November 25, 2020

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Good Living

Fancy apartments keep opening in downtown KC. Will prices finally drop for renters?

10 min read

Before the tour of the latest downtown luxury apartments even leaves the lobby, Jonathan Holtzman offers a bold proclamation.

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“I think we have developed the best apartment community that’s ever been built in Kansas City,” he said.

Walking around the new City Club Apartments Crossroads Kansas City, it’s easy to see why he thinks so.

The new development at 20th and Main streets has just about every amenity imaginable. On the rooftop, airy cabanas, a party-sized spa and sparkling blue pool overlook the downtown Kansas City skyline.

In a central courtyard, residents can enjoy the private dog park or the massive outdoor kitchen. Included in the rent is access to a fitness center, oversized bathtubs, concierge service and two movie theaters — one inside and one outside.

The 283-unit building, which is still wrapping up construction, further adds to the wave of new apartments that have followed the yearslong revival of downtown Kansas City. Just down Main Street, developers recently opened 180 new apartments in the refurbished Flashcube office building. Same goes for the new 14-story Reverb building that recently opened up in the Crossroads Arts District. In the River Market, Second + Delaware will soon welcome renters into its nearly 300 new apartments.

The supply of downtown rentals continues to expand at a time when the workplaces and cultural amenities that attracted many to the area in the first place have been upended — or closed altogether — by the coronavirus pandemic. And the opening of each new apartment building points to a central question: Are there now too many apartments downtown?

Even before the virus, many apartment complexes and buildings were offering rent concessions and promotions to lure renters. That’s only accelerated as rental inventory continues to grow. Monthly rents are actually going down for some buildings — the polar opposite of the fast-rising prices prices for homes across the metro.

Rents on prime apartments are down as much as 10%, said Mike Tiehen, an owner of a third-party rental marketing site and president of the Tiehen Group, which owns and manages apartment buildings across the city.

Aside from the big, new developments, owners continue to refurbish or convert smaller buildings throughout downtown, he said. Individually, they might only add a handful of apartments to the market, but collectively they have pushed rental inventory up.

“There is an oversupply,” he said. “But if construction slows down, I do think we’ll catch up. I do think things will rebound if construction slows.”

In the meantime, renters have a potential advantage: While homebuyers often make multiple offers at or above asking price, renters are finding landlords offering a free month or two of rent or across-the-board discounts on advertised monthly rents.

“Absolutely, now is a great time to rent with all this inventory,” Tiehen said. “These landlords are afraid to go into the winter months with vacancies so they’re going to be discounting rent.”

Even during COVID, downtown living attracts

During metro-wide stay-at-home orders, there were days when Jared Campbell was the only passenger on the Kansas City Streetcar. Weekdays looked more like Sunday mornings, usually the quietest time downtown.

The spring of 2020 reminded him of the way downtown used to look in the early 2000s.

“It just became very quiet,” he said.

The president of the Downtown Neighborhood Association, Campbell said things have bounced back somewhat since then. Residents have made efforts to support local shops and restaurants. And some have enjoyed the respite from big convention center crowds and end-of-the-workday traffic.

“The residents have been able to kind of claim downtown,” he said. “We’ve always kind of had to balance downtown as the convention, business hub before it was a neighborhood. And now it’s becoming more of a true neighborhood.”

With new rentals still coming online and condos selling quickly, he doesn’t foresee a dip in demand for downtown living.

People come downtown to be near mass transit and entertainment venues. They want to be within walking distance of shops, parks and restaurants. Even in the pandemic, those things still matter, he said.

“People still like the downtown lifestyle,” he said.

Campbell, who lives in downtown’s library district, also works for the Downtown Council of Kansas City. That organization estimates more than 2,200 housing units are under construction in the downtown area with more than 2,700 more units in planning.

The council’s definition of downtown includes everything from the riverfront to 31st Street and extends from the state line to the 18th and Vine district. That area currently includes more than 30,000 residents and is projected to grow to nearly 39,000 by 2025, Campbell said.

