Signs of Trouble for OP’s Prairie Fire?

By | October 28, 2015 at 12:29 pm | No comments | Around Town - All Things KC | Tags:

From Steve Vockrodt of The Pitch

This weekend, like thousands of movie theaters, Cinetopia at Overland Park’s Prairiefire development opens the new Ridley Scott film, The Martian, which stars Matt Damon. After an October 2 screening, though, comes a unique event: a question-and-answer session with Michael Shara, the curator of the American Museum of Natural History, at the museum next door to Cinetopia.

The talk with Shara blends the two components that most separate Prairiefire (at 135th Street and Nall) from other new, retail-dominated suburban developments: science and movies. The Museum at Prairiefire opened in May 2014, surrounded by thousands of square feet of retail space, with a key attraction: The museum would host traveling exhibits from Shara’s pre-eminent New York institution. That aspect of Prairiefire gave it enough oomph to receive Kansas sales-tax-revenue (STAR) bonds, a powerful economic-development inducement meant only for projects that state policymakers deem likely to draw regional or national visitors, not just locals.
Since Prairiefire’s opening, Fred Merrill Jr., a respected developer in Johnson County, says the museum has attracted 400,000 visitors, including schoolchildren, tourists and corporate groups. That figure roughly matches the developer’s projections, and, with the museum itself having earned awards for its architectural distinction, Merrill is upbeat about Prairiefire’s future.
But signs of financial distress are beginning to peek from beneath the surface.

A recent disclosure by the city of Overland Park shows that the city drew money from a reserve fund to make an interest-only bond payment on the larger Prairiefire development.
Municipal bonds work like this: A city sells bonds to investors on behalf of a developer to obtain up-front cash, which helps get a project going. The investors who buy the bonds are repaid with interest over time by money that the project generates. Meanwhile, bond issuances also establish reserve funds, a sort of savings account that’s available in case revenue from a project is ever insufficient to make a full payment to investors. A draw on a reserve fund can indicate trouble.

In STAR-backed Prairiefire’s case, bondholders are supposed to be repaid by sales-tax proceeds generated by the project — proceeds that would otherwise go to Overland Park and Kansas. But on June 15, $122,226 of a $312,208 bond payment made to investors came from Prairiefire’s reserve fund.

Merrill says part of the reason that the reserve fund was tapped was because revenues didn’t meet projections when some early Prairiefire tenants didn’t work out. He adds that Cinetopia’s effort to muscle its way into a crowded local movie-theater scene hasn’t been easy. The Leawood-based international chain AMC Theatres, which dominates the KC market, has been under investigation by the Department of Justice. AMC (along with fellow exhibition behemoth Regal Entertainment Group) has drawn scrutiny for what’s known in the business as “movie clearance.”

The practice involves theater owners negotiating with movie studios and distributors for exclusive rights to show certain movies within an established radius. AMC disclosed the existence of the DOJ’s antitrust investigation, as well as one by Ohio’s attorney general, in a May filing with the Securities and Exchange Commission. AMC said in the SEC filing that it was cooperating with regulators and did not believe it had violated any laws.
Merrill says AMC’s tactics have hurt Cinetopia’s performance, with other establishments within the Prairiefire development suffering the effects of limited trickle-down business from moviegoers. “So they [film studios] actually just split instead of everyone getting every film,” Merrill says. “I guess that’s a weird practice. What it has done is, a lot of the blockbusters went to AMC 20 [in Leawood], and Cinetopia didn’t get them. So obviously that hurt sales.”

Ryan Noonan, a spokesman with AMC, tells The Pitch that the company has no further comment on the investigation and will not comment on Merrill’s remarks.

The museum itself is fighting to attain financial stability, too. It has obtained a $2.5 million loan with a third-party bank to fund operating costs. Merrill says this is to cover costs during times between traveling exhibits, when ticket sales slow down significantly. “There’s six or seven weeks where there’s no revenue from ticket sales,” Merrill says. “That loan is supposed to bridge that gap.”
He predicts that the finances of the $28 million museum will stabilize in two to three years.

“The whole business plan for the museum is to be self-sustaining and generate dollars through ticket sales and special events and rentals of the space,” Merrill says. “That’s all supposed to be in place over the next two to three years.”

The Link to the Original Story on The Pitch’s website can be found by clicking here.

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