180+ properties. $45 million in debt.
When Topeka real estate investor Kent Lindemuth filed for bankruptcy in 2012, reverberations crashed through the capital city's business community. The veteran businessman was millions in debt, with area banks on the hook for around $40 million. Lindemuth owned more than 180 commercial properties in Topeka and the region. Many were in significant disrepair with vacancies and unhappy tenants.
Six years later, the roller coaster of news pouring from the Lindemuth bankruptcy has settled to a few news stories as some of his properties are auctioned. The local commercial properties Lindemuth owns now number closer to 70, not including vacant lots and property outside of Shawnee County.
Overall, said business associate Brian Lensing, of United Country Commercial, Lindemuth's company is stable and doing fine. Lindemuth, reached to talk about his properties, said he was unavailable to speak as he was working to complete several projects.
When the bankruptcy was finalized in January 2016, the situation for the struggling properties and tenants was much better, Lensing said. He has managed the sale of the properties and works with Lindemuth on properties the developer still owns.
"You need to understand, bankruptcy is a dirty word. A lot of people don’t understand what it means. In this case, the benefit to everyone in the bankruptcy was that it slowed things down," Lensing said, adding that it allowed the lenders time to understand what needed to be done.
"So some of the downsizing of the portfolio has solved a lot of those problems," Lensing said. "It was a 100 percent payout bankruptcy. What they needed was to slow things down. All of the banks have been paid. Most of the back taxes have been paid and are in the process of being paid. It gave time for me to get the market to absorb some of these vacant properties."
Lensing said the Lindemuth bankruptcy case is, in fact, a prime example of how Chapter 11 bankruptcies, which are designed to allow companies to reorganize and emerge in a stronger situation, should work.
"The vast, vast majority of Chapter 11 bankruptcies don’t work," Lensing said. "The parties believe it’s going to work. They’re hopeful. They’re optimistic. They don't work and they end up being liquidations. The Lindemuth bankruptcy was a classic example of how the law was designed to work. Everybody’s being paid. There's been no harm, and these liquidated properties are being absorbed back into the market."
The challenges of lack of maintenance of the commercial properties, well-known in Topeka and much-discussed among tenants, have been met, Lensing said. Many of the vacant properties have been sold in four major auctions, with a few still listed to sell.
In October 2014 testimony before the bankruptcy court, Jim Lloyd, a Kansas City, Mo.-based financial analyst who worked with Lindemuth during the bankruptcy, said Lindemuth was set up "to achieve financial stability through the property sales and new leases."
"We generate annual property income of about $5.6 million, and that is sufficient to cover the adjusted tax payments and loan payments that result from the changes that we have made to the portfolio," Lloyd said, "as well as repay the past due property taxes over time."
That's exactly what has happened, Lensing said, leaving Lindemuth's business stable, creditors pleased and putting sometimes troubled properties back into the market where new owners can make an investment to make them viable again.
With stable revenue, Lensing said properties Lindemuth continues to own are being maintained.
That wasn't the case several years before Lindemuth filed for bankruptcy, and many in the community were watching the situation.
"You knew the future wasn't bright and there could be a problem for the ownership," said Mike Morse, partner at Kansas Commercial Real Estate Services Inc. "Those signs are the signs everybody sees for any property owner. Things aren't getting maintained. Deferred maintenance starts to accumulate. There start to be vacancies. It takes income to make a property go."
"The problem for real estate is when there's unknown," he added.
It's Investment 101.
"When you’re looking to invest, if you know the market’s strong, or going up, you're going to invest," Morse said. "If the market’s going down, you’re going to invest in something different. But when it’s an unknown, you sit on your hands. That puts money on the sidelines because people just sit and wait because they don’t know what to do."
A diminished pool
When those deteriorated properties do hit the market, whether through a fire sale as the investor tries to save their business or a forced sale from lenders or the courts, it's trouble, said Ferd Niemann, director of development and acquisitions at Christie Development in Overland Park. His company, which re-developed the Academy Sport complex, Crosswind Commons, at 17th Street and Wanamaker Road, purchased Villa West Shopping Center, 2827 S.W. Wanamaker Road, a former Lindemuth property. It also is under contract to potentially purchase White Lakes Mall, another Lindemuth property at 3600 S.W. Topeka Blvd.
