Greater Kansas City Economic Development Report

KANSAS CITY LOOKS TO THE NEXT BIG THING.

Let’s see . . . convention hotel? Check. Streetcar-line development? Check. A rebuilt KCI? Check-—well, almost, anyway; it’s in the works. With a Downtown makeover well under way, Kansas City has much civic progress to celebrate. But what will sustain that momentum and take it to a new level? Two dozen regional executives spent several hours debating that future as the Greater Kansas City Economic Development assembly unfolded recently at Polsinelli P.C. Co-chaired by the law firm’s Korb Maxwell and co-sponsor McCownGordon Construction’s Ramin Cherafat, they assessed challenges and opportunities ahead for the city and region, including broader issues of work-force training, workplace demographics, new office construction, public incentives for development, and much more. The discussion was in some ways a refreshing reminder of how far the region has progressed since the Great Recession. At the same time, it was a call to action for the greater Kansas City region to address the fundamental conditions that can position us to withstand a downturn.

Talent, Talent, Talent

Co-chair and McCownGordon CEO Ramin Cherafat welcomed the group and set the contours of the morning’s discussion by noting that “in the past 10 to 15 years, Kansas City has had an upward trajectory. Now it’s time to ask, ‘what’s next?’

Most of those at the table didn’t need to step very far to site immediate concerns.

“Finding the right talent,” emphasized Tom Kientz of Dickinson Financial Corp., parent of Academy Bank. “With 4 percent unemployment, it’s hard to find—the right talent. And it’s really a pressing need at the entry level.”

The factors that feed into that talent dearth are many and varied, and they would surface throughout the few hour discussion. The emphasis that educators place on preparing high school students for college, rather than careers in construction and the trades, for one. Costs of education both at the collegiate level and for skills certifications. Lack of alignment between business and the educational establishment at all levels. Social factors, like access not only to jobs but to schools, child-care programs and affordable housing. 

That’s a lot to unpack, but participants took their best shot. And it was right up Kimberly Beatty’s alley. Last year, she left Houston to become the chancellor at Metropolitan Community College. The five-campus system serving the Missouri side has more than 20,000 students enrolled in any given year, studying programs that in many cases are designed with quick work-force entry in mind.

“MCC is positioned to partner with everyone in this room,” she said. She recalled an early meeting with a civic leader here whom she asked about perceptions of the institutions, and was disappointed to hear that executive say that MCC was not top of mind. “I’m on a mission to change that,” Beatty declared. One way to do that, she said, would be to adjust the curriculum to benefit key business sectors—manufacturing, in particular.

Mayoral candidate Scott Wagner noted the types of advanced work-force preparation and business alignment with the Blue Valley district on the Kansas side, and the North Kansas City system in his home district. Both have CAPS programs—as in Center for Advanced Professional Studies—and students in those earn college credit while still in high school, and in some cases graduate with employment-ready certifications in hand.

“Building a work-force pipeline starts down there” in the secondary schools, he said, by connecting high schools community colleges and four-year institutions. “We don’t necessarily see that, but it has to happen” Wagner said.

Yet the variance in programming from district to district is crippling efforts to produce consistency throughout the emerging work-force, said Clyde McQueen, CEO of the Full Employment Council. “Parents are confused as heck,” and that won’t change unless school systems come together to adopt programs with the same strategic objectives, he said.

At Missouri’s Division of Workforce Training, director Mardy Leathers said discussions with educational systems are a key to properly aligning business, employee and K-20 systems. “We try not to just talk, but design a statewide strategy to bring all three interests together,” he said. Leathers also pointed to productivity statistics that put Missouri 12th among 14 Midwestern states, saying the statistics were hard evidence that the educational/business alliances aren’t doing enough to help workers remain resilient in the face of technological change.

McCownGordon’s Daniel Lacy connected some of the dots on work-force training and education, saying that in an era of tight public funding for universities, new models were needed to keep campuses attractive. Public-private partnerships, he said, can create development that leads to more students enrolling at schools with modern facilities.

Tim Dunn raised the issue—which has been raised for years—about the image that the city projects to the world. “We have to firm up our city identity and decide what we want to become,” said the chief investment officer and co-chair for the region’s largest general contractor, JE Dunn Construction.

To do that, Polsinelli development-attorney John Petersen said we have to meet the challenge of “creating our own vibe” as a city. As a senior member of that legal practice for a national firm, he receives calls frequently from young lawyers seeking relocation to a Polsinelli office in Denver or Seattle because the amenities in those cities resonate with that age cohort.

Kristi Brown of the Kansas Chamber of Commerce agreed. “We’re losing some of our best and brightest to places like Dallas and Chicago because younger workers are looking for that ‘it’ city,” she said. “We need to focus on making Kansas City a destination city.”

