Nestled between the Missouri-Kansas border, smack dab in the middle of the country, Kansas City ranks among the most American of cities. Residents love their barbecue, baseball, and old-fashioned values. And the city's multifamily sector is just as American, exhibiting both the opportunities and challenges that lie ahead for the industry throughout much of the nation. Huge recent investments have enhanced the downtown living environment, but it will be some time before the character of a 24/7 city takes hold. While the residential base and nightlife options are growing, they aren't yet nearing maturity, and the city lacks the light rail transit that has accelerated downtown's viability in so many other metros.
Established suburbs feature considerable high-end apartment product that holds lots of appeal for renter prospects, but that stock now faces competition from the overbuilt single-family sector's shadow market of for-lease inventory. And emerging suburbs are moving toward what should be their peak growth period just as a slowing economy is dampening underlying support for housing demand.
Despite this, the city's economy has seen some recent opportunity in the telecommunications, manufacturing, and trade industries. Kansas City is evolving and moving forward, offering solid and stable multifamily investment prospects.
DOWNTOWN UPGRADE Today's downtown population in Kansas City stands at roughly 14,600 people, according to a recent report card produced by the Kansas City Star. The area has added about 600 residents annually since the start of the decade, and nearly 4,000 new housing units have been brought online in the same time period.
As with many urban locales on the comeback trail, however, it's not immediately obvious that so many households live downtown because residential projects are dispersed across the area. Development density has reached the mass necessary for a sense of community to emerge in only one area, the River District that lines the Missouri River at the northern edge of downtown. There, more than a dozen residential properties are clustered in a tight pocket that also includes numerous restaurants and bars as well as the city's 150-year-old farmers market, The City Market. Most of the River District's housing is in historic warehouse buildings now converted into lofts.
Developers have done a good job of bringing on a variety of for-sale and for-rent choices, and there are even a few affordable-housing properties included in the mix. Most notably, 90 percent of the 224 units at Cold Storage Lofts in the River District are designated as affordable housing, holding monthly rents for most residents between $600 and $800. Garrison Development, a local firm with offices in the Cold Storage Lofts complex, faced a unique challenge in transforming this 1922-vintage building into housing. With much of the structure kept at temperatures below zero for about 80 years, it took four months to thaw the interior before redevelopment could begin. Then, 142 windows were cut into what had been a solid brick façade on three sides.
While the River District is downtown's best established residential area, it will likely soon face competition from the Power & Light District, an eight-block area at the southern end of downtown's freeway loop.
An $850 million makeover is transforming this area into an entertainment, retail, and dining hub that links the city's newly expanded convention center with several hotels, tourist attractions, and key businesses. At the heart of the project is KC Live!, which made its debut in March 2008. The entertainment center includes about a dozen restaurants and bars as well as a covered atrium performance area, bowling alley, and movie theater. KC Live! is just across the street from the Sprint Center, a $276 million, 18,500-seat arena that opened in late 2007.
The Power & Light District's office space component is anchored by H&R Block's world headquarters. Completed in 2006, this 17-story tower totals about a half million square feet and accommodates 1,600 employees. The lead developer for the district is The Cordish Co., based in Baltimore, Md. Cordish is working in a partnership that includes the state of Missouri, the City of Kansas City, and the Kansas City Economic Development Council.
Approximately 1,000 to 1,500 residential units are planned for the Power & Light District's second phase. In the meantime, a few multifamily developments exist nearby. Wallstreet Tower, a block away, is the most recent addition. Townsend, based in the Kansas City suburb of Overland Park, Kan., converted a 20-story office tower built in 1974 into 144 condominiums priced from $150,000 to $650,000. About 90 percent of the units have been sold.
