Kansas City, Kan., saw some financial maneuvering as The Legends Outlets shopping center went on the auction block Jan. 25 at the U.S. Courthouse in Kansas City, Kan.
The action was taken after U.S. Bank filed a lawsuit last May and foreclosed on a $180 million loan, according to documents. The owners of the shopping center had stopped making payments for around a year because of a lack of cash flow from the property, according to Dan Lowe, who with RED was part of a 5 percent ownership of the center. The nonpayment of the note resulted in a conversation with the lender, which then resulted in the receiver sale, Lowe stated.
The Legends Outlets, at I-70 and I-435 in Kansas City, Kan., is 1.2 million square feet.
Lowe of RED Legacy is part of a group, with KKR Real Estate Holdings of New York, a private equity firm that on Jan. 25 turned in the highest bid, $131.5 million, for The Legends Outlets shopping center. Lowe was part of the original founding group of The Legends at Village West. KKR had the majority, while RED Legacy has 5 percent of the bid, the same amount as it had under the previous owner.
Lowe, who developed The Legends with RED Development, said it was important to keep a local face on the project for the shopping center and the city
“We were fortunate enough to be part of the group to purchase the shopping center,” he said.
The second highest of the five bids was from CRG Acquisitions at $131 million. The receivership sale was subject to final court approval. The receiver, a realty group handling the sale, E3 Realty Advisors, had asked the court for an early sale over the objections of the owners; the foreclosure case had been scheduled for court in July.
The receivership sale at the courthouse was the center’s second change in ownership.
In 2007, a new partner was brought into the ownership of The Legends and it controlled 95 percent, Lowe said. A group led by Morgan Stanley and a German fund that purchased the shopping center, was the main owner of The Legends for the past several years, he said. During this time, the group associated with RED owned only 5 percent.
Also during that time, the Morgan Stanley group made changes such as turning the center into an outlet mall, rebranding it, downsizing some tenants that the owners believed had too much space into smaller quarters, thinning the restaurants because the owners believed the shopping center had too many restaurant seats for the demand, and bringing in new upscale tenants such as Saks 5th Avenue Outlet and Under Armour.
Lowe said the relationships RED has with the Unified Government, Cabela’s, the Kansas Speedway, Sporting Kansas City, and others in the community are important. A new buyer might have established new relationships, but Lowe said he already has them.
As a familiar face, he will be the future link to the community for the new Legends Outlets owners.
One of the reasons he and the RED Legacy investors wanted to continue their relationship with The Legends Outlets is the opportunities that exist in this area, with the casino, soccer club, baseball, Cerner and the new office park coming to the area.
“We just hope to add to the momentum and take advantage of the energies the other guys have, to increase and enhance the experience at the Legends,” Lowe said.
When The Legends Outlets attempted to form a community improvement district for a 1-cent sales tax increase in 2011, some information about the shopping center was discussed at a public meeting. At a Unified Government meeting in 2011, according to UG public records, Lowe told the commission that the initial investment in The Legends was almost 50 percent of public dollars in STAR bonds, about $132 million, to 50 percent in private dollars, about $150 million.
The STAR (sales tax revenue) bonds are on track to be paid off in 2017, about seven years earlier than due, according to UG officials.
In 2011, when the owners of The Legends Outlets were proposing an increase of 1 percent in the sales tax for a community improvement district, Lowe estimated The Legends was doing $230 million to $250 million a year in sales. The Legends at that time was putting together a $32 million plan to remodel and rebrand, which would have included $10 to $12 million from an increased sales tax, according to the records.
The UG commissioners at the time pointed out that the owners of The Legends in the past had taken the center’s property valuation to court to reduce the tax value to less than half of what was paid for it. Some of the commissioners at that time said they were not excited about allowing The Legends to have another $10 to $12 million subsidy when they had not paid more than half of the original off.
As the auction sale hit the news last week, State Sen. David Haley, D-4th Dist., said he had been getting calls from constituents who were concerned about the potential effect on the taxpayers of Wyandotte County and Kansas, who issued sales tax revenue bonds for the project. He said he originally did not vote for the financing mechanism because he did not want taxpayers to be on the hook. He said he had several questions about the current situation.
He said one of his questions concerns the relationship between the $180 million in indebtedness and the highest bid, which later that day turned out to be $131.5 million, a difference of $48.5 million. There apparently was a combination of interest and other charges the bank placed on the principal amount of $137 million after the loan was made in 2006.
Others raised questions whether the center would be able to function after the foreclosure. However, the center continued to operate as usual this past year, and Lowe believes it can be more stable after the change in ownership.
Edwin Birch, Unified Government spokesman, said this sale of the shopping center should have no effect on the sales tax revenue bonds and the taxpayers.
"Sales tax revenue was still up and doing well out there," Birch said. The bond repayments are tied to sales at The Legends, which are doing well, he said. The STAR bonds were being paid ahead of schedule, and the UG still expects the sales tax revenue bonds to be paid off early, he said.
From the point of view of the UG, the Legends Outlets is just changing ownership, Birch said. The UG is not expecting the taxpayers to be affected, he added.
He said the bids for the shopping center were coming in at a higher rate than its appraisal amount. Sales taxes at The Legends have come in at a higher rate last year than the previous year, he added.
Lowe said that the January sales report for The Legends Outlets was 12 percent up over last year.