.

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To the extent that any building we saw in Kansas City matches the definition of a “typical” Artspace residential project, the Attucks School comes closest. It is in a neighborhood with a strong cultural identity but major economic challenges. It is on a bus line. It is within walking distance (about 1½ miles) of downtown. It is owned by the City, which is anxious to see it repurposed and eager to work with Artspace. Its adaptive reuse as an affordable live/work facility for artists and their families, preferably with complementary non-residential uses such as artist studios, galleries, offices, and performing arts activities in the gym and theater, would revivify a building that many neighborhood residents know well and strengthen the historic district by providing additional full-time residents. Redevelopment of the Attucks School could also be a means of helping preserve the area’s strong African American identity over time. In an analogous situation involving an Artspace project in El Barrio, a traditionally Latino neighborhood of New York City’s East Harlem, Artspace employed a set-aside that gave current El Barrio residents first opportunity to apply for 45 of our project’s 90 residential units. The Hawthorn Building is well-located, but as noted above, former hotels are generally not well-suited for adaptive reuse as an artist live/work project. Moreover, it is privately owned and the owner is not interested in selling it; instead, he has proposed a partnership with Artspace to redevelop it as a project with both affordable and market-rate housing. In our experience, partnerships of this kind are difficult to bring about because Artspace as a nonprofit developer has a different agenda and works at a much slower pace than most for-profit developers. Thus, while we think a renovated Hawthorn would be a huge boon to Midtown, it is probably not a good Artspace candidate. To repeat what we stated at the beginning of this section, site selection is a function not of a preliminary feasibility visit but of predevelopment, the main planning phase of an Artspace project, by which time we will have established a more detailed project scope and space development program for evaluating building and site capacity. 4. SUSTAINABLE COMMUNITY IMPACT Assessing a project’s potential for sustainable community impact this early in the process is difficult at best. Until we know more about the market for artist space in Kansas City, have a better understanding of the financial resources that can be brought to bear, and have a short list of viable candidate sites, we cannot reach well-informed conclusions about the potential for long-term community impact of one site relative to another. We note, however, that several of the neighborhoods we visited appear to need the economic and social impact that an Artspace-like project can deliver. In short, we think that multiple sites in Kansas City are likely to have strong potential for sustainable impact.

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5. FINANCIAL ANALYSIS As the nation’s only nonprofit developer specializing in the arts, Artspace utilizes a unique financial model that has proved successful over time. This model differs in several ways from those of most for-profit developers. We bring no investment capital to the table. We ask each community in which we work to underwrite predevelopment expenses, either on its own or in partnership with other funders. We keep mortgages and secondary loan commitments to a minimum. We fundraise locally and/or nationally to cover the additional cost of providing a studio in each unit and a community room in each project. And once the project is completed, we remain involved as owner/operator. As a result of these and other practices, every Artspace project is fully funded before groundbreaking, and every Artspace project remains affordable and arts-focused in perpetuity, regardless of gentrification in the surrounding neighborhood. In short, an Artspace live/work project is a permanent community asset. PREDEVELOPMENT EXPENSES An artist live/work project represents a significant investment of civic resources. A typical Artspace project of 40 units, with between 2,000 and 5,000 square feet of non-residential space, can cost $10 million or more. Predevelopment expenses – the “soft” costs, such as architects’ fees, that must be met before construction can begin – are seldom less than $750,000. As noted above, we look to the community for predevelopment funding. About half the cities that hire us tap into their own economic development, affordable housing, and/or other dedicated funds (general funds are used sparingly if at all); the other half use a combination of municipal dollars and funds from other sources, including government agencies and private foundations. Predevelopment expenses are typically spread out over a two- or three-year span. Although architect fees represent the largest predevelopment expense, this phase of a project also involves heavy use of Artspace staff time. During the first phase of predevelopment, we work with City and other stakeholders to establish a preliminary project scope and a space development program for evaluating building and site capacity. We also analyze candidate buildings/sites with respect to cost, availability, and other factors impacting their ability to address development program goals; negotiate with property owners with the goal of obtaining a site control agreement; and continue the outreach to artists and arts organization that is needed to ensure that the completed project leases up promptly. During the second phase of predevelopment, we work with the City to establish the process for selecting the architectural team, engage the architect to create conceptual plans and schematic designs, engage a contractor or cost consultant to provide pre-construction services, create capital and operating budgets, prepare and submit a Low Income Housing

