Are Investment Dollars Getting Back in the Game?
Answers are becoming more optimistic now, although the recovery has not been the quick bounce for which we were once hoping.
In the Kansas City market, a great deal of office, industrial and retail space still remains to be absorbed before developers will begin to talk seriously about new construction. There are some new construction projects in Kansas City, but they consist mostly of renovations, tenant improvements to existing buildings, retrofits and the like. New builds are still a rarity, and will likely remain so for the next year, except for the occasional build-to-suit facilities or pre-leased space. Although we have seen modest growth in construction projects in the area, falling rents and high vacancy rates have enticed tenants to occupy existing space.
We all know that mortgage lending drives construction. If the money is available, developers will build. In the pre-2007 days, many developers believed in the mantra “if you build it, they will come.” More than one building in Kansas City was erected with that philosophy in mind.
That confidence, however, will take a long time to return. In the meantime, lenders are looking for long-term leases with solid-credit tenants and insist on historically low loan-to-value ratios. Such conservatism is understandable, but it does not form the basis for much speculative construction.
Kansas City is nothing if not resilient, and the metropolitan area has much going for it. Kansas City is now posting modest job gains, which will undoubtedly grow as spending increases. Many businesses are anticipating expanding from their current severely contracted state in order to avoid being left behind in a competitive atmosphere. In fact, Kansas City had over $9.6 billion of total construction activity in 2010, making it a star in the Midwest.
Kansas City’s Downtown area continues its revitalization efforts. The Sprint Center is one of the busiest arenas in the country and is expected to host more than 100 events this year alone. The Power & Light District is coming to life after a slow start (just try opening a new retail development in the depths
of the country’s biggest and longest depression in 70 years) and the new Kauffman Center for the Performing Arts is sure to attract a wealth of activity to the south Downtown loop area.
Village West in Kansas City, Kan., continues to be a building phenomenon, with the ongoing construction of the new Sporting Kansas City soccer stadium and the upcoming casino adjacent to the Kansas Speedway. The area still has hundreds of acres of undeveloped land ripe for additional development.
Transportation continues to play a large role in Kansas City’s economy. The two intermodal hubs in the planning stages, one by Kansas City Southern and another by Burlington Northern, will strengthen our reputation as a rail distribution center. Also, the air intermodal center near the Mid-Continent International Airport enhances our cargo shipping capabilities.
Industrial and warehouse construction will receive a boost from these initiatives, and ultimately, our unemployment rate will drop in tandem with that in the rest of the country.
Better days are coming! When you speak to those outside the area, try some of these “little known facts” about Kansas City:
• The area is among the Top 10 cities for young adults to live (www.Kiplinger.com).
• The animal-health corridor stretching from Manhattan to Columbia, and centered in Kansas City, accounts for 34 percent of all sales in the global animal-health market.
• Kansas City is ranked the 12th best mid-size art destination city in the country, and was selected in 2010 as one of a dozen cities worldwide to watch for art innovation.
• Kansas City continues to be ranked as one of the best places to live by Money Magazine, and is 11th for business attraction.
So, although we are not ready to say the recession is over, we believe Kansas City has started the slow, steady climb out of a recession that has plagued us all. 
Don Dagenais and Rebecca Beal are with the law firm of Lathrop & Gage in Kansas City.
P | 816.292.2000
E | ddagenais@lathropgage.com
E | rbeal@lathropgage.com
Return to Ingram's February 2011