Kansas City’s downtown revives empty office towers with ‘adaptive reuse’

About a dozen dead or dying office towers dot downtown Kansas City. Iconic skyline spires like the former Kansas City Power & Light Co. office at 1330 Baltimore Ave. or Commerce Tower at 911 Main St. stand vacant or emptied of commercial tenants.

Don’t call the civic coroner, though. Block by block, the central business district is transforming from commercial to residential. Activity is humming in those towers and others, where redevelopers are returning life to abandoned office space.

The changes aren’t easy. They’re slow. And they almost always use tax breaks that don’t sit well with some members of the public. But the alternative is a skyline of empty towers, of buildings with small floor plates and creaking mechanical systems that haven’t kept and don’t attract companies any more.

“Not so long ago, I could stand outside the Central Library and see 11 old office buildings that had gone dark,” said Downtown Council vice president Sean O’Byrne. “Today, every one of them is full of apartments.”

By O’Byrne’s count, at least two dozen downtown buildings already have been saved from pigeon-roost ignominy. Another dozen are reliably in progress to become housing or hotels. Hopes are similar for six to 10 more.

Most of the conversions are in multifloor towers abandoned by businesses that chose newer buildings in the suburbs over offices in the city’s core. But the buildings that were deemed obsolete for offices are sturdy enough for reuse.

“It’s a good thing, this evolution,” said Michael Frisch, program director in the Urban Planning and Design Program at the University of Missouri-Kansas City. “In terms of sustainability and preservation, it’s great to put those buildings to new use.”

The new use sometimes includes ground-floor retail and, occasionally, offices on lower floors. A couple of building plans, such as for the 12-story Brookfield Building at 101 W. 11th St., intend to be redone as a mix of apartments and hotel rooms. But most definitely, the changes rely on living, not working, for resuscitation.

 

That’s partly because landlords can make more money renting apartments than commercial space.

Ella Shaw Neyland, president of Steadfast Apartments REIT, a real estate investment trust, says that in Kansas City and around the country, building owners can make between 50 percent and 100 percent more in residential rent than office leases.

Even the most economical market-rate apartments currently under development in downtown — expected at about $900 a month, for example, in the Pickwick Plaza renovation at Ninth and McGee streets — provide a better return on investment than trying to fill the space with small-office leases.

“But it’s not just those economics that drive conversion,” Neyland said. “It’s that many of the old downtown buildings are simply obsolescent. They don’t work for the open-space offices that people want now.”

John McGurk, an attorney representing owners of Ten Main Center, an office tower that’s about half occupied at 10th and Main streets, said the building’s average office floor plate is 13,853 square feet. Large-business tenants don’t want space that small, and not enough small-business tenants are interested in the space.

In many buildings, an elevator core in the center of the space was the deal breaker for new offices, but the buildings are fine if a redeveloper arrays apartments around the edges.

“Everybody in the office world wanted fewer floors and large floor plates. That was a positive for me,” said Dale Schulte, who has turned several downtown office buildings into apartments. “I could get into those buildings without competing with people who wanted to do commercial space.”

Neyland, who said she’s been scouting building stock in U.S. cities for decades, pinpointed another plus for residential adaptations in Kansas City.

“Your city’s vision for a light-rail system designed to benefit downtown residents shows thoughtful development planning,” she said. That system — actually a streetcar line, not light rail — repeatedly is cited as a redevelopment incentive.

Michael Knight, who’s heading the Commerce Tower redevelopment, said the streetcar stop at Ninth and Main was a huge reason to undertake the $121 million project that expects to turn most of the 30-story building into 342 market-rate apartments.

Frisch, the UMKC urban planning professor, is among those who applaud the downtown residential trend, but he admits to a concern about a runaway flip to residential:

“You want a concentration of jobs and housing at a city’s nodal points to build intensity,” Frisch said. “I wonder how long we can continue to decentralize jobs. Now, we have a reconcentration of housing in the center, but what we need are live/work/play places. … You don’t want mass-reverse commutes to the suburbs.”

