Mission Gateway is upside down. Will the Johnson County project ever be finished?

The potential foreclosure on the Mission Gateway project poses perhaps the biggest threat the cursed Johnson County development has ever faced. It could leave the city of Mission without a finished project, but also cost developers, bankers, vendors and contractors millions.

Several real estate experts tell The Star the development, despite sitting on one of the most valuable pieces of property in the area, is upside down, meaning the property is now worth less than what is owed.

Last month, New York’s Metropolitan Commercial Bank filed a lawsuit in Johnson County Court seeking foreclosure of the property after it said developers missed several mortgage payments.

The bank says Aryeh Realty LLC, a subsidiary of the firm that owns the property, owes more than $25 million in principal and interest, plus other late fees, court costs and appraisal costs. Those debts far exceed the likely value of the property if the bank forces a sale.

“They’re going to sell that thing in a fire sale for a fraction of that number,” said Kade Pittman, vice president of real estate at Cinergy Entertainment Group.

The Dallas-based company has long planned to anchor the Mission Gateway project with a 90,000-square-foot entertainment complex that would include zip lines, bowling and movie theaters.

Pittman says that finishing the job is the only way the bank, vendors and contractors will ever be fully repaid. Aside from the millions allegedly owed to vendors and lenders, the property will likely require that a future buyer spends millions demolishing semi-completed structures on the site.

If the property is foreclosed upon, the bank would likely reap any proceeds from a sale, leaving contractors with little to nothing.

“We’re owed the most of anybody I think, $5.5 million,” said Michael Saint, vice president of Coreslab Structures.

A foreclosure would mean that Coreslab may never see the money it says is owed from developers. Now, long after construction work halted, the company is left with 700 custom pieces of concrete ready for the project’s parking garage laying in its Marshall, Missouri, yard.

“We’ve got a big parking garage in our yard that we’d like to get rid of,” Saint said.

Companies like Cinergy and Coreslab were hopeful that the project was finally on its way to completion when developers told city leaders they had secured the correct financing to finish the project. The Mission City Council in January approved a fifth version of a development agreement for the project.

Though the bank says developers had been behind on payments since November, city advisers made no mention of the mortgage problems in January. They told the council the developers had the funding and a plan in place to finally get the project done.

For Saint, that council vote “was what we were waiting for.”

“They assured us they had financing in place,” he said. “So we finally had a good feeling that this was going to go. But now it’s on life support.”

A unique opportunity — for someone else

Coreslab Structures’ parking garage has stood unfinished and exposed since work halted in the early days of the pandemic. The rest of it, ready to be shipped to the site, clutters their own property.

Saint told The Star the company has received $1 million for engineering work so far, but is owed another nearly $5.5 million for production costs.

“This will be a significant financial hit if it doesn’t get going again,” Saint said. “… It will hurt.”

All of Coreslab projects are custom made, meaning there’s little use for the structures it produced for Mission Gateway. The company may market them at a steep discount to other customers or it may crush up the concrete just to get rid of it, which would “take us a lot of money.”

Even if the $5.5 million is repaid, Saint isn’t sure the company would return to the job site.

“This is our third iteration with this job. We didn’t get paid fully the first two times, but we filed liens and ended up getting paid,” Saint said. “When they started this third time, we were not financially too bad. But now we are.”

Mission Gateway is being developed by the Cameron Group, a New York development firm run by Tom Valenti, and GFI Capital Resources Group, a New York City real estate finance and management firm run by Allen Gross.

The project sits at the prominent intersection of Shawnee Mission Parkway, Johnson Drive and Roe Avenue. It has faced nearly 20 years of setbacks since Valenti’s firm purchased the former Mission Mall in 2005.

Since that time, the developer has missed several deadlines in various deals with the city. It faced tax delinquencies and mechanic’s liens from contractors who said they were not paid for their work on the semi-completed structures there.

A Johnson County spokesman said Aryeh Realty is up to date on all property taxes, but more than $449,000 is due by Wednesday.

The Cameron Group did not respond to multiple requests for comment and GFI declined to comment for this story. Neither company has filed any response to the foreclosure lawsuit, according to court records.

Andy Ashwal, a GFI vice president, said last month the company would “continue to work with all stakeholders involved and look forward to delivering a completed Mission Gateway project.” He said GFI was disappointed in the foreclosure action, which he characterized as “drastic.”

Pittman, with Cinergy, said he understands the bank has likely grown frustrated by the project over the years. But he said the foreclosure lawsuit came just as the project seemed poised for success.

“Finally when we feel like we have momentum going in the right direction, then they pull the plug.”

Pittman said he’s hopeful the developer can avoid foreclosure — either by working directly with the current lender or by finding another one.

The giant white shell of a building built specifically for Cinergy will require some repair work, Pittman said. But its foundation, roof and exterior walls remain structurally viable, he said.

“We like the project. We’re very interested and we’re committed,” he said.

But if the bank forecloses, the property will likely end up in the hands of another developer.

Finding potential interest shouldn’t be too difficult, said Tim Schaffer, president and founder of AREA Real Estate Advisors.

Mission Gateway’s location is a top selling point. It’s in a well-established area surrounded by high-income neighborhoods. And developers are always looking for hard-to-find infill sites — properties that are unused or underdeveloped.

“Where do you find 16 acres in the middle of a city?” he said. “That’s a very unique opportunity for somebody to reimagine what could be done there.”

But that doesn’t mean it will be easy.

