January 31, 2008

Dallas Mayor Tom Leppert Pitches City’s Business
Potential in Monterrey

By Lawrence Iliff

MONTERREY, Mexico – Dallas Mayor Tom Leppert was all business Wednesday on the last day of his trade mission to Mexico, promoting North Texas as a health-care destination and as a potential trade hub for goods moving through northern Mexico.

“There’s clearly an opportunity,” he said. “The challenge is to seize it.”

Mr. Leppert started the day by pitching Dallas to Monterrey hospital officials as a world-class destination for specialized medical treatment and as an alternative to Houston, where affluent Mexicans have traditionally sought upscale care. And he toured the Monterrey facilities of Addison-based Mary Kay cosmetics, which is growing quickly and creating jobs in both countries.

But one of the more promising projects he discussed with Mexican officials was the creation of a transportation corridor that would allow both North Texas and northern Mexico to benefit from growing U.S.-Mexico trade and booming Asian imports.

Mr. Leppert acknowledged that the project would be complex and difficult but said that it was worth making the effort.

“All good things are going to take hard work, and nothing’s easy in life,” he said Wednesday after viewing a presentation on possible ways to link the inland port in southern Dallas with a similar one being planned for northern Monterrey.

Both cities are natural transit points, not just for growing trade between Mexico and the U.S., but also potentially for Chinese goods that need alternatives to the crowded California ports of Los Angeles and Long Beach. Some Asian traffic arrives at Mexico’s West Coast ports.

Already, nearly two-thirds of the more than $300 billion in U.S.-Mexico trade moves through the state of Nuevo León, where Monterrey is the capital, and Texas, according to the presentation Wednesday.

The excitement over the inland port concept is that booming global trade will create good-paying jobs in the cities that can best partner with private enterprise and move imports and exports as quickly and cheaply as possible, officials in both Dallas and Monterrey said.

An inland port transfers goods from trains to trucks to planes in any combination, warehouses them, and can even provide manufacturing or final assembly facilities – all job creators.

It can also serve as a port of entry for customs and safety inspections. For example, trucks bound to the U.S. could be cleared in Monterrey and those going to Mexico inspected and sealed in Dallas.

Dallas City Council member Ron Natinsky said there is potential for a powerful new North Texas economic growth machine if the current International Inland Port of Dallas, or “double ipod,” can grow into a major site for transshipment of goods, warehousing and other services.

Dallas’ sister city

Monterrey, already Dallas’ “sister city,” is a critical piece of the puzzle as it plans to soon break ground on its Interpuerto Monterrey, which will be run by private companies with help from the government – just like the Dallas facility.

The bottom line for both regions: jobs and a growing tax base.

“The number we use here in Dallas is the number we got from the port of L.A.-Long Beach,” said Mr. Natinsky on the potential economic boost from a port facility. “Every time a container passes through, there’s a local economic benefit in excess of $400 to the local economy.

“When you start taking a million containers here and a million containers there and start passing them through, there’s a huge economic benefit obviously for the Dallas area, but also a huge economic benefit for the Monterrey area,” Mr. Natinsky said.

Monterrey officials are just as keen on the Dallas inland port, which opened in 2005, and see it as a natural partner once the Mexican project takes off. The land north of Monterrey has been purchased and is set to open before the end of 2009.

“There are a lot of opportunities with Dallas because it is like a mirror image,” said Francisco Javier Alejo, the executive coordinator of Nuevo León’s center for linking northern Mexico to Texas. “We are at opposite ends of a direct transportation corridor. The cities, which are both economic centers, both have great economic power. That’s why it’s so important.”

Both Dallas and Monterrey want to link with all the big players – the port of Houston, the Panama Canal, Mexican ports like Lázaro Cárdenas and Veracruz. But one of the potentially most lucrative deals is with each other, officials said.

“We have a good relationship,” said Mr. Alejo, a former ambassador in Europe and Asia and the Austin consul general from 2002 to 2005. “What has been a little bit dormant in recent years is our sistercity relationship. Part of the reason for this trip is to get it going again. But there’s a very strong business relationship.”

Rail service

That relationship could get a lot stronger if the Dallas and Monterrey ports are able to link up more directly through a rail line that would move goods more cheaply and more efficiently than the semitractor trucks now clogging up highways in northern Mexico and North Texas.