"I don't want to degrade the guy too much, but what he’s done to the market — when a property sits in that condition and gets that kind of mismanagement for so long, it's bad for the property," Niemann said. "One, because obviously it has much deferred maintenance, which means if the community ever wants to come back, it’s going to take somebody with significant resources to revitalize it, which is going to diminish the pool of people who would buy it. A stabilized asset is going to have more buyers than a diminished asset, in general. You diminish your pool."
In some cases, such as White Lakes Mall, the property is so far gone it must be demolished, he said. That means the loss of buildings, potentially with historical value and character, at a considerable price.
When a developer with hundreds of properties goes belly up, that's flat-out bad for the community, Niemann said.
"What hurts on a macro level is when you have one guy like that that is such a major player in the market, and his properties are so poor, it compresses rents for the entire market," Niemann said. "The Topeka rents, in my opinion, have been held artificially low for a long time."
What Lindemuth left behind
Today, many Lindemuth properties have been sold, and, in some cases, new owners are putting dollars in to save them. But Niemann thinks what happened still affects Topeka.
"What Lindemuth has done has left behind a lot of real estate assets that are in significant need of repair, and at below-market rents, which means it’s harder to get Class A rents," he said. Class A properties are those in excellent shape that draw high-quality tenants and high rents.
"If you don’t have Class A rents, you're not going to get Class A developers and Class A developments coming to town," Niemann said. "What I think Topeka has been missing — and I don’t have a long history but others who do have a long history in Topeka told me — is professional developers coming in and doing great projects in the community."
Niemann said he's aware there's some sentiment in Topeka against Kansas City-area developers working in the capital city, but the reality, he said, is that there are probably 100 very capable developers in the KC metro, as well as a number in Topeka, who can make a difference here.
"But when a guy like Lindemuth is not one of those quality developers and has such a portion of the market, it depresses rents and depresses condition of buildings to a level that it keeps some quality guys away because it makes the projects too daunting," he said.
WHAT HE HAD
Properties developer Kent Lindemuth owned when he filed bankruptcy in 2012
70: Retail or professional services buildings
65+: Vacant lots
24: Buildings and lots in surrounding towns, including Emporia, Lawrence, Manhattan and Junction City
17: Retail strip centers
16: Warehouse/industrial buildings
15: Office buildings
7+: At least seven lots and land at S.W. 29th & Fairlawn Road that are now part of Wheatfield Villages development
7: Residential properties
Knock it down
White Lakes Mall, for instance, is probably going to cost $1 million to demolish. And there's almost no choice but to tear it down, Niemann said.
"In our opinion, that building cannot be saved," he said.
"The market adjusted for Mr. Lindemuth's properties four years ago," he said. "And some of those properties are in such poor condition that they really become nonfactors, like White Lakes Mall. It's land value now. The prices reflect the condition of what it takes to save them, to go back and make them good again."
Morse recalled when White Lakes was no longer a retail center but was still viable with State of Kansas departments leasing tens of thousands of square feet. Those businesses eventually went elsewhere, a phenomenon that helped other area landlords. Lindemuth tenants, in an effort to find better spaces, brought business to other landlords across the community, he said.
Lindemuth and Topeka
But White Lakes isn't currently impacting the Topeka market, and it hasn't been a factor for years, Morse said.
The overall impact on Topeka's real estate market as Lindemuth's businesses failed was strong at the beginning, but has leveled out, he added.
If Lindemuth's Chapter 11 bankruptcy, which allows the owner to reorganize and settle some debt but stay in business, had been converted to a Chapter 7, that might have been a different story, Morse said. At one time that was considered as part of the case, but a judge wouldn't convert to the Chapter 7, which would have led to liquidation of all of Lindemuth's assets.
