FEATURE ARTICLE, APRIL 2008

ALL ROADS (AND RAILS) LEAD TO KANSAS CITY
Kansas City is doing its best to become one of the Heartland’s premier logistics hub.
Coleman Wood

Kansas City skyline.

With its location close to the geographic center of the country, it would stand to reason that Kansas City is an established logistics hub. But the city has long stood in the shadow of Midwest industrial behemoth Chicago. This is in spite of the fact that Kansas City is home to four rail lines, three major interstates, an international airport and the Missouri River; not to mention that it has recently become the largest rail center in terms of tonnage moved and the third-largest trucking center in the nation. Add to this the competition Kansas City has faced from other regional distribution hubs such as Memphis and Dallas, and bringing users to Kansas City becomes an uphill battle.

But years of toil are finally paying off. Thanks to the concerted efforts of various government organizations and local companies, Kansas City will soon see the development of two major rail intermodal facilities and an air intermodal facility, in addition to a wave of warehouse and distribution development all over the metro area.

“There’s a convergence of opportunity here, with growing exports and improved rail capacity, and there is an aggressive effort by Kansas City to capture as much of that as we can,” says Bob Marcusse, president and CEO of the Kansas City Area Development Council (KCADC).

The increasing prevalence of a global economy means that more goods are now flowing into the United States, particularly from Asian countries. Kansas City is poised as a gateway to the eastern half of the country as this large amount of freight moves from one coast to the other.

But this increased volume comes at a price. Congestion is building at coastal ports, increasing the time needed to import and distribute goods throughout the country. A solution to this has been the advent of inland ports, which handle the final disposal of imported goods after they are checked in at the coastal port, rather than having the coastal port handle both steps.

“If you look at global supply chains — what companies are doing in terms of moving international freight into and out of the country — there’s a very strong focus on inland areas, because the costs are lower and there’s not as much congestion as the [coastal] port cities,” says Chris Gutierrez, president of Kansas City SmartPort. “And anybody in the industry who you talk to [will say] Kansas City is on their radar screen.”

It was the goal of drawing this port traffic inland that led to the creation of Gutierrez’s organization. Formed in 2000, SmartPort is a non-profit organization started by the KCADC, the Greater Kansas City Chamber of Commerce and the Mid-America Regional Council.

“Our goal is very simple: to grow the transportation and logistics industry in the 18-county region the KCADC has, and to make sure the freight can move in and out as efficiently as possible,” Gutierrez says.

The organization receives 75 percent of its funding from the private sector, comprising 50 investors involved in the transportation and logistics industries. Half of these investors also serve on SmartPort’s board of directors. This gives companies an edge when they come to SmartPort for information about Kansas City.

“They [SmartPort’s investors] are very involved in where the targets are and what the opportunities are, because they come from the industry, they know what their customers are doing and what’s happening,” Gutierrez says.

The organization’s creation has its roots in the Mid-Continent Tradeway study, which was commissioned in 1998 by the three organizations that would later create SmartPort. The study looked at the amount of freight moving into and out of the region, as well as the recently ratified North American Free Trade Agreement, and concluded that there was a lot of opportunity for growth in the region. One of the recommendations of the study was that a group needed to be formed to develop and promote the area as an inland processing center, which was a new concept at the time. This has remained one of the central goals of SmartPort throughout its history.

“Our tagline now is ‘Kansas City SmartPort: America’s inland port solution,’” says Gutierrez. “We were one of the first ever inland port concepts, and now, of course, a lot of cities and regions talk about inland ports. We kind of gave that name meaning.”

SmartPort has positioned itself as a one-stop shop for logistics companies looking to locate in Kansas City. It handles the economic development work, providing users with information on available sites, as well as market data on the areas. The organization later helps with incentive packages once the organization decides on a location. But that is only one aspect of SmartPort’s mission. On the other side, the organization works to promote Kansas City to outsiders.

“The outside message [of SmartPort] is that Kansas City is a logistics center. We’re not third-tier; we’re not an up-and-coming second tier; we’re a logistics center and here’s why,” Gutierrez says.

But there has been a problem over the past few years convincing companies to commit to the city.

“The big drawback over the past 10 years or so has just been a lack of product,” says Jeff Kaczmarek, president and CEO of the Kansas City Economic Development Corporation (EDC).

That is all set to change with tens of millions of square feet of distribution space set to come online in the next few years. A lot of this is tied up in two new rail-served intermodal facilities, the first of which is Logistics Park Kansas City.