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Tax Credit application, and submit other financing applications as well. The third and final phase of predevelopment, which begins when we receive a LIHTC award, is a labor-intensive period in which we secure final gap funding commitments; raise funds for equity (including private sector philanthropic dollars); complete construction documents and submit permit applications; and otherwise prepare for closing the beginning of construction. For a more complete statement of predevelopment (and other) activities, see Appendix I: The Path to an Artspace Project. CAPITAL EXPENSES Artspace projects have complex construction budgets with revenues derived from multiple sources. Low Income Housing Tax Credits are usually the largest single source, usually providing more than half of the required funds, but with most projects a variety of other public and private sources, including a first mortgage, contribute to the bottom line. Table 1 shows in simplified form the financial sources for a $16 million, 60-unit Artspace live/work project in Buffalo, New York, where tax credits accounted for more than 60% of the total construction budget. Like Missouri, New York has both federal and state LIHTCs.

Table 1: Financial sources for an Artspace project in Buffalo, New York

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The availability of Low Income Housing Tax Credits (LIHTC) may be limited in Kansas City, however. LIHTCs are awarded through a federal program established in 1986 to encourage the development of affordable housing and amended in 2008 to extend the definition of eligible projects to those intended for artists. There are two types of credits, 9% and 4%, whose numbers reflect their relative value. Although 9% credits are highly competitive in every state, a focus group participant stated that 4% credits are also very competitive in Missouri because the Missouri Housing Development Corporation (MHDC) issues only a fraction of the revenue bonds that by law must accompany 4% credits, effectively limiting the supply. We have attempted but not yet succeeded in obtaining independent verification of this statement. On the other hand, Missouri is one of the few states that offers a state Low Income Housing Tax Credit. State tax credits could provide additional equity to a project and should be explored further to better understand how the state and federal credits work in tandem. Missouri also has both federal and state Historic Tax Credits, and if the project involves a building on the National Register of Historic Places (or a contributing structure in a National Historic District), it could conceivably qualify for all four kinds of credits. Although we have been informed of a recent Missouri project that received all four, City officials state that combining both HTCs and LIHTCs in Missouri is “difficult” and “rarely successful.” The MHDC has broad discretionary authority to award or withhold state LIHTCs even in cases when it approves a federal LIHTC award. On the public side, HOME funds are another reliable source of capital funding. The Artspace Buffalo project (Table 1) was able to take advantage of both state and local HOME funds to provide about 8% of the capital budget. Private sources in aggregate accounted for 20% of the capital budget in Buffalo. Philanthropic gifts, all from foundations, provided $1.4 million, or 9%, slightly below the typical range of $10% to 15%. A modest first mortgage accounted for $1.2 million (7%), and Artspace itself closed the gap by deferring a portion of its developer fee. CONCLUSION Both the City of Kansas City and the State of Missouri have significant funding sources that could be brought to bear for an Artspace-like live/work project for artists. Although we would expect competition for these funds to be highly competitive, as is the case in most cities and states where Artspace works, we see no financial reason to doubt that a project could be successfully financed.

