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.