SNAPSHOT, APRIL 2004

Kansas City Multifamily Market

Darlene Simpson Roberts, Sales Associate, Sperry Van Ness Commercial Real Estate

The Kansas City multifamily market is in the first phase of a recovery period, says Darlene Simpson Roberts, a sales associate on the national multifamily team in Sperry Van Ness Commercial Real Estate’s Kansas City office.

“Apartment construction has slowed, and the area inventory increased by 3 percent during the past year,” Roberts says. “However, condominium and apartment conversion projects continue to multiply.”

The conversions are mostly occurring in downtown office buildings and warehouses, or in existing apartment complexes and buildings. The trend is the strongest in three submarkets: the River Market, the Kansas City central business district (CBD), and the Country Club Plaza. These submarkets join on the Missouri side of the metropolitan area and are known collectively as the River-Crown-Plaza area.

In the River-Crown-Plaza area, more than $170 million has been devoted to multifamily projects (completed and currently under construction)during the past 3 years. The area, which currently has 4,000 completed units, has more than 800 apartment and condominium units currently under construction and more than 1,200 units in the planning stages. Condos and apartments make up 5 percent and 95 percent of the current total inventory, respectively. “What is really interesting is the quick trend change in 2004,” Roberts says. “During 2003 all units completed were apartment rental units, and 80 percent of the projects under construction in 2004 are condominium units for sale.”

One project underway in the River-Crown-Plaza area is the condominium conversion of the former Western Auto office headquarters by Chicago-based MCZ Development Corporation. The three-building project will have 159 units, with the first building scheduled for completion in April. The final phase is scheduled for completion during 2006. Kimberly-Clark is presently constructing 177 apartment rental units in the CBD. Time Equities has a 215-unit condominium project currently under construction as well. There are 10 additional multifamily projects currently under construction in the River-Crown-Plaza area with at least 25 additional projects in the planning stages. “Multifamily developers are looking to serve their urban dweller tenants with amenity-driven facilities,” Roberts says.

A key goal of the River-Crown-Plaza Housing Initiative is to deliver 10,000 housing units to the area by 2010, according to the Downtown Council of Kansas City. More than $366 million in total multifamily investment was in various stages of development as of September 2003. This total includes $170 million in projects that were completed or that were under construction, as well as approximately $196 million for projects in the planning stages.

The Kansas City Northland Area has approximately 16,000 apartment units, which represent about 14 percent of the total metropolitan inventory. Currently, there are 1,882 apartment units pending or under construction in this area, Roberts says. Since 1999, the Northland has experienced a steady increase in supply because of its location between Interstates 35 and 29, and its proximity to Kansas City’s International Airport and the CBD. “The Kansas City Northland is favored by lenders because they have seen apartments do very well there in the long term,” Roberts says.

In the metropolitan area, the average rental rate is $523 per month for a one-bedroom unit, $634 per month for a two-bedroom unit and $813 per month for a three-bedroom unit. “Rental rates in the Kansas City Northland and surrounding submarkets are generally more conservative compared to rents in the River-Crown-Plaza and Johnson County areas,” Roberts says.

In the Kansas City Northland area, the average vacancy rate for two-bedroom apartments is 8.5 percent. The average vacancy rate for two-bedroom apartments in the River-Crown-Plaza area is 7.5 percent. The southern area of Kansas City, including Johnson County, Kansas, has the area’s highest vacancy rate for two-bedroom apartments at 11.5 percent.

The investment market is doing well in Kansas City. “Out-of-state individual apartment investors see the Kansas City market as an opportunity to increase their wealth by selling apartments in trophy cities, such as Los Angeles and New York, and reinvesting in Kansas City where the return on investment is much greater,” Roberts says.

The median price per apartment unit sold in the Kansas City area is $44,485 (an 8.5 percent to 11 percent cap rate) for Class B and Class C properties, and $55,926 (an 8 percent cap rate) for Class A properties.

“The Kansas City area should continue to benefit from the current growth pattern,” Roberts says. The residents making the most impact in the market include college-educated workers, a booming immigrant population, empty nesters and urban dwellers relocating from larger cities.

“People are now more conservative and want a higher standard of living at a lower cost,” Roberts says. “This is what Kansas City provides.”

©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.