KC's industrial, transportation, logistics shine through stormy 2020

During what has been a stormy 2020, even hurricane-like for some, Kansas City's economy continues to shine brightly, beaming light of even more sunny days ahead.

“From a transportation, supply chain, logistics, industrial, whatever word you want to use, Kansas City is on fire,” said Chris Gutierrez, president of KC SmartPort and moderator of a webinar panel discussion organized by the Mid-America Region of the Design-Build Institute of America (DBIA-MAR) and hosted by McCownGordon Construction on October 14, 2020.

Gutierrez’ remarks preceded his introduction of the panelists: Eric Goodman, regional manager economic development at BNSF Railway, Andy Kyser, marketing manager at UPS, David Long, deputy director of Aviation - Properties & Commercial Development at Kansas City Aviation Department and Jon Stephens, president and CEO at Port KC. 

The panelists discussed the activities of their respective organizations and the implications for Kansas City, the effect of COVID on each organization and outlooks for the future.

Goodman said the big focus for BNSF in Kansas City is its development at Logistics Park Kansas City (LPKC) where BNSF’s facility opened in 2013. 

“Since then, we’ve had 17 million SF of development pop up around there. That’s going to be our anchor, our footprint here for intermodal for the next 50 years,” Goodman said. 

“The part of our business that’s doing really well for us right now is our intermodal business, both domestic and international.  We had a dip in that volume back in March, into April and into a little bit of May, but that volume has been going absolutely gangbusters ever since that date,” said Goodman. 

Goodman said he recently read a statistic that every single stored intermodal car that BNSF had in its network was back in service.  At one point, BNSF had parked approximately 2,000 locomotives.  

“Business is definitely back. We’re definitely seeing that there’s a lot of interest in intermodal growth coming off the west coast ports and domestic volume coming into Kansas City,” he said.

According to Kyser, UPS views the Kansas City region as an integral part of its overall strategy. 

“Our mission is to be better not bigger and to really do that by being customer first, people led and innovation driven. That’s where Kansas City fits in, both on the people led and the innovation driven standpoint,” said Kyser.

Kyser noted that UPS has made significant investments in its facilities at the airport and in Lenexa, Kan. UPS recently expanded its facility in Lenexa from 226,000 SF to 430,000 SF. 

“During our peak day, we used to be able to process about 1 million pieces throughout a day; that’s going to ramp up to be almost 2 million based on the infrastructure we’ve built here at the Lenexa facility. There’s miles and miles of conveyor throughout the facility. The crazy thing is that it only takes about 20 seconds from a package to get unloaded until it’s getting loaded on the outbound,” said Kyser.

Kyser said UPS is investing nearly $21 million to expand its facility at KCI. 

“We’re adding about 370,000 SF- for a total of 534,000 SF- which gives us five additional parking spots as well as remodeling the facility that we have there to take the flow per hour, the capacity from 1500 pieces an hour up to 5000,” Kyser said.

Kyser said that the pandemic has not slowed UPS’ business. UPS hired 50,000 employees during the second quarter as permanent hires, just to handle the 55% increase in business fueled by the burgeoning e-commerce market. 

“We’ve had to staff up and get our operations in a position to be prepared not only to handle what we view as a permanent shift, an acceleration of e-commerce activity of almost 5 to 6 years, but also our peak season, so we’re hiring 100,000 temporaries across our network during peak to be able to handle all that volume,” Kyser said.

Although growth at KCI was down this past year between 50-60% from 2019 numbers, Long said he’s seeing a steady rebound.

“In fact, Monday [October 12] was the most folks that had gone through our security screening checkpoints since the middle of March, and that is a better percentage than the country overall,” Long said.

The pandemic hasn’t slowed the construction of the new KCI terminal, and the airlines remain committed to the 39-gate overall facility, Long said.

“We are on time and on budget for this project. About 85% of the $1.5 billion is actually 100% procured so when I say on time, on budget, we know that’s exactly what it’s going to cost us. On time means March 3, 2023,” said Long.

Although Aviation Department officials were worried that there would be delays in the supply chain during the pandemic, “everything has been coming exactly the way that it needed to come,” Long said.

Long said that COVID-related measures were enacted to keep workers on the construction site safe, including adding additional bathrooms, staggering start and stop times, adding wash stations and providing hard hats with sensors that blink and make an audible sound when workers are within six feet of each other. Although there have been as many as 1000 employees on the work site, only seven have tested positive for the virus. 

Long noted that the project has employed 100 minority and women owned businesses which accounted for a little more than $170 million. 

“Having that kind of income into the minority community on that business is just a big shot of adrenaline into the arm, and those are all local folks that will be better skilled, better able to handle the many jobs that will happen in the future,” said Long.

Stephens describes Port KC as “a redevelopment entity and a reclamation entity that really focuses on under-utilized, under positioned places and brings them back to life with private sector partners and sometimes with public sectors.”

In 2015, Port KC brought back to life the Woodswether Terminal in the West Bottoms, which Stephens described as one of the most unnoticed small bulk goods terminal ports in the area.

