Kansas City Chiefs

Roaring, but fragile, economy exceeds expectations

According to Chris Kuehl, managing partner and co-founder of Armada Corporate Intelligence, economists routinely predict things to be worse than they will be.

“If you suggest you are on the edge of recession and then you don’t hit a recession, everybody is happy,” he said.

Kuehl outlined some of his observations about the economy during a virtual presentation last week hosted by CCIM Kansas City.

Kuehl said the economic forecast for 2023 and 2024 missed the mark by approximately one-half point.

“We’ve been doing consistently better than the initial predictions,” he said.

Consumer spending, which drives 76 percent of the United States’ gross domestic product (GDP), has spurred the strong economy. Stock market gains boosted consumer spending.

“We’ve seen $900 billion in new stock wealth created, which is staggering,” Kuehl said.

The stock wealth has resulted in an estimated $288 billion in additional spending, creating a $1.3 trillion economic multiplier.

Not everyone views the economy as strong. Kuehl noted that the “radically different interpretations” about how the economy is doing are because of a rare K-shaped recovery. Those in the upper one-third (households making $100,000 or more) barely notice inflation.

“They’re buying cars and houses and recreational vehicles and all that stuff, and that is the multiplier effect. They are spending money on something that supports whole industries,” he said.

The lower third of households (those making less than $50,000) is living paycheck to paycheck and finding it more difficult under the weight of inflation. The third in the middle is holding its own as long as their jobs remain secure.

“So the economy is roaring along better than thought growth, but it’s fragile because everything hinges on the middle hanging on and the upper income continuing to spend,” said Kuehl.

Kuehl said although the rate of inflation is declining, it takes a long time for it to come down once it has risen. The two factors that can drive down inflation are a full-blown depression or competitive pressure. According to Kuehl, much of the U.S. economy is not all that competitive, with much of the competition coming from outside of the United States.

The Federal Reserve forecasts that GDP growth will rise to about 2.1 percent. Kuehl noted, however, that Scott Bessent, the newly confirmed Treasury Secretary, is targeting growth at three percent.

“So if we end up with growth even just shy of three percent, that’s pretty respectable. Our average of the last 25 years has been 2.5,” Kuehl said.

The Fed also projects that unemployment will remain stable, if not fall. Kuehl said the workforce shortage has resulted in wage growth which is fueling inflation. Historically, wage growth has been 2.5 to three percent. Currently, it’s growing at closer to 3.5 to four percent. Those making higher wages are in great shape, but households in the lower third have no leverage, he said.

Kuehl said the Fed funds rate likely will remain steady---4.4 percent this year.

Kuehl said inventory to sales ratios in most sectors are close to balanced, having recovered from the supply chain issues during the pandemic.

On a national level, nonresidential construction is still growing at a rapid rate, and even shifting a little. While much of this growth was driven for a while by warehousing and logistics support, there now is increasing development in projects like data centers.

“You’re seeing a lot of development in energy just to support the expected growth of data centers. This country is going to need to add 44 terawatts of energy production in just the next four to five years. That is mammoth. If you think you’ve seen a change in energy, you’ve not seen anything yet. The idea now is that everything is up for grabs—oil, gas, coal, solar, wind. Nuclear is going to be making a huge comeback in the next two or three years. Hamsters on wheels are probably going to be out there at some point. We need energy. We’re going to need lots of it,” said Kuehl.

The United States now is “North American independent” on oil and gas. It is the world’s largest oil exporter, and it no longer buys any from the Middle East or North Africa.

“Our production is very high. We’ve never produced this much. All-time highs,” said Kuehl.

Kuehl said office buildings are making a comeback--although not as big as they once were--with the movement to return to the office. In addition, residential construction is growing.

Kuehl said corporate investment, particularly in technology, is steady.

The tariff issue also is looming. Kuehl said the problem with tariffs (which he termed as a “tax”) is that they work only if there is a competitive market. If the United States does not make the item being imposed with a tariff, it’s not going to change the price. But, tariffs can be used to strengthen the industrial sector.

“We can use a tariff to encourage consumers to buy more expensive things that are produced here,” he said.

Reshoring is real, Kuehl said. There still are many companies coming back to the United States, and 80 percent of the jobs that are being created are in the south or the Midwest. He said Kansas City is really well-positioned, but it needs to be more aggressive about competing for the industrial projects.

“The three things that are making Kansas City competitive: One is transportation. The merger of Canadian Pacific and Kansas City Southern (CPKC) is huge because that’s a north south route that really hadn’t existed before. It really unites the Mexican industrial sector with the U.S. and Canada. That’s already attracted a lot of business interests to this region. Number two is that we have a better than average workforce situation. We have more training centers. We have more community colleges. . . . We’re pretty well fixed compared to many other states. The third thing that makes this area popular is just simply distance. No matter what side of the U.S. you come in on, the middle is easier to attract, and that’s been paying off. But, we have to be better at extolling our virtues,” he said.

The prominence of the Kansas City Chiefs also has helped put Kansas City on companies’ radar.


Above: Dr. Chris Kuehl is a Managing Partner of Armada Corporate Intelligence and top economist keynote speaker. Image courtesy of American Supply Association

Panel unveils plans to add sparkle to KC’s crown jewel

When it opened in 1923, Kansas City’s Country Club Plaza was the first planned regional shopping center in the United States designed with parking to accommodate shoppers who traveled by car.