The project racked up millions in expenses long before construction ever began. The developer paid to demolish the old mall. And the city made some $12 million in stormwater improvements — costs the developer has been slowly repaying through a special assessment, included on the tax bill each year.

With such high upfront costs on the project, the final development must pack in more density to recoup investments, Schaffer said. That means the project must go vertical, which means it also needs parking garages — both of which drive up construction costs.

“The challenge has always been to get your returns you have to put a lot of stuff on that ground,” he said. “I think the site would be of interest to a number of different developers who are going to have a different vision for the property. And depending on what they can buy the property for is going to dictate the uses. And the uses are going to dictate what they can pay for the ground.”

City was ‘very comfortable’ with deal

Advisers assured the City Council in January that it was the right time to consider a new deal with Mission Gateway — the city’s fifth in the past 17 years.

Bruce Kimmel, financial adviser to the city, said the developers demonstrated they had enough financing secured to finally get the project done. He said at the time that GFI “upped the game in terms of giving me the behind the scenes information, in terms of development budget, the financing plan, the operating pro forma.”

The developers had shown a rare level of transparency, he told the council, so the city could determine whether the “financing plan hangs together.”

“That’s kind of the big question. Is there a missing element that’s really going to blow this up? Or something behind the scenes that’s just not computing correctly. And I’ve been able to confirm that those numbers do hang together.”

Some elements still lingered. Developers needed to secure more than $29 million to fund the first phase of work, estimated to cost $174 million. And the city would need to issue $22.5 million in bonds, repaid with property and sales tax generated on the site.

But the city’s attorneys agreed the financing plan made sense, and the developers had provided as many assurances as possible that they could make it work. With added safeguards for the city baked into the deal, the council approved a new redevelopment agreement, with all but one member in support.

“City staff is very comfortable with this agreement,” Pete Heaven, land use attorney for the city, said at the time. “I think it affords excellent protection for the city and actually gives the developer a very good chance of success.”

There was no mention of missed mortgage payments during that January meeting, though Aryeh had been behind since November, according to the lawsuit. And it remains unclear whether city staff or council members were aware of that.

“I feel like they’ve given us as much as they realistically can before the council takes these actions,” Kimmel said in January. “And I know that some of you would like absolute certainty and confidence that everything is stacked up and ready to go. I can’t give you that absolute certainty. But yes, they’re checking the boxes. … I feel very good about where we’re at, and this is the right time to be considering these items.”

Kimmel did not respond to The Star’s request for comment for this story.

Some City Council members have declined to comment and referred questions to city staff. City Administrator Laura Smith said in an email last week the “City is still not in a position to answer any follow-up questions regarding the Gateway situation.”

In a lengthy section of the city’s new agreement, developers attested to there being no pending or threatened litigation against the project, with the exception of lease disputes and mechanic’s liens. The developers also agreed that no default has occurred and that they have accurately disclosed their financial position to the city, without omitting any necessary facts.

It’s unclear whether the alleged mortgage default would violate those terms.

City officials have declined to say what steps they could take now that the bank is seeking to foreclose. But officials said in a statement, “The City will continue to assess its rights under the redevelopment agreement.”

They added that despite having the new agreement in place, “the developer has not received any incentives to date in connection with the Gateway Project.”

The city’s previous agreement expired at the end of 2021 after the developer failed to meet its construction deadline. Developers, who say they have poured more than $60 million into the project so far, have blamed the years of delays on a series of misfortunes, most recently COVID and limitations on the bond market, that caused construction to halt shortly after it began in 2020.

While some city officials previously said they would rather see a new developer take over the site, they still agreed to another deal with Valenti and GFI. The new agreement revised the terms of a 20-year tax increment financing deal and raised the special sales tax collected as part of a 22-year community improvement district from 1% to 2%.

“In my view, we’ve now created the conditions for the greatest likelihood of success as we are able, given that this property has been, is and remains privately owned,” Mayor Sollie Flora said ahead of the vote. “I now believe it is more likely than not that the project will be completed, and that successful completion will mean substantial new revenues and valuable community assets for our city.”

But councilwoman Hillary Parker Thomas wasn’t convinced.

“I don’t believe this project is the right fit for the entrance to our city, and therefore I do not find it incentive worthy,” she said before voting against it. “Additionally, I am concerned about the lack of a funding plan for phase two and incomplete financing for phase one.”

Plans for the first phase of the $268 million project include the 90,000-square-foot Cinergy Entertainment complex, as well as 50,000 square feet of commercial or restaurant space, 370 apartment units and a parking garage. The second phase would include a 200-room hotel and 100,000 square feet of office space or a medical facility.

The agreement requires the first phase of work to be completed within 46 months after bonds are issued, or else the deal dies. It also required satisfaction of all liens at bond closing. Those bonds have not yet been issued.

A new safeguard for the city, the developer agreed to place $3 million in escrow once the bonds are issued. Of that, $2 million would be used to ensure taxes are paid on the project and $1 million would ensure deadlines are met. If not, the funds would be forfeited to the city.

Developers assured the council they could secure the last $29 million in financing, saying they had letters of interest from investors.

Stan Spiegelman, of GFI, told the council Mission Gateway was one of GFI’s largest investments, and they must “build our way out” to recoup the money already poured into the project.

“We have $60 million locked up in this deal, and if that means we have to sell an asset or do whatever it takes on our GFI side to put in that incremental $5 or $8 million, whatever is going to be needed to get the deal done, we’ll do it,” he said at the council meeting. “We’re committed to this project.”