 

“When we can announce a residential project, we can take the building off our office vacancy list,” O’Byrne noted. And that’s an important statistic to help investors and lenders view Kansas City’s downtown as vibrant.

A separate review by the Cushman & Wakefield commercial real estate office put the core downtown office vacancy rate at 27 percent and the Crown Center-Crossroads rate at just under 13 percent in the fourth quarter of 2015.

It should be noted that the Downtown Council treats downtown as more than just the area within the freeway loop; its statistics cover the area from the Missouri River south to 31st Street. Also, the office vacancy percentage is for multitenant buildings of about 10,000 square feet or more; thus, it excludes fully owner-occupied buildings such as the H&R Block or JE Dunn properties.

About 3,140 residential units have been completed or are under construction downtown from 2013 to present. Downtown population has doubled since 2000.

Nonetheless, many once-proud office buildings — many of them six floors or higher — are mostly goners unless they get what developers call adaptive re-use.

“Owners of Class B or Class C office buildings are finding there’s not an economic value proposition to remain as offices,” said Stockton Williams, an urban housing expert at the Urban Land Institute in Washington. “Also, there’s a real uptick in urban living preference from the millennial and empty-nester generations.”

The commercial real estate industry classifies “B” and “C” properties as those which lack the amenities, the spit and polish, of newer or better-maintained Class A space.

“Historic tax credits in particular are bringing a critical source of equity that makes projects feasible that otherwise wouldn’t be,” Williams said. “They’re the bread and butter of this redevelopment.”

Redeveloper Schulte agreed. “It’s expensive and carries a lot of uncertainty to do rehab. Every one of my projects since 1988 used historic tax credits. If it hadn’t been for those credits, I would have had to have some other public subsidy.”

This kind of conversion typically takes years to work through ownership changes, design, findings of blight, city and regulatory agency approvals, financing arrangements, construction and marketing. Sometimes, it starts by getting absentee landlords to let go of the properties. Other times, even interested owners have trouble regenerating commercial tenant interest and struggle to keep the lights on.

Across Main at Ten Main Center, the building’s property manager this month told a different economic development commission that she’s struggling to provide security and competitive services in an office building that’s only 40 percent occupied since AMC Entertainment Inc. moved to a new building in suburban Leawood.

Owners of the 20-story tower say the 14,000-square-foot floor plates aren’t attracting or keeping business tenants, despite systems modernization. They’ve proposed a mixed-use conversion that would put residences on the upper floors, giving the building 24/7 activity.

It’s not just the too-small floor plates that inhibit current office use. It’s the current corporate quest for an open layout, unbroken by a warren of tiny offices or by elevators obstructing the center of the building.

Another incentive for office-to-residence conversion is parking. According to local development rules, fewer parking spaces are needed for residential than commercial use, and that translates to lower costs for redevelopers.

Still, redevelopment is expensive. And recent strong opposition from some citizens and taxing jurisdiction to tax abatements is making redevelopers wary of traveling the difficult road to get public assistance. Some tax abatement requests may have steeper challenges than the already-completed projects.

Furthermore, not every empty building is on the offer list for redevelopment.

“I’ve found a lot of business owners sitting on space with unrealistic expectations of its value — without putting any money into the property,” said UMKC’s Frisch. “Part of our problem is that (land) is relatively cheap in Kansas City compared to some other cities. We have a big metro and businesses can keep spreading out. They’re not as motivated to create quality business renovations instead of moving.”

Gib Kerr, a vice president at Cushman & Wakefield, is among those who believe that the residential conversions have set the table for major new office development.

“I think the major investments that have been made downtown — the streetcar, numerous hotels and thousands of residential units — played a vital role in reversing the office vacancy trend,” Kerr said. “We expect to see the downtown office market grow in size and strength over the next five to 10 years.”

This story was originally published January 26, 2016 at 7:48 PM with the headline "Kansas City’s downtown revives empty office towers with ‘adaptive reuse’."