"The number of properties he had, if those would have all dumped at once, it would have bottomed out the market," Morse said. "Once they're in bankruptcy, those properties were some of the best friends to quality owners. Those properties were pulled off the market. They used to be competition, now they're not."
Lensing, who works with Lindemuth on this properties, said holding the auctions over time, starting in 2014 and with one held just recently, helped the market to absorb the properties and lessened the impact in Topeka.
"It gave time for me to get the market to absorb some of these vacant properties," he said.
And while Niemann contended that low-quality properties hurt lease rates, Morse said he's seeing the other side of that now, six years down the road.
"We're now at the point where there's a lot of increase in our lease rates," he said, adding that there are fewer properties on the market that are leaseable. "You pulled — however big White Lakes is — off the market and those people have to go somewhere. We went through a downturn, and now we're on the positive side of it in that a lot of marginal properties are gone.
"The market's strong right now."
Maintenance, tenant satisfaction important for success
The concept of fashion, hairstyles, video games and even television shows being subjected to the fickle likes and dislikes of the public isn't unusual.
But understanding that much bigger things trend, like whether enclosed malls are popular or whether strip centers rule the retail game, is not always clear to people outside the industry.
But everyone recognizes that enclosed malls are struggling, and many are reshaping their plans to become mixed use developments and be creative in using the large spaces they own.
Right now, said Brady Robb, president and co-owner of The Robb Co., strip retail centers are doing well. That's good for him and Becky Dickinson, Robb Co. co-owner and vice president, as they own and operate Brookwood Shopping Center, 2709 S.W. 29th St.
"Retail started with strip-type shopping centers," Robb said. "I think you're seeing a return of that where people are more and more time conscious. They want to be able to get into a store, get what they need and go."
But even in the years where enclosed malls were popular, The Robb Co. has managed to keep Brookwood's vacancies low. Dickinson said building relationships with the tenants is important, and also it's critical that tenants build relationships with their community.
"We have local tenants, local merchants, and they really do get to know what their customers like," she said. "Even if they have an online presence, which I think everybody here does, you still get times when people like to come in and visit and get a sense of what's in the store and where what might work with gifts."
"They get to know their customers," Robb agreed.
But also critical is making sure as owners of the strip center that it is well cared for and looks good, Robb said.
"It’s of the utmost importance. Maintenance and the way the shopping center appears reflect the owner’s commitment to the property and also the owner’s commitment to the businesses and the tenants that are there," he said. "If the tenants see that the owner really doesn’t care, to some degree they’re not going to care. They’re just going to concentrate on their business. (If) the property is rundown, and they want their business to continue to be successful, they’re probably going to look at another location."
Dickinson said that some buildings in the Brookwood center are 60 years old, and it requires a steady focus on maintenance and upkeep to make sure the area stays nice. They have a roofing company professional walk the roofs once a year to check for issues, and twice a year, they scour the property to identify what is needed.
Not doing that creates what Robb termed a "vicious cycle."
"You have a property that isn’t maintained, then you lose some tenants, you have higher vacancy, then it’s tougher to market," he said. "So you’ve got to be more aggressive to some degree and you have to lower your rents, which will lower the value of the property in the long run."
Letting a property fall into disrepair was one of the challenges seen as Topeka real estate developer Kent Lindemuth struggled with more than 180 properties he owned in the region. The escalating deferred maintenance put some of the 17 retail strip centers he owned into just that position of losing tenants and then lowering rates.
Michael Tamburini is a Kansas City-area attorney who has specialized in financial services work, including bankruptcy litigation. He was not involved in the Kent Lindemuth bankruptcy, which left 180 plus properties in the region in an uncertain status as the 2012 Chapter 11 bankruptcy, which allows for a business to reorganize, worked through the courts. But he's seen the situation that developed in Topeka before.
"If you allow the operations or the physical property to be neglected, then it does become less and less marketable," he said, "particularly if it involves properties where you have tenants and tenants are getting frustrated with the way the property is being neglected."