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6. LOCAL LEADERSHIP Local leadership is the sine qua non of an Artspace project: without it, nothing else matters. Without someone on the ground who can advocate effectively for the project, open doors, and keep lines of communication open between the developer and the community, there is little chance of success. We look to local leaders to serve not simply as liaisons between Artspace and the community but as cultural activists who can help drive the project forward. So we look for individuals who have already demonstrated leadership in moving their own projects forward. In Kansas City, we were happy to engage with a highly energized Core Group that included no fewer than eight members of the City Manager’s staff and the City Planning and Development Department. This is an unusually strong commitment of staff resources, and it came with strong statements of support. FOCUS GROUP INPUT We generally learn a great deal about financing opportunities and challenges from the Finance and Funders Focus Group, and Kansas City’s group was no exception. We learned, importantly, that culture and the arts are a target area in the City’s economic development strategic plan, AdvanceKC. The KCMO Arts Convergence, a city-wide arts plan adopted in 2013, includes among its ten goals “enhance leadership and funding for Kansas City’s arts and culture sector,” “enhance arts and cultural opportunities available in neighborhoods throughout Kansas City,” and – most significantly for a potential Artspace project – “facilitate the development and use of facilities, venues, and spaces for diverse arts activity throughout Kansas City.” The KCMO Arts Convergence also includes a wealth of useful information drawn from surveys. When asked, for example, what the City’s government should do to enhance Kansas City’s arts community, 57% of the respondents responded “yes” to “promote arts and culture as a tool for neighborhood revitalization.” It was the highest percentage of “yes” responses to the question One specific strategy has already been achieved; late last year the City established an Office of Culture and Creative Services reporting to the City Manager and hired Megan Crigger as the first Director of Creative Services; Ms. Crigger served as the City’s liaison during our Preliminary Feasibility Visit.. Our focus group included representatives from the Hall Family Foundation, H & R Block Foundation, Economic Development Corp. of Kansas City, and the Kansas City Missouri Community Development Entity, a nonprofit committed to creating opportunities in Kansas City’s most economically distressed communities by means of New Markets Tax Credits

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and other programs. Among other useful information we gleaned from this most helpful Focus Group:

• Community development and the arts are both high priorities for Kansas City’s philanthropic sector, but there is “lots more” of the latter than of the former, according to a program officer for the H & R Block Foundation.

• Live/work space, though rare in Kansas City, is not entirely new: a new market-rate

housing project in the downtown area is being marketed as live/work space: http://kcloftcentral.com/livework-space-new-construction-open-house-31-1-4pm/

• The Missouri Development Finance Board (MDFB), the state’s only governmental

issuer of tax-exempt bonds for cultural facilities, has several programs that could potentially be brought to bear. Its Cultural Facility Revenue Bond Program provides long-term and short-term loans to nonprofit entities for a variety of project-related hard and soft costs at below-market rates with flexible repayment schedules. The MDFB also has a fund that provides $10 million to the state’s two largest cities, Kansas City and St. Louis, for eligible projects.

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Recommendations & Next Steps

ansas City is a strong candidate for an Artspace live/work or mixed-use project. With a population of more than 460,000, it has more than sufficient size and number of artists to support the development of a project. Its leadership appears

strongly in favor of moving forward and willing to commit substantial civic resources to support such a project. There appear to be a number of locations that might support a project of this kind and that may merit further investigation. Finding the financial sources needed for a project, though always a challenge, may be less problematic in Kansas City given the strong support shown by the City and the interest in the arts of major foundations. 1. CONDUCT AN ARTS MARKET SURVEY As an immediate next step, we recommend an Artist Market Survey. This is a required step in the predevelopment phase of an Artspace live/work project and a step we highly recommend regardless of the community’s choice of developer. The Artist Market Survey is a key component of the due diligence that Artspace conducts before committing our organization to proceed with an Artspace project in a new community. Unlike a conventional real estate market analysis, an Arts Market Survey is specifically designed to determine the size and nature of the market for affordable live/work housing for artists and their families in a community. The survey tells us how many units the local arts community can comfortably support and whether there are special considerations, such as a need for specific kinds of studio space, that might influence the design and scale of the project. We use this information not only for our own planning purposes but also to demonstrate a need for affordable rental housing sufficient to satisfy the various public and private entities that make financial investments in our projects. The survey gathers a wealth of data about the area’s artists, including:

• their age, gender, ethnicity, household size, and other demographic information; • the arts activities they practice; • the arts facility features of most interest to them; • their current income and the percent of it generated by their art; • their current studio or work space arrangement; and • how much they are willing to pay for housing and studio space.