Mr. Natinsky said that rail service from Mexico is problematic because it relies on railroad companies that have other priorities. Building a new railroad line may be the only alternative, although it would cost hundreds of millions of dollars.

“We’ve been in discussions with a lot of people. Everybody sees the need for it. Everybody wants to do it. Nobody has pulled the trigger on it yet,” he said. “When they do, in my mind, that will be the silver bullet that solves the transportation problems between the two inland ports, which also opens up the ability to get connections from the West Coast of Mexico on up to Dallas.”

Karl Zavitkovsky, economic development director for the city of Dallas, said moving special “intermodal” containers on rail from both Monterrey and Houston would give a big boost to the Dallas inland port, which also faces complications with rail service from Houston.

“We can have all the best aspirations in the world, and the inland port of Monterrey can have the same desires, but if we aren’t able to work together with the major railroads then it won’t happen,” Mr. Zavitkovsky said. On the Mexican side, Mr. Alejo said the government plans to build its own rail line to the Texas border that would be open to any railroad company, just like a toll road.

The Monterrey inland port has train terminals on either side – Kansas City Southern and Ferromex (which is about 25 percent owned by Union Pacific) – but neither has made a commitment to the project, Mr. Alejo said.

Strong potential

Right now, the Dallas port serves train traffic from Los Angeles and Long Beach through a Union Pacific railway terminal, which is at its maximum of 400,000 “container lifts” per year, Mr. Natinsky said. The port project could create 7,000 jobs in three years, he said, and the ultimate goal for its future buildout is 50,000 jobs.

In contrast, the 10-year-old Alliance inland port in northern Fort Worth has a terminal run by the Burlington Northern Santa Fe Railway, with a capacity of 750,000 container lifts per year.

With or without a rail connection to Monterrey, Mr. Natinsky said, the southern Dallas facility will grow and thrive. But he’d rather have that link.

One of the biggest landowners in the Dallas inland port is also looking to Monterrey for synergy.

The San Diego-based Allen Group is working with the city and the state of Nuevo León to link its future inland port with the southern Dallas hub.

“With more and more companies deciding as a matter of policy to direct movement of some of their goods from the L.A.-Long Beach area to the deepwater ports in Mexico as a result of congestion, the movement between Mexico and Texas becomes very, very important just as the movement through the Panama Canal to Houston becomes very important,” said Leslie Jutzi, the Dallas-based director of governmental and community relations for the Allen Group.

Mr. Alejo said that Nuevo León and Dallas are not the only players, and the game is on. “The opportunity is there,” Mr. Alejo said. “We are going to see who takes advantage of it, and to what extent.”

January 29, 2008

Global Logistics: Are Inland Ports an Answer to
Congestion – or a Waste of Public Money?

Facilities are Sprouting Up Across the US; a Port in West Virginia?

The last few years has seen a growth industry in terms of interest in, and development of, so-called Inland Ports in the US. Are they a smart answer to congestion and logistics infrastructure issues – or too often a boondoggle that wastes public and private money?

An Inland Port is a site located away from traditional land, air, and coastal borders that has the capability to process international trade through availability of multimodal transportation assets and – often – by promoting value-added services as goods move through the supply chain.

In general, the concept is to quickly move goods in containers from ocean ports via rail or truck, where customs processing, receipt, transloading and other logistics functions can be performed. However, they can also be built as, or with, airports to handle air cargo.

The growth of inland port projects or proposals has occurred for many reasons. In some cases, governments and business interests are looking at the projected growth in inbound container movements into the US. Research firm Global Insights has projected cargo volume from Asia alone will grow by more than 320% over the next 15 years. Many see Inland Ports as a way to add logistics capacity at lower cost and with much greater flexibility than the often landlocked areas around existing ports. It is believed that Inland Ports will also reduce traffic congestion and pollution in those areas. Many states also see Inland Ports as an opportunity to create jobs, sometimes in rural areas.

Many New Projects

Inland Ports have been around for many years. The one in Sacramento, CA opened in 1947, for example. Cincinnati operates a busy Inland Port on the Ohio River, servicing barge traffic. An 11,600-acre Inland Port in Alliance, TX opened in 1990. Another successful Inland Port is operating in Front Royal, VA.

