Kansas City, Missouri-based Exact Architects has carved out a solid niche today designing adaptive re-use, medical facilities and mental health properties. That’s not the only projects that Exact works on, but these commercial types are in high demand.
And finding those niches in which to specialize? It helps when the economy is as challenging as it is today, what with high interest rates and stubborn inflation.
We spoke with Caleb Buland, partner with Exact Architects, about the state of the local and regional commercial real estate markets and the steps that Exact has taken to succeed. Here is some of what he had to say.
I know this is a big question, but how busy is the commercial development business right now?
Caleb Buland: We are having good luck with properties that have an end user in pocket. Spec building has cooled off. But adaptive reuses or new builds for clients are popular.
We are also seeing a lot of requests for medical and mental health facilities today. We are working on three mental health facilities right now. In the past, there had been a lot of people who were underserved when it came to mental health. The medical community is now focusing on providing this sort of care.
Multifamily is still going well. There is still demand for new multifamily projects. And there is some Freddie, Fannie and Hud debt options that make multifamily attractive today. We are working on five multifamily projects now.
The hospitality market has cooled significantly, even though occupancy numbers are up. Construction starts are down in hospitality. The office market is challenging. We are seeing some demand at the Class-A level. But anything below Class-A is pretty quiet.
Today, though, I’d say that multifamily, adaptive reuse and healthcare work are our bread-and-butter.
The adaptive reuse side of the business is interesting. Why is this sliver of the industry so strong?
Buland: The tax credits that developers can qualify for when working on adaptive reuse helps. That helps buffer the storm of interest rates and construction costs. There is pent-up demand for this type of work, too, including here in Kansas City.
There is a lot of demand for turning properties into multifamily. There is always a need for new housing. We don’t have enough fresh housing stock in downtown Kansas City. Adaptive reuse with tax credits can help bring new housing to the area. People want to live downtown. They see that gas is at $4 a gallon or near it. They don’t want that long drive to work. They want to be in the city close to where they work or close to public transportation. With adaptive reuse projects, we can address this need for urban housing.
What makes a property a good choice for an adaptive reuse?
Buland: Really, any area in downtown Kansas City and its surrounding neighborhoods can work. You want an adaptive reuse typically to be close to transit and have access to food and grocery stores. In the center of Kansas City, almost anywhere is well-situated with access to transit and food.
The building itself needs the right kind of footprint. But we have been very successful with buildings that didn’t have traditional layouts, like large warehouses. We’ll bring in light wells and create these huge two-bed, two-bath mini-mansion apartments. They’ll have 3,000 square feet of living space. People love it. They have natural light and plenty of elbow room. Then they have these interesting industrial finishes. It’s exciting to repurpose something that might have been vacant for 20 years.
Can you give me an example of a successful adaptive reuse that Exact has worked on recently?
Buland: The 3100 Aines Dairy Lofts project on 31st and Gillham is a good example. This was a 1940s-era dairy processing facility that had all these glass-block and glazed-brick walls. It was built to popularize pasteurization and deliver milk in urban Kansas City. It sat vacant for a decade. We designed the Dairy Lofts project to turn this into 50 apartment units. The units include large skylights, big closets and in-unit laundry. They are fun urban lofts and they are pre-leasing like crazy. People really like the branding and design style. Everyone said that a project like this couldn’t be done with this property.
The location is adjacent to interesting neighborhoods, but the actual spot doesn’t meet any of the metrics that you usually talk about when looking at adaptive reuse. It is near a cash-checking place and a pawn shop, an auto parts store. We are saying that it’s time to change the situation in this location. We are going to bring in two commercial tenants to boost the daytime foot traffic. We are bringing in residential tenants who will enhance the evening traffic. We are adding lighting, landscaping and secured parking. The goal is that the formula of safe neighborhood design will help turn this area around.
Demand is already high for this project, right?
Buland: Pre-leasing is strong. Even though this project is on a block that has had crime and other problems, it is just two blocks away from a lot of food options and activities. It is three blocks to transit. Daycare is five or six blocks away. It is close to the hospital, something that is good for employment options. It’s just a pocket that hasn’t been developed. We have some pockets like that in Kansas City. We have areas that we haven’t touched in 100 years. This area? It’s been 60 or 70 years since new construction has come here.
We think this will kick off additional development here. Thre is a nearby commercial cleaning property that is vacant and a large book-printing facility that is vacant. We are trying to collaborate with people who want to take over ownership of those and bring in restaurants, maker spaces and outdoor activity centers. I think in the next couple of years, this area will become one of the favorite places in Kansas City to stop and check out.
How is the market for new traditional multifamily properties? Are new apartment buildings still being developd in the markets in which you work?
Buland: We have recently worked on traditional four- or five-story stick-built multifamily projects. One of them is on 27th and Troost in Kansas City. The site used to be home to a hotel, shops and a Henry’s Hamburgers restaurant. We designed a modern and amentized multifamily development of two buildings here. Every loft has a balcony with big sliding-glass doors. Both buildings, which will be opening late next year, will have rooftop amenities. Both properties will have a lot of shared elbow room with tables and places to relax in the common areas.
There is a great demand for units in this development. We try to provide a mix of units below and above $1,000 in rent each month in our projects. We try to provide high-quality housing that is thoughtful. We focus on security and providing top property management services. Every unit has a walk-in closet, solid-surface countertops, good access to natural light and in-unit laundry. Even though a lot of the units will be priced below $1,000 a month, they are not designed to be cheap. That formula works for us. It keeps our buildings full and our residents happy.
What are some of the amenities that people are looking for in new apartment developments?
Buland: That depends on the income of the person renting. In the Class-A world, we’ve all seen the beautiful images of Class-A office buildings and multifamily properties. But in general, amenities have become more important for any new project. Being pet-friendly is a big deal. Renters want pet amenities like dog runs and pet washing stations. That seems so minor, but it’s major when you’re trying to rent and find a building that is welcoming to your pets.
Then there are the commercial amenities. Everyone likes to be able to go downstairs and get a coffee in the morning or a cocktail at night. Almost every one of our buildings has a restaurant, coffee shop or cocktail lounge.
We’ve also grown to hate these tiny apartment gyms. We’ve done them in the past. But those are no longer good enough. What we like to do now is lease out space to a cool gym tenant and give our residents memberships for free. That way, they’re not working out in a basement closet.
Are people interested in renting apartments in urban areas still, or are you seeing more demand in suburban locations?
Buland: We’re seeing demand for both urban and suburban multifamily. We’re even seeing demand in the type of fabricated downtowns that some suburbs have created. A lot of the more established folks like the suburban downtown experiences, whether it’s an existing downtown or one that has been fabricated. Other people like the urban center of cities.
The downtown Kansas City market is one of the best in the Midwest. We have the streetcar extension and the new women’s soccer stadium that is opening next year. We might be getting a new baseball stadium downtown. We are seeing downtown Kansas City in the news in a positive way every day. When people are looking at housing, they are thinking of downtown Kansas City more than they ever have. Midtown and downtown are two of the top places in Kansas City that renters search for when they are looking for someplace to live. We are working on four new apartment projects in Midtown and downtown Kansas City. We think they will all open full.
Do you think the Kansas City Royals will move to a downtown baseball stadium in the near future?
Buland: I hope it happens. Whether the Royals do it or not, though, it is still fascinating the Kansas City news anchors and writers. People on their lunch breaks are reading about it. That is great. It keeps downtown Kansas City in the forefront.