While that cycle doesn't mean the property won't sell, it does typically mean the asking price will have to go down, Tamburini said.
"You're likely to attract less desirable debtors," he said. "You're more likely to see bidders who are trying to really low-ball their offers because they know the property is stressed or vacant or has other issues."
Steve Clinkinbeard, who has renovated Fairlawn Village at 901 S.W. Fairlawn Road, said he believes in being diligent about maintenance because of the stress it puts on tenants, which are the lifeblood of the retail strip center.
"They get to the point where it's difficult for them to move," he said. "You can't just pick up and move because you've established your business there. Our best advertising is our tenants. We have a broker that says we're his worst customer because when he puts somebody in there, they usually stay."
That same philosophy underpins the work Robb and Dickinson do at Brookwood.
They have a merchants association that works with all the tenants to do advertising together for the center, leaving individual store advertising to each tenant.
Robb, who handles all the leasing, is constantly talking to local businesses that might be interested in locating at the center, even when it's full.
They're also conscious of their place in neighborhood. Many customers come from one mile around a property like Brookwood, Robb said, and they work to reach outside that area.
'Four-letter word': Villa West developer may seek tax incentives
An Overland Park developer seeking to revitalize Villa West Shopping Center, previously owned by Kent Lindemuth, may soon look to the city for an economic development incentive.
Christie Development Associates, which has previously redeveloped the Academy Sport complex, Crosswind Commons, on Wanamaker and is under contract to potentially purchase White Lakes Mall, closed on Villa West earlier this year.
But as they looked at the work to be done on Villa West, which is in much better shape than White Lakes but still faces significant deferred maintenance, Ferd Niemann, director of development and acquisitions, said his company will consider an application for tax incentives for part of the redevelopment.
"When a building's in ill repair like that, it has a ton of deferred maintenance, which is not nearly as easily fixable on purely the free market without some sort of subsidy," he said. "Then the community has to assist with it. If the community is willing to do that, it's a win-win. It's a public-private partnership. But it creates additional burden on everybody."
Help for property owners in the form of tax increment financing, or TIFs, and Community Improvements Districts, or CIDs, are sometimes the next step for deteriorated properties, Niemann said.
"Those sorts of things help bridge the gap," he said. "TIF and CID, that’s a four-letter word in a lot of cities. They’re very unpopular. There’s been a lot of abuse. I’m from Kansas City, and it’s as bad here as anywhere. I think Chicago and Kansas City are probably the two most tax-abusive cities around in the country."
But there are good TIFs, too, Niemann said, acknowledging that every developer has a "sales pitch" on why his or hers is the good one.
"So the city leaders, from management to elected, they obviously need to be prudent and evaluate on behalf of the citizenry," he said.
Niemann said landlords who let properties go by deferring maintenance affect rents throughout the market.
"The rents in Villa West are considerably lower than they are north on Wanamaker," Niemann said. "Some of that helps us because we got to buy it for less. He (Lindemuth) would never be able to sell that for $10 million, for example, because the rents are too cheap. Versus if he had $20 (per square foot) rents, he could have gotten $10 million on the same building."
Those low rents impact what other landlords can charge.
"If rents are 12 bucks at Villa West, I can’t just ask for $20 and get it," Niemann said. "Because nobody’s used to paying $20. But I can’t fix it up and renovate it and spend $3 or $4, $5 or $10 million on a renovation plan making $12 rents. But I can’t get 20. What do I do? Either I just run it like a slumlord and get $12 rents, or I spend the money (to renovate) and I run it at $12 rents and then I can’t afford that and I lose it and go bankrupt. Well, that’s not good for me or the community.
"What does that leave us with? It leaves us with public subsidy to help," he said.
Christie Development is fixing Villa West's leaky roof and making other improvements. But there's a line that must be considered before they cross it and invest certain dollar amounts, Niemann said.
Many tax incentives like TIFs and CIDs have a "but for" test, he said.