However, a number of Inland Ports have either recently been built or are somewhere in the planning or development stages. Examples include:

• Dallas Logistics Hub: opened in April, 2007, it is the largest new logistics park under development in North America, with 6,000 acres of land and the potential for 60 million vertical square feet of distribution, manufacturing and retail development. It will compete with the older development in nearby Alliance, TX.
• Freight Gateway and Intermodal Center near Kansas City, which is undergoing significant development. Kansas City Southern railroad plans to start operating its new intermodal facility there on March 14.
• Another Texas-based Inland Port is being built near San Antonio, as are new Inland Port facilities in Virginia, California, and North Carolina.

West Virginia is also getting into the act. An Inland Port facility is under development in Prichard, southwest of Huntington, as part of the Heartland Corridor project that received $153 million in federal funding in 2005. It expects to link by rail to the port in Norfolk, VA 500 miles away.

Is An Inland Port Glut Looming?

The development comes at an interesting time. Of late, a combination of slowing import growth, port efficiency gains, and other factors have dramatically reduced congestion issues at existing ports in 2007. While many expect the long-term trend to see renewed logistics pressures at the port, current conditions may cause some to revisit assumptions.

It also seems likely that this simply won’t be enough business for all the Inland Ports under development. North Carolina’s Global Trans-Park, opened in 1991, has never met expectations, for example, and requires state subsidies to shore up operating losses resulting from lower projected volumes. A proposal for an Inland Port in South Carolina collapsed last year amid scandal with the company making the proposal for government funding for the project.

Some Inland Ports that can be served by waterways may get a boost from various green initiatives that see ship transport of cargo as one solution to environmental and congestion woes.

Are you using Inland Ports? Why – or why not? Do you think we may be getting too much development of Inland Ports, which may lead to a glut of capacity and require too much government financial support? Let us know your thoughts at the Feedback button below.

January 14, 2008

Burlington Northern Santa Fe to expand Fort Worth hub:
Move at AllianceTexas could draw distributors; Dallas
may get facility

By Sheryl Jean

Burlington Northern Santa Fe Corp. is expanding its intermodal hub at Fort Worth’s AllianceTexas development while it considers whether to build a similar facility in southern Dallas County.

Last year, the Fort Worth-based railroad said it added nearly nine miles of track and four new trucking lanes to meet current and future demand for business and to speed up the flow of traffic through Alliance.

BNSF spokesman Patrick Hiatte said the expansion created more flexibility in moving shipments through Alliance. The goal is for a train to travel between that hub and a destination, such as Chicago or Los Angeles, without switching tracks, he said.

BNSF doesn’t break out investments for specific projects. Its total capital expenditures were $2.55 billion in 2007.

David Pelletier, a spokesman for Alliance owner Hillwood, said the expansion will help attract more distribution centers. Many of the distribution centers already on site, such as J.C. Penney Co. and Michaels Stores Inc., are there because of BNSF’s intermodal facility, he said.

Vann Cunningham, BNSF’s vice president for economic development, reiterated the company’s commitment to growing its operations at the 12,000- acre Alliance development. The railroad can grow to more than 1 million “lifts” — the number of containers and trailers loaded or unloaded — from the nearly 567,000 lifts completed last year.

At the same time, a new BNSF facility at the 6,000-acre Dallas Logistics Hub in southern Dallas County would complement its Alliance operations, Mr. Cunningham said.

BNSF just extended an option to buy more than 300 acres at the Dallas Logistics Hub with the San Diego-based developer the Allen Group, Mr. Cunningham said. Negotiations are ongoing, and the railroad should make an announcement about the Dallas Logistics Hub in three to four months, he said.

“There are no sticking points. We just have to decide what’s best for the company vs. other decisions,” Mr. Cunningham said.

BNSF is looking at geographical supply and demand, market conditions and the growth of imports. Richard S. Allen, chief executive of the Allen Group, said BNSF wouldn’t put “significant money” on a land option unless they were serious.

“We’re extremely confident that they’ll close on the land in the reasonable future,” Mr. Allen said. BNSF “needs two intermodal facilities in the Dallas–Fort Worth area” because of the industrial growth. “It’s not a question of if, but when, in my mind.”

BNSF and Allen Group officials say the potential for a major railroad to operate two intermodal facilities in one metro area is unprecedented in North America. Union Pacific operates an intermodal railroad terminal adjacent to the Dallas Logistics Hub.