K

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If a mixed-use project is under consideration, the survey can be expanded to identify the need for space for arts organizations, creative businesses, and arts-friendly commercial ventures such as coffee shops and restaurants. Perhaps significantly for a city as geographically spread out as Kansas City, the survey also tells us what neighborhoods are of greatest interest to artists. We might find, for example, that older, more established artists prefer the Crossroads, whereas younger artists favor the West Bottoms, 18th and Vine, or the Troost corridor. SURVEY PARTICULARS Artspace uses an online survey that we developed more than 15 years ago. We have used this survey instrument in more than 70 communities and have received more than 30,000 responses from artists and more than 2,000 from arts organizations and creative businesses. Developing the questionnaire, publicizing it, collecting the data, analyzing the results, and preparing a report takes four to six months. A full-scale survey is typically designed to reach 3,000 or more artists. We expect a response rate of 10% of those we reach. We ask respondents questions to determine whether they meet federally mandated financial qualifications to live in affordable housing; whether they need residential space, studio/working space, or both; whether they have special space design needs related to their artistic discipline or personal circumstances; and so on. Although it is impossible to build a live/work project that addresses every artist’s needs, we use the data collected by the survey to inform our planning. Whether an Artspace project moves forward or not, we encourage our clients to make the survey results available to local developers who might wish to incorporate space for the arts in their current or planned projects. In our experience, a three-to-one redundancy is sufficient to ensure the success of a proposed project – that is, we plan one residential unit for every three artists who express interest in relocating to an affordable live/work project. In other words, if the survey identifies 120 artists who would like to become residents of an Artspace project, we recommend a 40-unit project. Artspace charges a non-negotiable fee of $30,000 for a standard Arts Market Survey and $42,500 for an expanded survey that includes arts organizations and creative businesses. About half of this fee is passed through to the private firm that develops the survey, sets up and operates the online instrument, and analyzes the results. The other half pays for Artspace time and travel, including two visits to the community – one at the beginning of the survey period, the other at the end – and a written report that includes our recommendations for next steps. Although many cities pay this fee from their own

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economic development or other discretionary accounts, some ask local foundations to underwrite the surveys as a preliminary step of the process. 2. CONTINUE THE DIALOGUE We encourage the Core Group, and others who wish to be part of the planning of an arts facility in Kansas City, to work to foster an ongoing dialogue among artists, the development community, and civic leaders. We cannot overemphasize the importance of maintaining the momentum that has been begun and ensuring that everyone works cooperatively toward the goal of creating a single project or setting the stage for multiple initiatives. Additionally, arming artists with talking points about arts development, economic impact, and creative tourism will be essential to keeping the grassroots effort unified and bringing on board additional support at the city level. Website updates that connect the arts community and keeps everyone up to date on initiatives and meetings is a great idea that should be pursued. CONCLUSION The Artspace team was deeply impressed by the degree to which Kansas City’s civic leaders, business community, and artists have come together around the idea of bringing a permanent population of artists to the community. We look forward to continuing to work with the City and its constituents.

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APPENDIX 1

THE PATH OF AN ARTSPACE PROJECT

Rome wasn’t built in a day, and neither is an Artspace project. In fact, a typical Artspace live/work project takes from four to seven years to complete. Although no two projects are precisely alike, they all travel a similar path through the development process. Here is a brief look at a typical Artspace live/work project as it proceeds from first inquiries through feasibility studies, predevelopment, and development to completion and occupancy. Please note that this is not an exhaustive list of every activity that goes into an Artspace project, and that some actions may occur in a different order.