SUBURBAN SIMMERWhile downtown Kansas City's multifamily market has made strides in recent years, the heart of renter country still is across the state line in Kansas, where upscale suburbs such as Overland Park, Olathe, Shawnee, and Lenexa are clustered in the Johnson County marketplace. Johnson County accounted for roughly 40 percent of the multifamily permits issued in metropolitan Kansas City during the past decade, and the area contains two-thirds of the region's Class A apartment stock.Many of metro Kansas City's big name employers are located in Johnson County, and that list includes the metro's largest employer—Sprint Nextel. The telecommunications giant employs 18,500 people at its Overland Park facilities, which were designated as the firm's headquarters in February. Some of the 4,400 employees from the firm's former headquarters in Reston, Va., will be moved to Overland Park, but net cuts are still expected across both key Sprint Nextel locations in 2008. At the start of the year, Sprint Nextel announced that it would trim at least 4,000 jobs.Among the most ambitious newer developments in Johnson County, Avignon is a mixed-use lifestyle community that incorporates high-end single-family homes, neighborhood-oriented retail space, and 323 apartments that were completed in spring 2007. Located in the city of Olathe, the whole project is built around a 7,850-square-foot private spa and clubhouse that goes beyond the typical apartment community fitness center to include features such as a steam room, tanning beds, massage therapy services, and a locker/shower area. Avignon was produced by Price Brothers, a third-generation, family-owned real estate company based in Overland Park.While local and regional firms dominate Johnson County's apartment scene, national companies also are showing some interest. For example, San Diego-based A.G. Spanos Cos. finished the 298-unit Corbin Crossing development in Overland Park in January 2008. Apartments range in size from one-bedroom units at 894 square feet to three-bedroom units at 1,450 square feet. Monthly rents run from about $900 to a little more than $1,400.Metro Kansas City's other active pocket of suburban apartment development is in the east, back in Missouri, and includes spots such as Independence, Lee's Summit, and Blue Springs. These east side suburbs still retain their small-town flavor. Among the newer apartment properties brought to market in the area, the real standout is AMLI New Longview, Chicago-based AMLI Residential's 206-unit project in Lee's Summit. Completed in late 2007, AMLI New Longview echoes the architectural styling of the area's historic farmhouses but still brings a bit of urban appeal to the marketplace with higher density and more upscale finishes than are typical for the east side. POSITIONED FOR GROWTH
For multifamily owners and managers, this means that Kansas City offers opportunities to create more urban centers and downtown destinations in a city backed by solid metrics. M/PF YieldStar's March 2008 market survey showed metro Kansas City occupancy at 92.5 percent. Occupancy drifted downward recently, after peaking at nearly 95 percent in late 2006. Monthly rents averaged $716 in March 2008, with effective rents up 2.2 percent since spring 2007. Johnson County projects outperformed the metro norm by a considerable margin: In March 2008, occupancy there was at 95 percent, while rents climbed more than 3 percent annually to an average of $749.Influencing the occupancy and rent growth levels seen now in Kansas City, apartments have to compete with a growing shadow market of single-family rentals, since the for-sale stock is overbuilt. Also, the metro is coming off a period of comparatively aggressive multifamily construction. Multifamily building permits reached more than 3,000 units in 2006, leaving the metro to work through a significant inventory of new product in 2007 and early 2008. Construction has since slowed—the annual permit pace as of March 2008 was 2,100 units, a 21 percent drop from the year-earlier volume. This reduction in near-term deliveries will likely poise Kansas City's apartment market for significant performance improvements.One of the key factors in the outlook of Kansas City's multifamily market will be whether the local economy can continue to produce enough jobs to sustain healthy housing demand. As of March 2008, the annual pace of new job production in the metro was at roughly 8,000 positions, or 0.8 percent expansion, according to the Bureau of Labor Statistics. Local economists have expressed concern that the metro's unemployment rate recently went above the national average for the first time in a couple of decades.Despite these setbacks, there are some apparent advantages to Kansas City's economic positioning. The area's manufacturing—heavy on food processing; publishing; automobiles; and equipment for the technology, defense, and agriculture industries—is holding up. This shift reflects how the weakened value of the dollar is stimulating worldwide demand for American-made goods. Also, high prices for wheat and corn are helping Kansas City's trade and transportation sectors, since the city serves as a distribution hub for crops grown in the Midwest. Indeed, it's a good time to be a multifamily player in America's heartland. And Kansas City just may be at the center of it all.