January 1, 2008

Kansas City – City Highlights

By Kristy Main, Paul Licausi, Jeffrey Berg and Brent W. Roberts

Kansas City Multifamily Market

The Kansas City multifamily market is stable, with projections expected to be steady locally. However, widening the scope of comparison for a real estate market during periods of capital market change can be an eye-opener.

Kansas City’s multifamily sector outlook considers the standard measures for commercial investment property — such as job growth, occupancy and rent growth — thus, providing a significant amount of information about the market. However, in these times of capital market change and down-turned housing markets, additional data considered should include investor funding capability and a review of the local market as compared to other regions. An expanded view of any market is helpful most anytime, but it is critical for both buyers and sellers of multifamily in today’s market turmoil.

Nationally, economists report that the overall effect of the down-turned housing markets and resulting reduction in home values will have less impact than the loss of jobs in housing construction and retail. Torto Wheaton Research reports that, while the current housing market would normally cause a greater drag on the economy, the increased businessto-business spending, evidenced by “persistent office-occupancy services growth,” has compensated for the difference. The research concludes that, when coupled with the low and steady unemployment and increasing consumer spending, indicators have begun to point to a correction in motion.

While the Midwest investment market is considered more stable than the coasts, it is occasionally overlooked due to slower growth. In reality, Kansas City has exceeded Torto Wheaton’s expectation for office-occupying jobs and is ranked among the top 15 positive revisions, alongside markets such as New York and San Francisco. This year, employment growth is expected to increase 1.2 percent to 14,000 total employed, with a related improvement in personal income, which is consistent with national expectations. New apartment completions in Kansas City, at 2,402 units, should mirror that of other national markets in keeping with the employment growth trend. An increase of 1 percent, in apartment unit absorption, is predicted.

Vacancy and rent growth are very similar to actual and forecast national data, with continued stabilized vacancy increasing marginally by 0.8 percent by fall 2008. Also, rent growth is expected to hold steady at 2.2 percent, with the rent index projections at $714.78 per unit. Current third-quarter 2007 Kansas City market reports reveal that absorption is much greater in the Olathe, Kansas, and the outer Johnson County submarkets, while rents are highest in three submarkets: central Kansas City, south Overland Park and Mission/Prairie Village, Kansas. The greatest rent growth occurred in north Overland Park, along with a surprising increase in Wyandotte County, Kansas.

Nationally, a shift in buyers shows an increase in institutional and private clients. Data from Real Capital Analytics’ November 2007 Apartment Capital Trends Monthly shows institutional buyers almost doubled market share nationally from January-August 2007 data compared with September-November 2007. CBRE’s Capital Market data confirms this volume trend in multifamily sales when comparing 2007 year-to-date to the same period in 2006. Capital efficient buyers with less reliance on CMBS conduits will more often be able to maintain expected returns. This is confirmed with CBRE Capital Market data that shows life, pension fund and advisors (LPFA); equity/opportunity funds; and foreign and private client buyers of multifamily assets are more often winning the business for which they bid with greater ability now than a year ago.

Interestingly, the Midwest has the highest percentage of institutional buyers compared with any of the other markets. Among the 10 primary Midwest markets, Kansas City, at 41 percent, is second only to Chicago (52 percent) for the amount of institutional investors active in the market. While these are certainly interesting trends, we can’t overlook the rest of the data. Kansas City has the lowest price per unit among all of the 59 markets surveyed by Real Capital Analytics’ as of November 2007, and reveals that while Kansas City doesn’t have the highest cap rate, it does rank toward the top at 7.3 percent on 2007 sales and appraisals. These facts together indicate a greater buying power in the Kansas City market, and capital efficient buyers have the greatest ability to take advantage of that in light of current lending trends.

The Kansas City and Midwest multifamily markets provide a compelling story, not only locally but more importantly, from the national viewpoint. Consistency and stability look the same now as last year to Midwesterners while changes in other factors, such as the capital markets, have provided certain investors with greater incentive to consider assets within this region. Buyers typically dependent on CMBS conduits will be less likely to compete on pricing in these regions compared with those that don’t. Informed sellers also benefit from understanding why certain investors shop Kansas City markets. Sellers aware of property types appealing to today’s buyers are enabled to make better decisions on pricing, marketing and buyer selection.

— Kristy Main is an investment properties broker, specializing in multifamily assets in the Kansas City, Missouri, office of CB Richard Ellis.

