Sale of The Kansas City Star Press Pavilion for Fraction of 2006 Cost Reflects Declining Newspaper Industry
Published July 27th, 2017 at 12:30 PM
By Kevin Collison
When it opened in 2006, The Kansas City Star Press Pavilion was hailed as a major contribution to the revitalization of downtown and the latest technology in the newspaper industry.
The striking 434,000 square-foot building clad in green glass and copper covered two city blocks, rising from four stories along 17th Street to its eight-story prow above the South Loop freeway.
It featured four 60-foot tall KBA Commander presses from Germany, a robotic system to fetch huge newsprint rolls stacked 80-feet high and cost $199 million to build and equip.
Eleven years later, it’s worth less than $42 million.
That’s the price tag announced last week by McClatchy, the owner of The Star, for both the Press Pavilion and the historic Star headquarters building at 1729 Grand Blvd.
The Press Pavilion’s precipitous decline in value mirrors the plunge in the fortunes of the newspaper company that built it over the past decade, according to real estate experts.
While The Star has made gains on its digital side, its Sunday newspaper circulation has slid 36 percent to 266,264 since the Press Pavilion opened and its daily has dropped 33 percent to 169,936.
There are now about 240 people working in the 1729 Grand building, down from 1,700- to 1,800 employees at its peak, according to a briefing given newsroom staff last March.
Jerry Fogel, co-chairman of Kessinger/Hunter & Co., helped The Star assemble the properties for the Press Pavilion in the early 2000s, described it as an “enormous loss” for McClatchy.
“I refer to the Press Pavilion as a piece of machinery,” Fogel said. “For real estate people, it has no other value than as a tool to produce newspapers.
“The building is worth the land value and that’s about it.”
Gib Kerr, vice president of Cushman & Wakefield, described the Press Pavilion as an “anachronism.”
“It’s like building the greatest carriage on the planet right as the automobile is coming out,” he said.
Officials at The Star declined to comment on the pending transaction and a McClatchy spokesperson would not comment beyond what had been announced in the firm’s quarterly report about the sale.
The Press Pavilion was purchased by a low-profile entity called R2 Capital LLC, according to McClatchy.
A web search found an R2 Capital in Pampa, Texas, where a woman who answered the phone declined to comment, and an R2 Capital Group in Denver where the phone number was not working.
The Kansas City Star building dates back to 1911. (Photo from 1729 Grand LLC)
He plans to renovate the old building into offices for up to 1,200 workers, build a 600-space garage immediately north and possibly build a five-story apartment or hotel project on undeveloped Star property along the north side of 18th Street.
As for the Press Pavilion, The Star plans to enter into what’s known as a sale-leaseback agreement in the real estate business. It will continue to print what has become a stable of products in recent years.
Besides The Star, other publications produced there include the McClatchy-owned Wichita Eagle, Topeka Capital-Journal, Lawrence Journal-World, USA Today, The Wall Street Journal and The Pitch.
The Star also eventually will consolidate its remaining workforce in the Pavilion, leaving behind the historic 1729 Grand property its occupied since 1911.
Mark Long, executive manager director at Newmark Grubb Zimmer, said the price of the Press Pavilion was likely related to the undisclosed lease deal reached with McClatchy.
“If the tenant wants to get a high dollar amount for its real estate, it will pay a higher rent,” he said. “If you want lower rent, you receive a lower price for the building.”
The sale-leaseback arrangement has tax value to the McClatchy corporation too, allowing it to claim a tax deduction for its lease payments, and remove a taxable asset from its books.
McClatchy also was granted a 15-year extension of what originally was a 10-year property tax abatement on the Press Pavilion project from the city two years ago.
That reduced its tax bill from what would have been $1.3 million this year to $337,000 annually throughout the duration of the abatement, according to published reports.
Finally, real estate professionals say McClatchy’s own fragile credit situation also could have been a factor in the low price.
The Sacramento-based firm financed its 2006 acquisition of the Knight Ridder newspaper chain, The Star’s former owner, with $3.75 billion in debt.
According to its second quarter 2017 earnings report, McClatchy still has a net debt of $850.3 million. The company’s total revenue for the first six months was $446.3 million, down 7.1 percent from the same period last year.
“That’s a big challenge,” Long said. “When people are looking to make investments, particularly in specialized buildings, they look hard.
“The higher the risks involved, the lower the price is.”
Should newspapers stop printing at the Press Pavilion, Long speculated there may be other reuses for the building including advanced manufacturing, data centers or even a recreation use.
“Your mind starts to wander,” he said.
Still, Fogerty estimated it would cost several million dollars to convert it to new uses.
This story originally appeared on the KCUR public radio website.