One way to craft that kind of imagery, suggested Mid-America Regional Council economist Frank Lenk, is to focus on three elements that can set this region apart: Trade, talent and innovation. “Talent is the biggest need, especially in the STEM-related fields.” We’ll need more digital savvy individuals soon, he believes, as advances in artificial intelligence and other technologies change the world around us. “Are we prepared for that?” he asked.

One way to crack the talent riddle, said Independence Mayor Eileen Weir, is to look at some of the raw materials that can be forged into new talent: The ranks of the under-employed and unemployed. Another, she said was to address the diversity of career opportunities in the region. Someone coming here to work for Cerner, for example, has few other options in that sector, compared with a tech worker in Silicon Valley, where jobs with the right fit are more plentiful.

Like others at the table, Connie Beene of the Kansas Board of Regents sees plenty of room for the educational establishment (K-12 through post-secondary) to create more relationships with the business community. A major disconnect, she said, involves those struggling to raise a family while working, leaving little time for skills training. “We have to start at the high school level with these career pathways,” she said.

Along with creating an identity for itself, Arvest Bank CEO Mark Larrabee said the region needs to refashion some of the current image it has. Case in point: The way business failure is looked at here, as opposed to Silicon Valley. “There is no scarlet-F for failure there,” he said, but in this part of the country, those who fail are too often looked upon as people who can’t be trusted.

Transportation and Infrastructure

We tend to think of growth-inducing infrastructure improvements in terms of bridges, highways, hotels and airports, but Jill McCarthy of the Kansas City Area Development Council identified a crying need in this region today: “We’re lacking Class A office buildings in a big way,” she said. As result, Kansas City recently lost out to Atlanta on a large business relocation opportunity, and trails that market, Dallas and even Nashville by multiple millions of square feet of office space.

Nonetheless, McCarthy said, the nat-ional dynamic has shifted, and Kansas City has moved up from competing largely with other Midwest cities to challenge markets like Chicago, Atlanta and Phoenix for business in some sectors.

Mike McKeen, whose EPC Real Estate firm has capitalized on the years-long run-up in luxury apartment building, readily identified a reason for that: “It’s not possible to do an office building on spec”—that is, on a speculative basis before a tenant is committed. “The banks won’t lend for that.”

City Council member and mayoral candidate Scott Wagner, who represents the Northland, concurred. “No one wants to develop on a speculative basis,” he said, citing as evidence a 400-acre parcel on prime land long Missouri 152, something he’s been promoting to developers for his eight years in office. “It’s begging to be developed,” he said.

John Petersen saw the discussion about transportation needs as an opportunity to resolve a long-standing conflict that has nagged regional governments: the Border War, or use of incentives to lure companies from one side of the state line to the other, occasionally seeing them flip back once the public incentives have run out. Critics say such moves only serve to reduce local taxes without an offsetting benefit in net new jobs.

“I think competition is a good thing,” he said. “Every city wants an up-to-date downtown, or new Class A office space. That’s good.” But if we’re able to help workers move more freely throughout the metro area, untethering them from the need to live close to work, “transportation is the key to dissipating the Border War,” Petersen said.

Whether we like it or not, “we are in competition with other cities,” said Charles Renner of Husch Blackwell, and in his view, the region’s biggest pressing need is connecting those submarkets with better transit systems. “We’ve got to get that talent to where the jobs are,” the development-law expert said. “We just don’t have the density yet.”

Event co-chair and Polsinelli real estate attorney Korb Maxwell injected a strong note of historical perspective by citing the region’s shift in development of industrial space, particularly in warehousing, distribution and overall logistics. As the Great Recession set in a decade ago, it was rare to find warehouse space of 100,000 square feet, and 200,000 was considered mammoth. Not only is the region pushing the threshold of 1 million-square-foot buildings today, most are going up on the spec basis that has defied the office-space market.

“We’re now one of the leaders in the country in this space,” he said. With more bankers, developers and investors signaling interest, Maxwell said. “It’s hard to believe that if the demand is there, we can’t solve the spec office problem.”

Bob Langenkamp offered thoughts on the need to build out a different level of infrastructure—the digital one. It’s vital, he said, to “support starting or growing businesses. Our growth rate is not that good,” compared to peer cities, and that’s particularly the case with minority-owned startups.

While it’s not often thought of in infrastructure terms, the bistate area needs to address issues of housing affordability, according to several participants.

Across Kansas, Kristi Brown said it is a major issue. “In some communities, there is no place to live near the jobs,” Brown said. She cited southwest Johnson County, where the intermodal development over the past decade has created thousands of jobs, but only recently have public-transit organizations begun to add service from the populated parts of the region. “So many communities talk about this, but we can’t get a commitment” to act on construction or affordability, she said.