"Which means but for TIF, this would not happen," Niemann said. "I’ll tell you on Villa West, that’s real. We’re not going to go spend millions and millions of dollars. We already own the property so we’re going to spend some money, regardless. We’re going to fix the roof. But we’re not going to put in new pylons, new elevations, new signage, build two new buildings, do all this kind of stuff and get $12 rents.
"We hope to get $15 or $16 rents after that remodel," he said. "It's more profitable for me to get $12 rents and run it as is than to put in $5 million and get $15 rents. I have a disincentive to do the remodel."
A TIF can make the difference, supporting the cost of doing the work and, Niemann said, giving the same level of profitability that he would have gotten running the property at lower rents, but assuring a much better property to benefit tenants, the community and, of course, Christie Development.
"If I had the choice, I’d rather do the remodel and rather spend the money," he said. "But it would be imprudent of me to spend the money to chase a worse rate of return. And that’s essentially the but-for test in a nutshell."
Making a living at real estate investment: Lindemuth properties offer opportunities
Topekan Steve Clinkinbeard laughs and refers to himself as an "old conservative accountant" who is trying to stay out of trouble.
He's apparently decided staying busy is one way to do that, and outside of his accounting business, he and partners own and manage commercial real estate. They purchased four properties formerly owned by Kent Lindemuth, the first one three years ago.
Their first acquisition was 901 and 923 S.W. Fairlawn Road, a retail strip center that was 45 percent occupied when his company, 901 Real Estate LLC, took ownership in 2015.
"We just went in and basically took each one of the units and went through and fixed them up," he said. "They were in bad shape, roofs were leaking, just any number of things. And the tenants were unhappy because they weren't getting anything taken care of."
Clinkinbeard said they put in a new lighted sign on the busy Fairlawn Road so tenants would be displayed to passersby. It took awhile to build back up, but it's now almost fully occupied.
"We've owned it now for about three years, so it's taken us a while to get it back," he said. "We knew it would take time. Everything had just been neglected and let go."
Clinkinbeard then purchased 116 S.E. Monroe, which he referred to as the Orkin building, in 2016.
"Orkin was the only tenant. They were getting ready to leave," he said. "We bought it, convinced him to stay, fixed up their want list that they had and got them happy."
They were then able to lease another part of the building to Chris Foster Automotive Repair and to Criqui Academy Brazilian Jiu Jitsu. The building is 100 percent occupied.
In that building, they faced the same situation as on Fairlawn. The roof was leaking, they had to go through all the plumbing, heating and air systems and paint everything.
The next purchase was 3120 S.W. Topeka, the old Falley meat processing plant. It hadn't been occupied but for one tenant in part of it for about 10 years, Clinkinbeard said.
"When you walked in, the ceiling tile was all over the floor, all the carpet was wet," he said. "We just had to strip it back to the walls. We took out a lot of office space they had. We didn't think it was conducive to office space."
They worked to fill the building as warehouse space, and then were able to lease it to The Dirty Dog, a dog boarding, grooming and boarding business.
"That was a 20,000-square-foot building. She took all of it," he said, adding that the warehouse space is perfect for indoor play areas for dogs.
Clinkinbeard's most recent purchase in August was 1947 N.W. Topeka Blvd. He described it as a long, narrow building that doesn't look very big but actually is. It is home to Craftee Crafters and other businesses.
Parts of the building they couldn't even see when they bought it because the electricity was turned off, water pipes had broken and it was just neglected, he said.
"Of course, we bought these at deep discounts," Clinkinbeard said. "We know what we're getting into. It's kind of what we do. We go in and we're looking for solid walls, and even if the roof is leaking, we can get those fixed."
There were five tenants when they purchased it, but they lost one. They're now up to eight tenants in the four months they've owned it, Clinkinbeard said. The complex could hold as many as 12 tenants. Although they purchased it as a warehouse space, they've been able to accommodate others.
That includes a state agency that needed storage, a business that cuts quartz countertops, an auto repair business and others.
What they've done so far at that building is update HVAC, and they've put in tons of lightbulbs and ballasts. It was in terrible shape, he said, and seemed to have had little money put into it.