STEP 1: PRELIMINARY FEASIBILITY

Overview • Information Gathering and Outreach

Primary Activities

• Meet with artists, civic leaders, and other stakeholders

• Conduct public meeting to introduce Artspace and solicit feedback

• Tour candidate buildings and/or sites

• Conduct extended outreach as needed to ensure that people from underrepresented communities are included in the process

Deliverables • Written report with recommendations for next steps

Prerequisites for Moving Forward

• Demonstrated support from local leadership

• Critical mass of artists and arts organizations with space needs

• Established base of financial support

Time frame • 3-5 months, kicked off by a 2-day visit

Cost • $15,000

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STEP 2: ARTS MARKET SURVEY

Overview • Assessing the Need

Primary Activities

• Assemble a comprehensive list of artists (and arts organizations, if applicable) in the area

• Reach out to artists and creative organizations from diverse arts disciplines, ages, ethnic backgrounds, etc., asking them about their space needs

• Conduct a public meeting to launch the survey and educate the community about the project

• Analyze and report on survey findings

Deliverables • Written report with recommendations for next steps

Prerequisites for Moving Forward

• Sufficient number of responses from eligible, interested artists to support an Artspace live/work project

Time frame • 4-6 months

Cost • $30,000 (artists only) or $42,500 (artists and arts organizations)

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STEP 3: PREDEVELOPMENT I

Overview • Determining Project Location and Size

Primary Activities

• Work with City and other stakeholders to establish (a) preliminary project scope and (b) space development program for evaluating building and site capacity

• Analyze candidate buildings/sites with respect to cost, availability, and other factors impacting their ability to address development program goals

• Review existing information about potential site(s) to identify key legal, environmental, physical, and financial issues affecting their suitability

• Negotiate with property owners with goal of obtaining site control agreement

• Continue outreach to artists and arts organization

• Connect with potential creative community partners and commercial tenants

Deliverables

• Confirmation of development space program and goals

• Assessment of site suitability and identification of any contingent conditions to be resolved through continued due diligence

• Site control agreement or update regarding status of site control negotiations

• Summary of project status

Prerequisites for Moving Forward

• Site control agreement with property owner

• Growing stakeholder/leadership group

• Both parties’ agreement on project scope and feasibility

Time frame • 3-6 months

Cost • $150,000

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STEP 4: PREDEVELOPMENT II

Overview • Project Design and Financial Modeling

Primary Activities

• With City participation, establish process for selecting architectural team

• Confirm development goals and space program with architectural team

• Engage architect to create conceptual plans and schematic designs

• Engage contractor or cost consultant to provide pre-construction services

• Resolve any contingent conditions relating to site control

• Create capital and operating budgets

• Obtain proposals and/or letters of interest from lender and equity investor financing partners

• Prepare and submit Low Income Housing Tax Credit application

• Submit other financing applications as applicable

• Maintain excitement for the project within the creative community

• Encourage and guide local artists to activate the site with arts activities

Deliverables

• Schematic designs

• Financial pro-forma detailing capital and operating budgets

• Preliminary proposals and letters of interest for project mortgage and equity financing

• Summary of project status

Prerequisites for Moving Forward

• Award of Low Income Housing Tax Credits (first or second application) or commitment of alternative funding

Time frame • 10-13 months

Cost • $300,000+

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STEP 5: PREDEVELOPMENT III

Overview • From Tax Credits to Financial Closing

Primary Activities

• Secure final gap funding commitments

• Raise funds for equity, including private sector philanthropic dollars

• Complete construction documents and submit permit applications

• Negotiate construction and permanent loan commitments

• Negotiate limited partner equity investment commitments

• Advance project to construction closing

• Communicate the progress of the project to the creative community to keep up the involvement and excitement