“We’ve put about $22 million into that facility and we’ve doubled the tonnage every year since 2015. In 2019, we went over 100,000 tons transferred through that facility,” said Stephens.

Stephens also highlighted the redevelopment of the Berkley Riverfront where Port Kansas City continues to see growth in reclaiming the area. 

Stephens noted Port KC has seen “incredible growth” at the site of the former Richards-Gebaur Air Force Base. Port KC recently rebranded the approximately 2600 total acres as 49 Crossing.

“We’re seeing significant job growth down there. That’s one of our goals,” said Stephens. 

And, Port KC recently won a MARAD grant of nearly $10 million from the U.S. Department of Transportation’s Maritime Administration to create the Missouri River Terminal at the former site of AK Steel in the Blue River corridor near Sugar Creek and Independence, Mo.

“We will be working to bring 420 acres back to life with all the Class 1 rail coming through that site. We’re excited to have the MRT facility with will become North America’s first comprehensive transloading facility that combines rail, trucking and water borne commerce,” said Stephens.

Stephens said that a lot of economic development and reclamation is related to hotels and retail, and Kansas City has seen approximately a 75% drop in those sectors during the pandemic.

“On the positive side, multifamily rental units are up 50% year over year, in projects, in total units and total volume for us, 2020 over 2019,” Stephens said.

 “We’ve seen a one-third growth in 2020 thus far as of October 1 in logistics and distribution and ecommerce. We may even go higher than that. In total dollars, jobs and acreage, we’re at about a 65% increase in 2020 so far,” said Stephens.

Gutierrez said he projects that in 2020, build to suit for clients or spec development will exceed 15 million sf.

“That’s a record for this market. And everything I’m hearing is that 2021 is going to be even greater,” said Gutierrez.

“It’s an exciting time to be in the industrial, transportation, supply chain space, especially in Kansas City. We are the center of everything that’s happening with supply chain and transportation growth and we’re going to hit records on industrial development and industrial construction this year and forecast an even better year next year,” said Gutierrez.

Downtown KC plans zone in on connectivity, inclusion

This week the KC Downtowners met for their monthly luncheon with Jeffrey Williams, director of city planning and development for the City of KCMO, and Ann Holliday, vice president of strategic initiatives with the Downtown Council of Kansas City, to discuss the future and planning of downtown Kansas City.

Each presenter reviewed the highlights of their organization’s plan and how the two groups are working together to promote the growth of Kansas City.

The Downtown Council is working on a strategic plan called Imagine Downtown KC 2030, a 10-year road map comprised of action steps for building a stronger and more resilient community. Key areas of opportunity in the plan are economic opportunity, infrastructure, housing and affordability and mobility.

Both organizations are placing top priority on economic opportunity and mobility throughout the adjacent neighborhoods of downtown.

“Kansas City is comprised of several neighborhoods beyond the Central Loop. If we are going to build an equitable, inclusive, and vibrant downtown, we have to address connectivity beyond the central business district to adjacent neighborhoods,” Holliday said.

Williams echoed this goal from the city planning perspective. “We want to create a Kansas City where every resident can be successful. That starts with removing barriers to assure access and mobility.”

The COVID pandemic has brought to light the importance of both plans.

“It’s important to understand our current reality, but also keep our eyes on the future,” said Williams. “A comprehensive plan helps us navigate change and remain competitive.”

The City of KCMO is currently updating their plan, The KC Spirit Playbook, with a scheduled release in 2022. Williams emphasized the release in 2022 would be an update, not a rewrite, as the principles in the current playbook are solid.

Holliday wrapped the discussion with the idea of catalytic projects and their importance to the community. The Downtown Library, an initiative which not only updated the building, but revitalized the surrounding area, is an example of the type of catalytic projects the city is hoping to see more of in the future.

Peer cities look to KC during market challenges

Chris Robertson, CCIM, managing director - investment sales and capital markets at Newmark Grubb Zimmer, joined moderator Frank Sciara, CCIM, president of the Kansas City CCIM chapter and vice president with Grandbridge Real Estate Capital, last week for a live webinar discussion sponsored by the local CCIM chapter to discuss the current local investment sales market.

Robertson noted that there has been a decrease of approximately 20 to 25% in volume as of the end of the second quarter as compared to the same period in 2019. But, Robertson remains optimistic about the market going forward over the next six to twelve months.

“It seems like ever since the Fourth of July, somebody flipped a switch and everybody’s been busy and it seems like people are starting to get out and tour properties,” Robertson said.

Robertson has received calls from and is working with groups from some peer cities such as Nashville, Minneapolis, Denver and Indianapolis, as well as groups from Utah, California and New York, who are looking to markets like Kansas City trying to find additional yield. 

Robertson said that these investors are finding a 50 to 150 basis point premium to what they are seeing in their markets, particularly the markets on the east and west coasts.

“This might be odd to say, but I think COVID will ultimately help continue to drive demand to some of our more stable midwestern markets like Kansas City where you don’t see a lot of fluctuations in valuations,” said Robertson.