"We just take a different approach," Clinkinbeard said. "The easiest way to lease something is to have it painted and have it lit and warm, so that when they walk in they can see something."
Clinkinbeard and his partners have purchased other properties and put money into them to make them viable. The former Bryan Career College building is theirs, and they're fixing it up for a new tenant. They own 220 S.E. 33rd St., the Ambassador building that's a 10,000-square-foot office building. At 2035 S.W. Western, they had to fix up the vacant building that had been neglected after the owner died and heirs lived out of town.
That one required getting rid of mold and leaky roofs. They bought it for warehouse space, but a Request for Proposal came out from the state of Kansas needing a parole office for Topeka. It was perfect, Clinkinbeard said.
"There are lots of guys that do this," he said. "We're just one of many that see these and will tackle these types of things. It’s got to be people crazy like us that buy these properties. We’re very fortunate. We have people who will go in and do this stuff. We probably have more appreciation in those Lindemuth buildings because of the way they're bought. We increase their value and we bring them back to life."
Being capitalized is important in this field, Clinkinbeard said.
Tom Moses, senior vice president of NAI Martens, said there are big risks in investment properties.
"It's first of all, how well capitalized you are as an owner and what kind of safeguards you take," he said. "If it's an investment property where you have tenants, you have to take care of the tenants. You have to take care of your property."
It's also important how you set up your debt.
"You have to be prepared because there will be a downtime," Moses said. "Those who own investment property could attest to this. There's going to be a crook in the river, a little white water, so to speak. When you have an economy that tanks, that means tenants can't pay or they have troubled business, so that means you lose income, so that means you have less money to take care of your property and to service debt."
Still, investment property is "huge" on the national market, Moses said. "There's still a lot out there in demand, particularly on the large scale. There are a lot of REITs (real estate investment trusts) that are out in the marketplace. They're all looking for good properties with good cap rates and good rates of return."
Buildings transformed from vacant, dilapidated to thriving businesses
The return of struggling properties caught up in the Kent Lindemuth bankruptcy to the Topeka market through auctions and real estate sales provided an opportunity for local business people to invest or open a business.
Brian Lensing, a sales associate at United Country Commercial who has worked with Lindemuth throughout the bankruptcy process, said many of the properties have potential. The auctions over the past five years have allowed Lindemuth to stabilize his company through selling off vacant or underperforming assets, and it's allowed for some bargains in the community.
Some owners are breathing new live into the deals they bought at auction.
One of the more stunning makeovers was at a dilapidated office building at 400 S.W. 33rd St.
"It was in complete disarray when we got it," said Kim Pittz, whose husband Troy went to an auction of Lindemuth properties and returned home the proud owner of the building.
"Troy didn't even know what he was going to do with it," Pittz said. "He grew up in southeast Topeka, went to Shawnee Heights, so he'd been in that area his whole life. He was very discouraged when we moved back here from California to see a lot of the buildings in that area."
Troy Pittz owns a plumbing company, so he understands construction, and he went to the auction looking for a building with "good bones," Kim Pittz said.
But it took vision to see the beauty in the building he bought.
"It was horrid. The reason that he bought it was because it was concrete block on the inside and brick on the outside," she said. "He said literally this thing could withstand a tornado. But everything in it needs to be redone."
The building, like many Lindemuth properties that had stood vacant, had been stripped by copper thieves. It had been a call center in the past, and was laid out like a typical office with cubicles and carpet.
"We ripped out everything in the bathrooms," Kim Pittz said. "Nothing was salvageable."
With new everything in the building, they decided to create an event center, which they opened in 2017. It has been popular and bookings stretch out more than a year.
John McNish faced a similar situation when he purchased what is today The Burger Co. at 821 S.W. 21st St. It was in terrible shape and needed significant work, he said.
The building also had been stripped of all the wire and air conditioning units.
But today it's a viable business, although it took a lot of work to get it there.
"You know, when you don't take care of a piece of property, it's about like anything. You just lose it," McNish said.