Deliverables • Successful closing and commencement of construction

Time frame • 4-6 months

Cost • $300,000+

STEP 6: CONSTRUCTION

Overview • Construction and Lease-up

Primary Activities

• Oversee project construction

• Engage local management company

• Identify commercial tenants and sign lease agreements

• Reach out to potential artist tenants, providing education on the application process

• Conduct residential tenant selection process

Deliverables • Completed project ready for occupancy

Time frame • 12-18 months

Cost • Depends on project (not part of predevelopment contract)

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APPENDIX 2

BUILDING BETTER COMMUNITIES THROUGH THE ARTS

What makes a city great? Across America, cities large and small are discovering that one essential quality of every great city is a great arts community. In an era when people are freer than ever to choose where they live, vital arts communities help cities attract and retain residents and businesses. Thriving arts districts are magnets for tourists, restaurants, theaters, and creative industries. In a great city, the arts are not an extra, something to be considered only after “more important” items on the civic agenda are funded. In a great city, the arts are as fundamental as streets, parks, and public transportation. At Artspace, helping cities integrate the arts into their civic agendas is part of our core business. Over the last two decades we have completed 37 major arts projects that contain more than 1,300 affordable residences – each with space for a built-in studio – for artists and their families and provide more than a million square feet where artists and arts organizations work, teach, exhibit, rehearsal, perform, and conduct business. We have seen firsthand the power of the arts to transform urban landscapes. Two of our earliest projects helped launch the celebrated renaissance of Saint Paul’s Lowertown neighborhood during the 1990s. In Reno, a lively arts district has sprung up around an Artspace project that opened a decade ago. An Artspace project in Seattle turned an abandoned block in Pioneer Square into the center of that city’s independent gallery scene. What is Artspace? Established in 1979 to serve as an advocate for artists’ space needs, Artspace effectively fulfilled that mission for nearly a decade. By the late 1980s, however, it was clear that the problem required a more proactive approach, and Artspace made the leap from advocate to developer. Today Artspace is widely recognized as America’s leader in creative placemaking. As a mission-driven nonprofit, Artspace is committed both to the artists who live and work in our projects and to the communities of which they are a part. We work with civic leaders to ensure that our projects successfully deal with the issues they were designed to address.

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Our programs Artspace programs fall into three categories: property development, asset management, and national consulting. Property development

Development projects, which typically involve the adaptive reuse of older buildings but can also involve new construction, are the most visible of Artspace’s activities. Artspace typically completes two to four projects each year. Most projects take three to five years from inception to operation.

Asset management

Artspace owns or co-owns all the buildings it develops; our portfolio now contains more than $750 million worth of real property. All our projects are financially self-sustaining; we have never returned to a community to ask for operating support for a project once it has been placed into operation. Revenues in excess of expenses are set aside for preventive maintenance, commons area improvements, and building upgrades.

National consulting

Artspace acts as a consultant to communities, organizations, and individuals seeking information and advice about developing and operating affordable housing and work space for artists, performing arts centers, and cultural districts. Our expertise as an arts developer gives us not only a unique perspective but also a unique set of skills, and sharing this knowledge we have amassed over the years is central to our mission.

Our history Artspace’s first live/work project opened its doors in 1990. In the mid-1990s, Artspace developed its first project outside Minnesota, the 37-unit Spinning Plate Artist Lofts in Pittsburgh. Invitations to work in other states soon followed. Artspace is now the nation’s leading developer of live/work housing for artists with 29 live/work projects in operation from coast to coast. In all, these projects contain more than 1,300 residential units. Artspace is now a nationally prominent organization with offices in Minneapolis, Seattle, New York, Los Angeles, New Orleans, and Washington, D.C. We have projects in operation, under construction, or in development in more than a dozen states. Our national consulting program has helped communities in virtually every address their arts-related space issues. The nature of our work is evolving, too, to include multiple-facility projects, long-range planning, arts districts, and arts initiatives designed to serve culturally specific groups such as native Hawaiians, the communities of color in New Orleans, and the Native Americans of the Northern Plains.