Kansas City Industrial Market

What’s the cause of all the buzz about Kansas City? We are seeing story after story in the national press and numerous trade magazines — so, why all the hoopla? The short answer is that there’s a lot going on in the Kansas City real estate market that is worth talking about.

For those not familiar with Kansas City, here are some quick facts about this market that make it an advantageous place in which to do business: Kansas City is located in the center of the United States, at the crossroads of both Interstate 70 (a major national east/west highway) and Interstate 35 (a major national north/south road that is classified as the NAFTA highway). This market has significant transportation infrastructure including superior highway service, significant air cargo service, major rail service (the second-largest rail hub in the nation) and major barge service on the Missouri River. The metro area MSA population has now exceeded 2 million people and is one of the fastest-growing metropolitan areas in the Midwest.

These attributes are a prime contributor to how well the industrial real estate market has been performing over the last several years. While other parts of the county are experiencing economic challenges, the Kansas City metro area continues to remain stable and experience continued growth. The industrial sector contains roughly 241 million square feet of manufacturing, warehouse/distribution and flex product.

The market is very stable, with vacancy rates averaging approximately 8 percent and positive absorption activity for the last several quarters. The development community has been very conservative during the last 36 months, and speculative development has occurred at a more measured pace. This has kept the supply and demand factors in balance. Lease rates have remained stable, but we are starting to see some upward movement in lease rates for both flex and distribution product. However, this increase is minimal and has not had any material effect on demand.

Having said that, some exciting things are about to happen that will change the playing field in Kansas City’s industrial market. Burlington Northern Santa Fe Railway, which announced recently the development of a new logistics park in Gardner in southern Johnson County, Kansas, is moving quickly to start construction for this facility and has indicated that it intends to have it operational by mid-2009. The entire project covers approximately 800 acres, with the BNSF intermodal facility occupying more than 350 acres of the project. The remaining 450 acres will be developed by The Allen Group as the Logistics Park-Kansas City, and will include facilities with dedicated rail service as well as medium and large box distribution and manufacturing facilities.

Along with this major investment in the community by BNSF and The Allen Group, interest in the market from other large corporations has been growing. Kansas City is now consistently on the list for companies searching the Midwest for a location for a major distribution facility. The momentum has been growing; there is a steady stream of large user requirements circling the metro area at any given time. Some notable recent activity in the large box arena includes Musician’s Friend’s 702,000-squarefoot project, Pacific Sunwear’s 440,000-square-foot deal, CNH 500,000-square-foot transaction and Kimberly-Clark 446,000-square-foot facility.

To date, large box development has occurred primarily on a build-to-suit basis, and speculative development of large box facilities has been slow to occur. However, that is about to change. Three speculative large box projects will come online this year and in 2009, including Midwest Commerce Center in Gardner. LS Commercial Real Estate, in conjunction with USAA Real Estate Company, is developing this 151-acre planned business park. Construction will be underway in early spring on the first building within the park, which will be a 520,000-square-foot spec distribution facility. The park will contain five buildings totaling more than 2.2 million square feet when fully developed.

Kessinger/Hunter Company is at work on another large box development that will be underway early this year. The facility will contain 601,829 square feet and is being developed on a speculative basis. Additionally, Trammell Crow Company is planning a speculative big-box distribution facility containing 350,000 square feet at Kansas City International Airport. Trammell Crow is the master developer for a large distribution and air cargo park that will occupy a portion of the airport property. These facilities will give Kansas City a supply of much needed large box facilities that are ready for occupancy. The lack of large box spec product has been a limiting factor for the market, and has caused some companies that were interested in locating to Kansas City to choose other markets. The addition of these spec facilities will fuel further development of product at the larger end of the scale.

In addition to the exciting things happening in the large box arena, development of small to mid-size properties continues. Block & Company, OPUS Northwest, Watkins & Company, LS Commercial Real Estate and Prime Investments have completed new buildings within the last 12 months. New development is occurring throughout the metro area; however, parts of the community that are seeing a higher concentration of activity are southern and western Johnson County on the Kansas side, and eastern Jackson County and southern Platte County (KCI airport submarket) in Missouri. These areas are attracting attention thanks to the availability of utilities and available land that is zoned or master planned for industrial use.

