By Gene Meyer | Kansas Reporter

KANSAS CITY, Kan. — Kansas taxpayers’ multimillion dollar investment in a 6-year-old Kansas City, Kan., shopping center won’t be lost, even though lenders have begun foreclosure proceedings, a city spokesman said Thursday.

A group of lenders led by U.S. Bank filed foreclosure proceedings against the developers of Legends Outlets Kansas City. They allege the developers — RED Development of Phoenix and a group of German investors managed by Morgan Stanley — stopped making loan payments in October that now total more than $179 million.

A federal judge Tuesday appointed E3 Realty Advisors as receiver of the property, in charge of running the property and preserving it until the court proceedings are resolved.

Legends is a high-end outlet mall in western Kansas City, where stores such as Brooks Brothers, Banana Republic and Nike sell lower-priced versions of the same items they sell for premium prices in mainline department stores or in other top outlets. The mall was built with a portion of some $300 million in so-called STAR bonds, issued by the Unified Government of Wyandotte County/Kansas City, Kan., between 2001 and 2005.

Local governments, under state supervision, can issue STAR — Sales Tax Anticipation Revenue — bonds to loan construction money to developers. The bonds are paid off with sales tax revenue that would otherwise go to the state’s general fund.

Money from Kansas City’s STAR bonds was used to build the Kansas Speedway, a new stadium for a major league soccer team and streets and infrastructure for Cerner Corp.’s world headquarters, all on what a decade ago was mostly pasture land. Cerner specializes in health-care technology and information systems.

The foreclosure proceedings will have little effect on Kansas City and Wyandotte County’s ability to repay the bonds, said Mike Taylor, public information chief for the city-county government.

”The lenders and the owners got into a spitting contest over their original financing deal in 2006,” Taylor said. “That is completely different from bond payments.

“The shopping center is still open — and thriving,” he said. “Our sales tax revenues are running 12 percent higher than last year, when they were $41 million. We’re on schedule to pay off the last $62.4 million of the 2001-2005 bonds early in 2013. And we will pay off the stadium bonds (another $107 million issued after the earlier bonds) in 2017, four years ahead of schedule.”

The dispute between the lenders and mall owners is trickier to forecast. Neither Bank of America, among the lenders, nor Morgan Stanley, representing the owners, could be reached Thursday for comment.

But in many ways, the situation at Legends in Kansas City is similar to an issue resolved this week at Legends Sparks Nevada, said Robyn Young, chief spokeswoman for RED Development. RED owns only 5 percent of Legends Outlet Kansas City, but owns 100 percent of the enterprise in Sparks.

Both shopping malls were conceived and financed before the Great Recession torpedoed property values, and the malls struggled in the meaner economic climate that followed. Sparks managers also defaulted on loans and were taken to court.

In Nevada, “RED’s desire was to reach a mutually acceptable solution with its lender,” Young said. “For Legends Outlet Kansas City (as a minority owner), RED’s role is to work in cooperation with the controlling owner who makes decisions regarding financing of the property.”