Development

‘The time is right’: Deal could bring new major office tower to downtown Kansas City

Potential site of new major office tower in downtown Kansas City

An ordinance in Kansas City authorizes city manager Troy Schulte to work on a development agreement on Strata, a new office tower in the Power & Light District. It would be the first major new office development since 1991.
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An ordinance in Kansas City authorizes city manager Troy Schulte to work on a development agreement on Strata, a new office tower in the Power & Light District. It would be the first major new office development since 1991.

Discussions are underway to develop a major new office tower in downtown Kansas City, the first project of its type since 1991.

An ordinance filed Thursday at City Hall would, if passed by the City Council, authorize city manager Troy Schulte to work on a development agreement to build a multi-tenant office building at the southwest corner of 13th and Main streets in the downtown loop.

Jon Copaken, a principal with Copaken Brooks, is among the developers of the office project, a 25-story, $94 million, 250,000-square-foot office and retail building that he is calling Strata. Add in parking and the overall project cost is about $132 million.

Copaken said the building could accommodate 1,001 jobs, as well as provide more than 650 construction jobs.

“We think the time is right to put this kind of project together,” Copaken said. “Otherwise we wouldn’t be here.”

The office building would go on top of the existing Yard House restaurant, Jos. A Bank clothier and other existing retailers on the block. The retail would remain as part of the project.

“Yard House isn’t going away,” Copaken said.

Copaken is working on the project with developer Ron Jury and H&R Block. The development team discussed the project with commissioners of the Port Authority of Kansas City on Thursday.

Copaken said he plans to begin construction next fall. A two-year construction timeline means it would open in the fall of 2021.

As part of the city’s Power & Light District agreement struck 14 years ago, the city is obligated to build a parking garage for the project. Originally, the plans called for a garage that could accommodate 1,333 parking spaces. But Copaken’s team said they only need 750 parking spaces, bringing a $69 million obligation by the city down to $36 million. The city’s proposed arrangement with the Port Authority could save another $6 million.

“That not only saves the city a significant amount of money as part of that development agreement...but serves the greater purpose of the downtown area,” said Jon Stephens, executive director of the Port Authority, or Port KC.

Part of the reason the developer proposed to reduce the parking requirement in half was the building’s alignment along Main Street and the streetcar line.

“For public transportation and jobs, that link was really important to get this project going,” Copaken said.

A complicated financing arrangement for the project would have the Port Authority create what’s called an Advanced Industrial Manufacturing Zone, or AIM Zone, on the block at 13th and Main. That allows the development to redirect half of state withholding taxes from new jobs generated by the project to pay down costs of the parking garage.

“That’s what this proposal is — a proposed agreement that would say that, first of all, the parking in the building would no longer be 1,333 spaces. It would be 750 spaces, which brings the city’s obligation down tremendously,” said Kansas City Council member Jolie Justus, who introduced the ordinance at City Hall regarding the Strata project. “Number two, Port KC would establish an AIM zone over that block, which would allow them to finance the construction of the parking garage, and they would be the owner, operator of the garage, so it would be their responsibility.”

The parking garage costs about $36 million, financed by private dollars from Copaken and the development team, as well as AIM Zone revenues from the Port Authority. If there’s any gap between the developer’s financing and the AIM Zone revenues, the city is on the hook for the difference.

Dan Fowler, a Kansas City Council member and Port Authority commissioner, said the city has some risk if the building opens and no one leases it. But he saw that as a slim chance.

“This is a way to minimize any risk we would have as a result of that,” Fowler said.

The office tower portion costs about $94 million, $27 million of which would come from the city and the rest from the developer’s private financing.

The last multi-tenant office building to open in downtown Kansas City was the 29-story building at 1201 Walnut, whose tenants include the Stinson Leonard Street law firm and Grant Thornton. In 2006, the 17-story tower for H&R Block’s headquarters opened in the Power & Light District, but that building at the time was planned for only one company.

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It’s been a priority, both of the city and of civic organizations like the Kansas City Area Development Council, to find a developer willing to push for new office development to attract employers to downtown. Much of the existing downtown office space that is available is in older buildings that are seen as less appealing to companies considering a move to the urban core.

“As good as things seem and as good as things are...there are a lot of market reasons why nothing like this has been created in almost 30 years,” Copaken said.

Copaken is building the project on a speculative basis, meaning he doesn’t have tenants in mind yet, but is confident that he can sign some to lease agreements before it opens in almost three years.

Copaken’s news was probably music to Tim Cowden’s ears. Cowden, the chief executive of the Kansas City Area Development Council, an organization that looks to recruit employers to the Kansas City region, has hoped that a developer would take the risk to build new office space.

That’s because businesses that consider locating in Kansas City have been off-put by the lack of immediately available, premier office space.

“(Kansas City) has lost out on some major employer opportunities because we didn’t have this type of office product available,” Cowden told The Star in a text message. “Peer markets like Nashville, Denver, Dallas and Salt Lake have all seen Class A (speculative) office development occur. This helps even the playing field against markets like these — and smaller ones like (Oklahoma City) that have also seen (speculative) office activity of late.”

Kansas City’s Class A office vacancy rate has been dipping continuously since 2014, when it was nearly 12 percent, to 9 percent in 2017, according to KCADC research. But not much has been done in terms of building new office space.

Meanwhile, cities like Dallas and Atlanta have delivered expansive speculative office developments since 2016. Atlanta has built nearly 4 million square feet of speculative office space in the last two years, according to the KCADC.

Copaken acknowledged that his development team is taking a big risk with the Strata project, but thinks it’s the right time.

“I think the city has some good examples of where they’re missing out on deals because the space isn’t currently available,” Copaken said.

Cowden agreed.

“In the evolution of development, office space follows where people choose to live,” Cowden said. “The timing of this new office tower makes sense based on all the multifamily, entertainment and retail that has occurred downtown in recent years. The time is now.”

Copaken Brooks has a long track record as a developer in Kansas City; one of their recent projects, Corrigan Station in the Crossroads, was widely seen as a successful urban core office project. It is leased by WeWork, Hollis+Miller architects and other tenants.

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