As noted above, lease rates in the Kansas City market have remained fairly stable. New warehouse product coming online is being marketed at lease rates ranging from $4.50 per square foot and up, depending on bay size. There is a mix of modified gross industrial and triple-net lease structures being quoted. The market is slowly converting to a triplenet lease structure on new product. Lease rates for new flex space are averaging from $9.50 per square foot and up, again depending on the bay size. The flex market has been improving over the last 18 months and new development of this product type continues to occur.

In addition to the activity in the distribution arena, one industry has established a large-scale and very successful corridor in the market. Kansas City has become one of the top markets for companies in the animal health industry, with more than 100 animal health companies having a presence in the area. The Kansas City region is supported by some of the top animal health education programs in the nation; universities located in Missouri, Nebraska, Kansas and Iowa have some of the top animal health programs in the county. This is a noteworthy development, as the growth of the animal health industry in the region will be a catalyst for further development of warehouse and flex space.

The outlook for the Kansas City industrial real estate market continues to be positive. Steady growth, low vacancy rates and continued expansion of the industrial base have established a successful recipe for a thriving industrial sector.

— Paul Licausi is president of Overland Park, Kansas-based LS Commercial Real Estate.

ALLEN GROUP, BNSF CREATING INTERMODAL OFFERING IN GARDENER, KANSAS

The Allen Group, a Prairie Village, Missouri-based industrial developer, is developing Logistics Park – Kansas City at the former Richards-Gebaur Airport in Gardner, Kansas, approximately 25 miles south of Kansas City. The locally based industrial developer is building its park on 579 acres acquired in an agreement with BNSF Railway Company, which is developing a new intermodal facility on 418 adjacent acres. The BNSF intermodal project is expected to open in 2009. Together, the two developments will comprise the KC Logistics Hub, which will help further establish the Kansas City market as one of the newest and biggest intermodal hubs in the country.

The Logistics Park – Kansas City will feature a collection of distribution and warehouse facilities, and will be built out over the course of a 20-year plan. It is projected to total more than 7.1 million square feet when complete, and will create as many as 13,000 jobs for the Kansas City area. The site is adjacent to Interstate 35 and State Highway 56, and will have access to BNSF’s Transcontinental mainline.

Kansas City Retail Market

Kansas City retail continues to grow, but at a slower pace than at this time last year. Many new projects coming online this year and in 2009 have been in the planning stages for several years, and are now coming to fruition. It appears that the pace of major new retail centers opening in 2010 and later will taper off compared to the rush of activity experienced during the past few years.

One of this year’s major new projects will be Corbin Park, a 1.1 million-square-foot outdoor regional center located in Overland Park, Kansas. Corbin Park features the first main street design in this prosperous and rapidly growing suburb. The center, being developed by Cormac Company, features several retailers making their first appearance in the Kansas City metro, including Von Maur, Lifetime Fitness (which has already opened), Sports Authority and Biaggi’s, along with a high-end theater

Cordish Company will open a significant portion of its much anticipated downtown Kansas City, Missouri, retail and entertainment complex. The Power & Light district encompasses approximately 500,000 square feet over 9 city blocks, and features a wide array of restaurant, lounge, live entertainment, neighborhood service and boutique retail venues. Construction has also commenced at the Mission Gateway, a 700,000-square-foot mixeduse redevelopment of the former Mission Mall. The Cameron Group has revised the Mission, Kansas, property substantially, adding the metro area’s first and a boutique hotel. public aquarium and reducing the scope of the office and residential components.

Several projects will open or expand in Kansas City’s Northland submarket this year. Cousins Properties’ first metro project — the Tiffany Springs MarketCenter — is located in the booming Interstate 29 Northland corridor and will open later this year. The center features Target, JC Penney, The Home Depot, Best Buy, Sports Authority and PetSmart among other retailers. Steiner will open a Dillard’s department store along with Old Navy and other retailers as part of Phase II of Zona Rosa, the Northland’s premier lifestyle center. Liberty Triangle continues to expand its share in the submarket with the addition of a relocated and expanded Hy-Vee supermarket.

Several projects have been pushed from this year’s pipeline to 2009. Included among these is RED Development’s Summit Fair shopping center in Lee’s Summit, Missouri. A Macy’s department store tailored to the lifestyle center format will anchor Summit Fair along with JC Penney. The redevelopment of Metcalf South Mall in Overland Park, Kansas –— a joint venture of MD Management and Alberta Development Partners — is finalizing junior anchor leasing and has been pushed back to late 2009. Similarly, Adams Dairy Landing, a joint venture between RED and Block and Company that is located in Blue Springs, Missouri, is proceeding toward a 2009 opening. That project will include a Target and Lowe’s Home Improvement Warehouse. First National Development’s 800,000-square-foot, Wal-Martanchored center near the Kansas Speedway is also finalizing its a lineup of junior anchors, including Best Buy and Office Max, and will open in 2009.