“There’s energy to it. There’s people around,” said Courtney Collado, a professional dancer and choreographer who moved to the River Market in June.

She and her husband, an officer at Fort Leavenworth, purposefully chose to rent downtown, where they could walk to the river, the market and other businesses. She said they looked for a higher-end building with enough amenities to keep occupied during the pandemic, but also one that would have enough space to spread apart as they both worked from home and their 8-year-old son attended classes virtually.

She’s from New York City and he’s from Los Angeles. So prices here were multitudes less than what they’d see back home. But she was still surprised by the going rents.

“For Kansas City, I think a lot of the buildings are incredibly overpriced. But coming from a market like New York or Los Angeles or abroad, it’s really reasonable,” said Collado, 40.

Living on the eighth floor, their two-bedroom, two-bathroom apartment is surrounded by other buildings. They see neighbors and pedestrians all around.

“We’re not having social gatherings, but it’s nice knowing you’re not alone. There are people in the building with you and across the street,” she said. “I definitely don’t feel trapped by any means. I feel like we have plenty of breathing space.”

Nick Bailey, chief customer officer for the national RE/MAX real estate chain, said even as the pandemic pushes some people away from city centers to bigger homes in the suburbs, the lifestyles that drew people to urban cores in the first place will still be a strong draw for renters and buyers over the long term.

“I believe that a healthy amount of demand will still remain in those urban markets,” he said. “That’s not all just going to dry up and go away.”

Who is renting downtown?

Downtown continues to bring in young professionals and workers relocating here from other parts of the country for jobs. But developers also see strong interest from empty nesters looking to live in the city core.

And with the pandemic pushing many employers to embrace virtual work, some are just moving to Kansas City because it’s cheaper than other major metropolitan areas, said Christina Boveri, owner of Boveri Realty Group, which works with buyers, sellers, renters and landlords.

Each new luxury building that opens adds to the overall supply downtown. But it also helps create vacancies in lower-priced apartments as some residents upgrade. For now, those dynamics are helping to push prices down for many.

But even with recent dips in prices, Boveri said most rentals start above $1,000 per month.

Nowadays, most apartments downtown rent for about $2 per square foot. So a 600-square-foot studio might go for $1,200 a month.

“Anything between $900 and $1,100 just flies off the shelf, period,” she said.

Newer buildings are offering larger units that can rent for more than $2,000 or $3,000 a month.

“It’s amazing what the rents are,” Boveri said. “But when you’re looking at people coming into the city from L.A., New York or Chicago, it’s extremely affordable to them. It’s all how you look at it.”

She said it’s hard to tell just how much the pandemic has hit the rental market. Eviction moratoriums may have kept some tenants in their homes even if they aren’t making monthly rent. And Boveri fears more people may lose their homes as federal stimulus dollars have dried up and thousands continue to go without work.

Whether it’s because of the pandemic or building patterns, Boveri said one thing is clear: there is plenty of rental supply downtown and across Kansas City.

“I don’t see their books on how many people are paying rent. But I do see the vacancies,” she said. “We see availability every week for most places in the city. And I know those lists have gotten longer.”

New luxury units keeping opening

Even as inventory expands, those putting new buildings on the market say they’re seeing strong interest.

Flashcube, formerly the Executive Plaza Office Building at 720 Main, opened to renters in August. Tenants in that building receive access to the downstairs coworking space operated by Plexpod.

Haylee Irvin, regional manager for Worchester Investments, which redeveloped the building, said she expected it to be nearly 60% leased by the end of this month.

“We’re doing really good,” she said. “We’ve seen some of our best months during the pandemic.”

Flashcube studios start at about $1,170 and prices go up to nearly $2,900 for three-bedroom units. Fall and winter are always slower leasing months when promotions and discounts become more prevalent, she said. Even with some discounts, she said rental prices are mostly holding steady for the building, which includes an indoor rock climbing wall, tennis courts and soccer field.