Robertson discussed the effect of COVID-19 on the cap rates of the various property types.

He said that there is still quite a bit of price discovery with regard to the retail segment because “no one knows what that sector is going to look like long-term.”

However, he said there are a few bright spots in retail, noting that single tenant, long-term investments in essential services (eg., Dollar General, CVS, Walgreens) are doing well for investors seeking stability and quality credit tenants.

“And in some of those cases, we’ve actually seen cap rates compress slightly just because there’s not a lot of product on the market and those are in high demand,” said Robertson.

Robertson said office has seem some good activity, primarily stabilized long-term assets in good locations with a good weighted average lease term. He noted that 9300 and 9400 Ward Parkway sold to a New York-based group during the pandemic for $121 million at a 7.32 cap rate. 

Robertson said the industrial market remains “red hot,” with significant demand both locally and nationally, while multifamily remains competitive, without any major shifts in cap rates. Uncertainty remains in the hospitality market as investors are trying to determine what pricing is going to look like as occupancies start bounce back.

“We’ve seen a lot of the large players come into Kansas City looking for larger portfolios of assets. We’ve had calls from groups in Israel and Canada looking to place funds here in Kansas City as they’ve taken note of the absorption numbers and the amount of new development we’ve had here in Kansas City,” said Robertson.

Residential options beefed up in Stockyards District

Ryan Cronk, vice president of development with Indianapolis-based Flaherty & Collins, joined moderator Frank Sciara, CCIM president of the Kansas City CCIM chapter and vice president of Grandbridge Real Estate Capital, for a live CCIM-KC webinar last week to discuss Flaherty & Collins’ newest multifamily project in Kansas City.

Located in the Stockyards District, The Yards is a 232-unit multifamily project which saw its first tenant take occupancy in May.   

While Cronk was working on the Union Berkley Riverfront project, he attended an event at the Amigoni Urban Winery located in the Stockyards, a part of town he had never been before, and met developer Bill Haw who had renovated the Livestock Exchange Building which then had more than 110 tenants.

“When I heard that number, I was like wow, there’s 110 people that want to be in the Stockyards. That’s a big deal. That was very intriguing as a developer to see that,” said Cronk.

Despite the fact that the Stockyards then boasted several restaurants, bars and the winery, the Stockyards had only eleven residential units that Haw had recently completed. With a lot of people coming to the Stockyards to eat and drink, Cronk thought there might be a demand for apartments.

Beginning what Cronk called a “very smooth process,” Flaherty & Collins began development of The Yards on a vacant parking lot next to the Golden Ox.

Flaherty & Collins and the City of Kansas City, Missouri entered into an agreement which allowed Flaherty & Collins to use the West Bottoms Parking Garage, which had been under-utilized with the closure of Kemper Arena. Consequently, The Yards did not require any new parking construction.

KEM Studio, located in The Stockyards, was the architect. 

“Nobody had a better feel for what the design of this thing needed to be,” said Cronk.

The Yards incorporates historical aspects from the days when the district was a stockyards. Cronk said they found thousands of old bricks when they ripped up the parking lot to begin construction. Flaherty & Collins restored the bricks and used them both inside the property and in the exterior sidewalks. 

“That was a cool way to keep the fabric of the history of the stockyards in a modern project as well,” said Cronk.

The developer also engaged artist Kevin Townsend to create a large exterior mural in front of the property’s entrance.

The Yards boasts some unique amenities, including a vineyard planted in the middle of its courtyard by Amigoni Winery, who also maintains the vineyard. Cronk said he hopes to use the grapes to develop a house wine to give to new residents.

“It’s also an educational thing where our residents can learn the process of making wine, all the way from the start of growing the grapes to the finish, with Amigoni being across the street,” said Cronk.

Taking advantage of the property’s location near the Kansas River, The Yards also offers its residents the use of kayaks located in a kayak room inside the property.

Cronk said the biggest challenge he faced was obtaining financing which took two years. 

Cronk said the property currently is 43% leased and 34% occupied. Despite the pandemic, the project is actually ahead of budget in terms of occupancy because the developer has been very aggressive with upfront concessions to generate foot traffic. 

The Yards also has approximately 3000 SF of commercial space which is close to being under lease.

Pleased with the success of The Yards, Flaherty & Collins is pursuing approval for a Phase 2. Cronk explained that phase 2 will be a separate project, with a different look. The only bond with The Yards will be that both properties will share the parking garage.

Phase 2, which is planned to contain more than 200 units along with some commercial space, will be located in Kansas and will sit directly on the river. 

Cronk said his company is working with the Unified Government on the development planning, tax abatement and platting processes. He hopes to commence construction on phase 2 in the third quarter of 2021, if not sooner. 

“In Phase 2 we’re really trying to find a unique destination piece for a creative entrepreneur type that wants to do something - something that interacts with the river. Somebody that’s got a great idea and can do something a little bit unique in The Stockyards,” said Cronk.

Cronk said he hopes to continue to build more projects in The Stockyards. “What we saw in the area was a fabric that you can’t replicate anywhere else,” he said.