Rental rates are holding steady, with increased construction costs being partially absorbed by low cap rates, allowing developers to build with lower spreads. New small shop space leases typically run from $18 per square foot to $28 per square foot, depending on location and finish. Junior anchor lease rates are ranging from the low-to-mid teens per square foot. Landlords are reporting a noticeable slowing of demand for small shop space throughout many submarkets, leading both to increased vacancy and a slowdown in new construction.

Many junior anchor retailers are also reporting full pipelines for 2008 and are looking only at deals for 2009 or beyond. In the restaurant sector, quickservice and fast-casual restaurants continue to seek sites at a brisk pace, but many casual dining concepts are nearly dormant. With most major anchors, including Wal-Mart, Target, The Home Depot, Lowe’s and Costco, well entrenched in the Kansas City metro area and market conditions becoming less certain, development of large new retail projects is beginning to slow. Fortunately, there are exceptions. The Three Trails project, developed by LANE4 Property Group, is a more than 400-acre mixed-use redevelopment of the former Bannister Mall site and surrounding area at the intersections of 95th Street, I-435 and Highway 71 in south Kansas City. The first phase will open in 2010, and will feature more than 700,000 square feet of retail to accompany an 18,500-seat stadium for Kansas City’s professional soccer team, 12 tournament practice fields and a 650,000-square-foot office park. Cedarwood is currently leasing a Target and Lowe’s-anchored center in western Lenexa, Kansas, that will open in 2010. In addition, several national retailers are entering Kansas City for the first time, including Staples and Sports Authority, which will open their first stores this year.

— Jeffrey Berg is a vice president with Kansas City, Missouri-based Lane4 Property Group.

Kansas City Office Market

Is the Kansas City office market recession proof? Despite national reports showing a slow down in office absorption rates in 2007 and further reduction in 2008, Kansas City seems to be headed in the opposite direction.

The office market in Kansas City showed positive absorption of more than 1.5 million square feet in 2007 — more than one-third of this absorption was in the Class A product sector.

Colony Realty Partners is continuing to look at increasing its suburban Class A office holdings. In 2005, the company purchased 7101 Tower on the southwest corner of College Boulevard and Metcalf Avenue in Overland Park, Kansas, for approximately $94 per square foot. This Class A property totals approximately 230,000 square feet. In June of last year, Colony also acquired Financial Plaza, a Class A office development on the northeast side of College and Metcalf. This 292,000-square-foot multi-building development set a high watermark of $154 per square foot for the market. Recent information has Colony as a finalist for acquisition of Commerce Plaza I and II, a 280,000-square-foot, Class A office complex near the northwest corner of College and Metcalf.

Is Colony trying to corner the Class A suburban office market? Probably not — at 800,000 square feet of Class A office space, the company’s portfolio would still lag behind Stoltz Real Estate Partners/Urdang Capital Investment’s investment in the 2.2 million-square-foot, Class A Corporate Woods office park, which is located a mile west of College and Metcalf. Stoltz acquired Corporate Woods in December 2006 for $128 per square foot.

These are high per square foot numbers for this suburban Kansas City market. With fewer landlords to compete with, expect to see Colony and Stoltz push lease rates higher this year. The average Class A rate is approximately $21.50 per square foot, still well below the $23.50 averages from 2000, before the tech crash. Lighton Plaza, which is owned by NewTower Multi-Employer Property Trust, is nearly 95 percent leased, and has the highest lease rate in College Boulevard corridor at $23.50 per square foot.

The other major Class A suburban office project under way is the Hilltop at Briarcliff office building, which is being developed by Briarcliff Development Company. The 220,000-square-foot, speculative development is located in the suburban market directly north of Kansas City’s downtown. Currently under construction, this building will deliver in July. The speculative building is currently 55 percent preleased, and may soon have as much as 85 percent of the space pre leased with 8 months remaining on construction. This continues to show the market’s support for quality product.

With lease rates moving upward and strong positive absorption, Kansas City’s 2008 Class A office market appears to be bucking the national trend.