“We’re staying competitive with the market,” she said.

At Reverb in the Crossroads, it’s clear that the wider downtown slowdown has decreased interest in touring units and signing leases.

“You just miss that general excitement and livelihood on the street. It affects people’s ability to commit to the properties,” said Jon Copaken, principal at development firm Copaken Brooks. “The amenities outside your door are really important, especially in downtown.”

Residents started moving into Reverb, 1800 Walnut St., about two months ago. While leasing has been slow, it hasn’t threatened the financial viability of the project, Copaken said. Rents in the building start at $1,149 for studios and can top $3,300 for some one-bedroom apartments.

It can generally take 12 to 18 months to fully lease a new property, Copaken said. Since opening in January 2019, the firm’s Arterra development at 21st and Wyandotte has seen steady demand, he said.

Rents in that building, located near the Crossroads Hotel, start at $1,015 for studios and can top $5,000 for some three-bedroom units.

“We don’t really give out percentages or numbers but Arterra leased up pretty well,” he said.

Copaken expects new apartment construction to slow for a while as builders and lenders grapple with widespread uncertainty. But he remains bullish on the long-term prospects for downtown rentals. New buildings continue to fill up and renters continue to pay up for the best features.

“I’m optimistic about downtown and our level of density and growth in the medium- to long-term,” he said. “The extreme short-term is just uncertain. So it’s hard to be optimistic about the very short-term decision making.”

Builder still bullish on new complex

At the City Club Apartments, Holtzman doesn’t seem too concerned with the overall market.

From time to time, developers over supply the market, he said. And in those periods, like always, it’s survival of the fittest.

“Who’s going to win? The strongest. The best,” he said.

And he likes his chances.

The founder and owner of City Club Apartments, Holtzman has developed several versions of this brand in Midwestern cities like Minneapolis, Detroit and Cincinnati.

Kansas City’s rendition includes the historic Midwest Hotel structure. The seven-story development features lots of new steel and drywall, but also shows off the old brick, floors and beams of the 105-year-old building.

Holtzman said his firm takes its cues from the hospitality industry, not the apartment business. The lobby and common spaces resemble a boutique hotel packed with books, plants and custom decorations. The place is outfitted with bright colors, funky tiling and bold wallpapers, creating a love-it-or-hate-it vibe, as one employee described.

Aside from the usual renters, City Club will offer nightly and weekly rentals designed to appeal to business travelers. And all who stay or live there can use the concierge or order room service.

Holtzman believes stories of an exodus to the suburbs have been overhyped — or at least misunderstood.

“They don’t really want to buy a home,” he said. “They want to buy the backyard. They want some fresh air and open space.”

He thinks his building offers plenty of both with expansive balconies, rooftop entertainment areas and grassy courtyard.

On the first floor, local chef Howard Hanna, who owns The Rieger across the street and Ca Va in Westport, will open a natural wine bar and modern diner. It’s also home to Dollar General’s DGX store.

Holtzman, whose company has a portfolio of about 10,000 apartments across the country, said the local complex is about 45% leased. He doesn’t see the pandemic fundamentally altering the demand for urban living. People want to live in walkable neighborhoods close to bars and restaurants, he said. And City Club is particularly well positioned sitting on the streetcar line.

City Club advertises prices that begin at $1,095 for some studios and top $4,000 a month for a two-story 3-bedroom apartment.

The developer thinks the area can support those prices. And he leans into the pitch that he’s built the city’s best apartment complex.

“Let the renters go to One Light or Two Light. Let them go to the other apartment communities,” he said. “I don’t think I’m boasting. Come and visit me and you decide.”

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©2020 The Kansas City Star (Kansas City, Mo.)

Visit The Kansas City Star (Kansas City, Mo.) at www.kansascity.com

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