For a period from about 1905 to 1919, developer J.C. Nichols was assembling the land for the Country Club District, of which the Plaza was a part, according to Kate Marshall, president and founder of Plaza District Council. Marshall said Nichols was very focused on the Country Club District being trolley-centric.

Marshall was one of the speakers at last week’s luncheon hosted by CREW Kansas City to discuss future plans for the Plaza. Marshall was joined by panelists Aaron Mesmer, chief investment officer of Block Real Estate Services, LLC, and Mark O’Briant, COO of HP Village Partners, LP. Tyler Enders, founder and owner of Made in KC, moderated.

For its first 75 years, the Plaza was owned by J.C. Nichols Company. In 1998, J.C. Nichols Company merged with Highwoods Properties, a North Carolina-based real estate investment trust.

HP Village Partners, a Texas-based company with ties to the Hunt family (owners of the Kansas City Chiefs), recently purchased the Plaza from The Macerich Company and Taubman Centers, Inc., which acquired it in 2016.

The Plaza is often called Kansas City’s “crown jewel,” but as tenants have left and crime has climbed in recent years, the jewel has lost some of its luster. HP Village Partners seeks to polish it up and make it shine again.

O’Briant said HP Village Partners has been working to acquire the Plaza since the summer of 2023 when it was approached by the property’s lender.

“I think they saw us as the right operator. They saw the tenants that we bring, how we manage properties, how we operate properties and said this is really a good marriage, a good fit. . . . The problem is that through the 10 months - 12 months [before closing], the tenants started leaving,” he said.

O’Briant said HP Village Partners are legacy owners with no plans to sell the Plaza.

“So in 10 years, we’re still here. We’re not going to come in and fix it up and sell it off. Everything we do right now is to fortify the asset for the next 15, 20, 30 years,” he said.

O’Briant said no institutional money is involved with its Plaza ownership.

The CREW KC Panelists take questions from attendees regarding the future or the Country Club Plaza. Photo credit: Marcia Charney

“What we saw was something unique to Kansas City that we’re not bringing in a Wall Street firm offering institutional money. We’re teaming up with local people - it’s important that we share things with our neighbors. I don’t think I’ve ever seen as much interest and excitement in buying real estate. This is not like real estate. This is truly like we’re coming into a community that wants to be involved and wants to help morph and transition this into something that’s really unique,” said O’Briant.

O’Briant said the first battle the new owners will fight is security because neither tenants nor customers will come to the Plaza until they feel safe.

He said they meet with the police regularly. There also have been meetings with the prosecutors and judges.

“You’ll start seeing now that we’re relighting the parking garages, restriping the parking garages. We’ve already started working on that. It’s brightening them up, lightening them up. Put more signs out, more cameras out,” he said.

HP Village Partners already has installed Flock Safety cameras, which are license recognition cameras, at some garage locations.

“Police can look for a certain car. If that car pulls in, it automatically notifies the police. They don’t have to look for them. They know they are in this garage,” said O’Briant.

“We need more police officers. Communication is really big. Communication with other owners in the area. . . Why are we not talking to each other, making the tenants more aware? We’ll have people come in and do personal training on how you can store your stuff or show your stuff inside your store so that it creates less of an opportunity for someone who’s just looking for an opportunity. There are little things that we can do, but at the end of the day, we’ve got to get more people to the Plaza,” he said.

O’Briant said it’s important to get more Plaza offices leased, and he has a little more than $2 million slated to create some spec suites.

“We need to get some office leasing going quickly, and that’s kind of a low-hanging fruit. We’ll start bringing in retailers. We’ll start bringing in restaurants,” he said.

With regard to the planned tenant mix, O’Briant said the new owners want local tenants who bring local flair along with a mix of national and luxury tenants. He said they’ve already met with many local chefs.

One of dozens of fountains found throughout the Country Club Plaza in Kansas City, Mo. Photo credit: Country Club Plaza

“We work with a lot of restaurants that are very unique places that you would drive 20 or 30 minutes to go eat at because it’s unique and different,” he said.

O’Briant said there are plans to reskin some of the buildings that don’t have the Plaza’s signature Spanish motif and to expand the sidewalks.

In addition, HP Village Partners will be tackling some capital improvements that have been neglected.

Although the improvements to the Plaza will take several years to complete, HP Village Partners plans to stick around.

“I think what you’ll see is a cleaner, nicer, healthier market, a more secure market and more vibrant market,” O’Briant said.

With plans to improve the Plaza underway, other investors will be undertaking more development in and around the Plaza.

According to Mesmer, during the last five to 10 years, it’s been harder and harder to make that investment.

“I think that today, though, what we’re seeing is that there’s a much greater level of civic support, whether it’s the mayor’s office, with the city staff helping to break down some of those barriers that make it a little more challenging to do business there than it might be in other municipalities. That’s a big change. But, really, for us, now that the Plaza has returned to someone with a long-term outlook, and someone who is going to be a generational owner of the Plaza, that is very much aligned with how we invest,” he said.

And, harkening back to the Plaza’s early days when trolleys transported people to and from the Plaza, the streetcar soon will be dropping off an estimated 7,000 to 10,000 people a day into the Plaza District.

“The streetcar is going to change everything,” Marshall said.

Header Image: The panelists at the CREW KC luncheon last week from left to right: Tyler Enders (moderator), Mark O'Briant, Kate Marshall and Aaron Mesmer. Photo credit to Elizabeth (Liz) Wampler. 

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