Located in Gardner, Kansas, 25 miles southwest of Kansas City, the 1,000-acre logistics park is being developed around a new intermodal facility that will dramatically expand the Burlington-Northern Santa Fe Railway’s (BNSF) current Kansas City operations. The BNSF, one of the country’s major east-west railroads, is developing its state-of-the-art facility on 300 to 350 acres at the site. When it is operational in 2009, the new intermodal facility will effectively triple the annual lift capacity of the railroad’s current intermodal facility, going from 400,000 to 450,000 presently to a capacity of 1.5 million lifts per year in the new facility.

The remaining land at the site will be developed by San Diego-based The Allen Group for big-box distribution and warehouse users. The project’s future status as a foreign trade zone will also likely draw logistics users wishing to take advantage of Kansas City’s inland port status. The Allen Group is expected to construct approximately 7 million square feet of industrial product once Logistics Park Kansas City is fully built out.

“[The BNSF and The Allen Group] are putting a serious capital investment and serious commitment into this market, believing that it is going to continue to grow,” Gutierrez says.

 The project is currently going through the permitting and zoning processes. Construction of the distribution/warehouse portion of the project is expected to begin in early 2009.

About 20 miles south of downtown Kansas City, Chicago-based CenterPoint Properties and the Kansas City Southern Railway Company (KCS) have partnered for the development of another large intermodal facility, the CenterPoint-KCS Intermodal Center. The 1,340-acre integrated intermodal logistics campus is located on the site of the former Richards Gebaur Air Force Base, which was decommissioned several years ago. The centerpiece of the project, which is owned by the Port Authority of Kansas City, is the new 370-acre intermodal facility that KCS recently completed, which is replacing the railroad’s much smaller existing intermodal facility in the city.

The need to expand its intermodal capacity is a result of a huge capital investment the railroad has made. With the ratification of NAFTA in 1994, KCS proceeded with its plans of a single rail system linking Mexico with the United States. The railroad first worked out an agreement that would expand its rail service to the U.S. border at Laredo, Texas. Then, in 1997, it won the rights to operate Mexico’s busy Northeast Line when the rail was privatized, and became the sole operator in 2005 when it bought out its Mexican partner in the rail venture. The railroad was then officially renamed Kansas City Southern de Mexico.

KCS now had the means to link Mexico with the United States via continuous rail service, but it needed the intermodal capacity to handle the increased traffic. An expanded rail facility was the answer. The railroad will ship in freight directly from the busy Pacific Ocean port of Lázaro Cárdenas, which recently received a major capital investment to build a new container terminal.

“The idea was to provide access to the center of the United States through Mexico as a reliever, if you will, or alternative to what are becoming increasingly congested ports on the West Coast: Seatac, Long Beach, Los Angeles and so forth,” Kaczmarek says.

And while the ribbon cutting on the intermodal portion of the campus has already occurred, the majority of the construction is just getting started. The other 970 acres of the project are being developed for distribution and logistics users by CenterPoint Properties. Plans call for big box industrial facilities from 100,000 to 1 million square feet. According to Kaczmarek, a lot of initial interest in the project has been for facilities in the 300,000 to 500,000-square-foot range. Phase I of the development has the potential for 5 million square feet of space at full build-out, with subsequent phases potentially doubling this number. Construction of the warehouse portion of the project has been proceeding at a brisk pace.

“[CenterPoint] told me that they have 100 pieces of excavating equipment out there working 24/7 right now moving dirt and putting infrastructure in,” Gutierrez says. “It’s going to be ready to put up some buildings this year.”

As of right now, CenterPoint plans on developing the property as build-to-suit space, but the EDC is discussing the possibility of speculative construction with CenterPoint, in order to attract users seeking a quicker move-in.

And while CenterPoint-KCS Intermodal Center appears to be brimming with new construction, a quick glance beneath the park’s surface shows even more activity. Locally based Hunt Midwest is currently developing a $216 million subsurface industrial park located directly under the park. Built from the vast limestone deposits located underground, the facility will be very similar to the company’s existing SubTropolis industrial park located in the Kansas City Northland submarket.

Touting itself as “The World’s Largest Underground Business Complex,” SubTropolis currently spans 1,100 acres and contains 4.8 million square feet of industrial space — an impressive number made even more impressive by the fact that only a third of the available space has been developed so far. The development process involves Hunt Midwest first coming in and mining an area for its limestone. The only things left behind are limestone columns spaced 40 feet apart that provide the area with structural support. Afterward, the company develops the open area into industrial space, and moves its mining operations to a different area. Users benefit from the constant temperature in the complex, as well as the lower utility costs and leasing rates compared to similar above-ground facilities.

