PNC Real Estate Makes a Landmark Commitment to Kansas City

The restoration of Commerce Tower in downtown Kansas City has been highly anticipated for many years. Now it’s becoming a reality. PNC Real Estate is helping to take the landmark building from neglected to highly desirable. Professionals, young parents and empty nesters will soon enjoy a remarkably convenient and attractive new residence.

Commerce Tower on Main will include 355 studio, one- and two-bedroom apartments plus 84,000 square feet of commercial space, offering an on-site early childhood learning center and creating a downtown location for students in Park University’s graduate program.

The building will retain its original ornate granite lobby, while much of the infrastructure will be significantly upgraded and repurposed into high-end apartments. The renovation will qualify Commerce Tower for LEED Silver certification.

Originally developed in 1965, Commerce Tower was the area’s first high-rise office building to feature a curtain wall glass exterior, earning a listing on the National Registrar of Historic Places. Preservation of the exterior qualified the project for historic tax credits.

Residents can take advantage of new employment opportunities, retail shops, restaurants and theater venues located in the adjacent River Market, Central Business District, Power and Light District and Crossroads neighborhoods, all accessible by foot or streetcar.

They will also enjoy an outdoor basketball court, swimming pool, running track and a roof deck courtyard with a grilling area, as well as a dedicated playground for youngsters. Pets will be accommodated with an indoor dog park. A new grocery store is accessible via a covered walkway; a CVS Pharmacy is next door; and Kansas City’s recently inaugurated streetcar system stops at the front steps of the property.

To bring this project to life, creative loan structuring was needed. The $67.8 million loan consists of A and B tranches. The 40-year A tranche is secured by the project’s net operating income (NOI). The 22-year B tranche of the loan is collateralized by savings from a short-term real estate tax abatement in years 1 to 10 and future proceeds from project-specific tax increment proceeds in years 11 to 22. This structure created $10.8 million in loan proceeds over and above that supported by the project’s NOI. 

The project also benefited from participation in HUD’s new Green Mortgage Insurance Premium (MIP) program. By seeking LEED certification and agreeing to meet certain energy efficiency standards, the MIP was reduced from 70 basis points to 25 basis points. The reduction in MIP generated more than $4.7 million in additional loan proceeds.

Further enhancing the economics for the transaction was the loosening of underwriting standards by HUD prior to closing. HUD’s reduction in the minimum DSCR from 1.30x to 1.176x and a reduction in minimum reserves for placements came at just the right time for the deal.

Date: May 2016
Location: Kansas City, Missouri
Financing Amount:
$67.8 million
Financing Type: FHA 220 Substantial Rehabilitation
Scope: Conversion to 355 residential units plus 84,000 square feet of commercial space within an historic exterior

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