Kansas City’s Predictability Leads Investment Interest to Double

Kansas City, Mo.--Investment interest in the Kansas City metro has nearly doubled, reports Mac Crowther, principal in ARA's (Apartment Realty Advisors) Kansas City, Mo. office.

Kansas City, Mo.—Investment interest in the Kansas City metro has nearly doubled, reports Mac Crowther, principal in ARA’s (Apartment Realty Advisors) Kansas City, Mo. office.

Typically, over the past 15 years, he adds, a Class A asset would receive between seven and 10 offers, with a final four or five best offers. “That’s changed,” Crowther tells MHN.

Class A assets in this metro are trading at 5.5 percent cap rates, which, Crowther points out, is anywhere from 50 bps to 150 bps higher than what an investor could get on either coast. This differential, he adds, is now attracting more interest, resulting in nearly 20 offers for core, Class A assets, with 10 best offers.

“We rebounded nicely from the recession,” Crowther notes. “We didn’t get beaten up as badly as a lot of other cities.”

The metro’s unemployment rate was 8.7 percent as of August, with the unemployment rates in its investment-grade submarkets even lower, points out Crowther. The unemployment rate in Johnson County, Kansas, for example, is just 6 percent.

Crowther attributes the healthy economy to the metro’s diverse employment base—which includes the headquarters for Hallmark Cards, H&R Block and Garmin, for example—as well as its capabilities as a distribution hub. “It’s really a wide variety of industries and a wide variety of employers, so if one employer gets in trouble there are a lot of other alternatives,” he points out.

“Typically in this town,” he adds, “both job growth and population growth bump up about 1 percent to 2 percent a year, and we’re back on that trend of where we were prior to the recession.”

The apartment market’s overall occupancy is 93 percent, with occupancy in the investment-grade submarkets, such as Johnson County or Northland, at 96 percent.  At the same time, just 750 units are planned for the city, and of those, only 350 are currently permitted.

Meanwhile, overall metro-wide rent growth is 2 percent, though Crowther points out that it can be anywhere from 3.5 percent to 7 percent for top-tier properties and locations.

For the metro’s investment-grade submarkets, the school systems are key. “In a general sense,” says Crowther, “the school systems drive the heath of the submarkets and our economy, so when you look at Kansas City over a 50-year period … [you see] we don’t get great jumps in job growth or population growth but we [also] don’t get the troughs. That’s what people look to when they want to invest. They like the idea of predictability.”