CenterPoint-KCS Intermodal Center will contain the Kansas City Southern Railroad’s 370-acre intermodal rail facility.

The subsurface facility at CenterPoint-KCS, which will be built identically to SubTropolis, albeit on a smaller scale, and will ultimately have the capacity for 18 million square feet at full build-out, a process that is expected to take several years. Hunt Midwest is currently getting the necessary approvals for the project, and could break ground on the project as soon as late this year or early next.

“You add your surface space, plus your underground space, and you’re probably getting up near 30 million square feet of potential warehouse, logistics and distribution space in the Richards Gebaur area,” Kaczmarek says.

Located on the property of Kansas City International Airport, KCI Intermodal BusinessCentre will be developed on 800 acres and could ultimately contain 8 to 12 million square feet of industrial product.

The intermodal activity in Kansas City is not limited to truck and rail traffic. In addition to the two rail intermodal facilities being constructed, development is underway for KCI Intermodal BusinessCentre, a truck and air intermodal facility located at Kansas City International Airport.

Developed as a partnership between Trammel Crow Company and the Kansas City Aviation Department, the 800-acre site is being developed in two phases. The first phase, totaling 183 acres, will include an approximately 500,000-square-foot, speculative distribution warehouse, with expansion capability up to 1 million square feet.

Phase II will develop the project’s remaining acreage. Current plans call for approximately 12 buildings to be constructed at the site, but the size and final number of buildings could change based on future market demand. It is projected that 8 to 12 million square feet of industrial product could ultimately be built at KCI.

With its prime location on airport property, including some parcels with on-ramp access, KCI Intermodal BusinessCentre will appeal strongly to logistics users that could benefit from a close proximity to an international airport, as well as nearby Interstate 29. Final permitting is currently underway, with infrastructure work set to begin in the summer. Construction will begin simultaneously on the first industrial building, with completion anticipated in spring 2009.

“We’ve got these two intermodal anchors — one at the north end with the airport and one at the south end with Richards Gebaur — in the city that we really believe are unique opportunities for logistics operations,” Kaczmarek says. “And so we see Kansas City really rising to the top within the Midwest.”

The changes in Kansas City’s industrial market can best be seen when one looks at the size of a typical user now locating to the city.

“That’s the big change,” Marcusse says. “10 years ago, a big distribution center here was 100,000 to 150,000 square feet. Now that’s a small one; we’re seeing 500,000 to 1 million square feet [projects].”

While the intermodal centers currently under development will take several years to build out, the city’s various development groups have done a good job of keeping Kansas City on the tip of the tongues of those in the development industry.

“This is a business of momentum, and we clearly have some tremendous momentum now,” Marcusse says.

POWER & LIGHT ILLUMINATES DOWNTOWN KC The Cordish Company is putting the finishing touches on its Kansas City master work, the nine-block Power & Light District in the heart of downtown. The Cordish Company’s $850 million investment in Kansas City is poised to dramatically change the city’s downtown scene, as the Power & Light District is quickly rolling out its lineup of tenants in the entertainment portion of the nine-block development. “As of the Big XII Tournament, a little more than half of the shops [are] open, and things are just going crazy,” KCADC president Bob Marcusse notes. “There are entertainment opportunities at the Sprint Center two or three times a week; it’s almost impossible to find a place to eat or drink beforehand or afterward.” An eclectic mix of restaurant and nightlife options has already opened, including Gordon Biersch Brewery & Restaurant, Lucky Strike Lanes, Ted’s Montana Grill, Sprint Studio, McFadden’s Sports Saloon, Howl at the Moon and Angel’s Rock Bar. Two theaters, AMC Mainstreet and AMC Midland, will open soon, along with Flying Saucer Draught Emporium, Maker’s Mark Bourbon House & Lounge, Peachtree Restaurant, Rum Shack, Plaza Ford Ideal, Jos. A. Bank and GNC, to name a few of the new entries to Kansas City’s downtown. The AMC theaters are the fruit of efforts to redevelop two legendary Kansas City theaters. The Midland theater will be renovated as a live performance theater, while the flagship AMC Mainstreet Theater has revitalized the long-vacant Empire Theater as a six-screen boutique movie house. The 17-story H&R Block building, which opened in 2006 in the center of it all, also houses the Copaken State, a $4.8 million, 320-seat state for the Kansas City Repertory Theater. The $276 million, 18,500-seat Sprint Arena opened last October. The arena houses the National Collegiate Basketball Hall of Fame, and recently hosted the Big XII Conference’s Men’s College Basketball Tournament. — Kevin Jeselnik

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