Frank Lenk said housing must move away from the luxury/low-income divide to focus on serving the broader community. “It comes down to design,” he said. “We have to make housing for everyone.” He and others agreed the good thing working for this region is that we haven’t overbuilt without infrastructure improvements, as has been the case in Austin. “Housing costs are up, and every successful city ends up with a housing crisis,” he said. “We have time to address that here.”

But that runs headlong into the issue of who pays: Will it be the city, subsidiz-
ing that with taxpayer dollars, or will it be private-sector investors seeking a return? John Petersen pointed out that developers have to get a sufficient return to proceed with a project, prompting Scott Wagner’s reply that too many in the public sector “don’t understand that if you build it and want a return on it, someone has to pay for it. That’s a hard conversation to have.”

State-Level Relations

There’s no getting around the fact that regional development does not happen in a silo; state policy also plays a role, and not always one that the locals will welcome. Example: Former Gov. Eric Greitens pulled the plug on state funding to help move the UMKC Conservatory of Music and Dance from the main campus to a plot near the Kauffman Performing Arts Center. That, in turn, prompted withdrawal of a $20 million challenge grant from the Muriel Kauffman Foundation, scotching the Downtown Arts Campus for the time being.

But Greitens is gone, as is his Kansas counterpart, Sam Brownback, who over-saw steep cuts in higher-ed spending in that state. Each left office in the spring of ‘18, and the early assessment of their successors suggests better state-local ties could be coming.

On the Missouri side, Mike Parson has been active in succeeding Greitens, and for Eileen Weir, it was a welcome change. He’s already started meeting with mayors of cities across the state, “something that neither (Democrat) Jay Nixon nor (Republican) Greitens did,” she said. “That’s what mayors have been asking for for a long time.” And even though Parson is a stout conservative whose policies may clash with urban interests, she said, “he’s an experienced legislator who knows how to get thing done. We need to put partisanship aside.”

Mitch Hoefer of Hoefer Wysocki Arch-itects noted that his cross-country travels would often cross the path of other states’ governors who were considerably more active in promoting the interests of their cities. “Look at Rick Perry and what he’s done in Texas,” Hoefer said, citing the economic progress that has the Lone Star State’s economy thriving.

Brownback has been a public-sector fixture all his life, at one time harboring presidential hopes. But in Missouri, Korb Maxwell mused the Greitens experience might “mean that we’re moving away from the era of amateur politicians.”

The Next Big Thing

Does Tim Dunn bleed Royal Blue? In the face of a team an astonishing 40 games under .500 in mid-July, that would almost be a requirement for pro-baseball pride this year. But there’s no holding back his enthusiasm for bringing the Royals to a Downtown stadium if the opportunity presents itself. “Doubling down on the urban core is so critical” to growth, he said, and the formula has been replicated in thriving downtowns across the nation. He said we should also be investing in an extension of the streetcar system from Downtown to UMKC.

Eileen Weir, whose city nearly abuts the Truman Sports complex, was somewhat less than receptive to the stadium reference. “That,” she said dryly, “won’t help eastern Jackson County.”

The nation, said Charles Renner, is betting on some kind of shift in 21st-century transportation, whether that comes in the form of autonomous vehicles or yet-unforeseen changes in consumer preferences as the shared economy evolves, such as reliance on getting around using Uber. That has had a direct hand in sub-strata realty development: “Investment in parking structures has shrunk,” he said.

Making the next leap to international-city status—with an airport boasting flights to nations beyond Canada and Mexico—will require more than just physical construction at KCI, said Jill McCarthy. In May, Iceland Air started occasional flights (because they had one unused jet and didn’t have other plans for it, said Scott Wagner), and competing carriers will be watching traffic counts to see if similar investments in this market are warranted. Peer cities like Nashville, Columbia and Cleveland and Charlotte, N.C., have such service.

As more Kansas City companies forge business lines overseas, or as the region attempts to recruit companies with such profiles, international connections become more important. “It’s a big deal to companies looking to come here,” she said. “If they pull out and it’s a failed venture, it will be hard for other European airlines to come in.

Mike McKeen would like to see gre-ater attention paid to development of the Missouri River waterfront Downtown, leveraging it for growth the way many other U.S. cities have done. And the lack of a link over that same body of water means that the streetcar system is irrelevant in an area that accounts for 51 percent of Kansas City’s land mass, he said.

Regardless of what priorities the region collectively sets, they should be pursued with great zeal, said Dentons law firm’s David Fenley. When the economy is clicking the way it is now, whether it involves a public or private organization, “you run the risk at the high point of taking your foot off the gas. When that cycle changes, things happen that you can’t stop.” Caught in that situation, he said, “if you’re slow, things are going to be worse.”