KANSAS CITY, MO - Renting is in. Buying is out. That's where downtown Kansas City finds itself in the housing cycle. The shaky mortgage market, lack of development and Downtown's increased popularity all have contributed to an increase in rental demand. In some cases, these factors have exacerbated a recurring rent-own cycle. "In the past, so many people didn't have a clue or had misconceptions about what was going on Downtown," said Dana Gibson, a partner in Mallin/Gibson Properties.
Now, many people want to live near Sprint Center and the Kansas City Power and Light District, he said, but hundreds are turned away because apartments are more than 95 percent occupied. Tom Trabon, a developer and chairman of the Downtown Council of Kansas City, would like nothing more than to make these people downtown residents. The Downtown Council wants to add 18,000 to 20,000 residents, bringing the area's total to about 40,000.
The difficulty isn't attracting residents, he said, it's offering affordable housing. For starters, many first-time home buyers are having a difficult time acquiring loans to buy condos. According to the Downtown Council's June housing report, Downtown has 7,378 multifamily units, of which 4,114 are rentals and 3,264 are condos. Kari Winters, a mortgage consultant for Wells Fargo Home Mortgage, said mortgage insurance companies now require 10 percent down on condos to protect from foreclosure. That has converted some buyers into renters.
Compounding the financing issues, the condo market is about 85 percent occupied, though Trabon said that doesn't include three developments in the works. In addition, although rental properties now are hard to come by, no relief seems to be imminent. Trabon knew of only one apartment development in the works. Market Station, a 323-unit market-rate project by Morgan Group Inc., is on track to finish in the fall of 2009, said Carter Bechtol, Morgan Group's vice president of development. "We've received some calls about the apartments, but it's still so early in the process it's hard to say what the demand is," Bechtol said.
The River Market project, north of Third Street between Broadway and Wyandotte Street, could bring in about 500 new residents. "Three hundred twenty-six units absolutely helps, but when you look at developing 9,000 units, you have a long way to go," Trabon said. The lack of rental developments can be attributed to more cautious developers and an uncertainty about city-backed tax abatements, something many apartments need to succeed, Trabon said.
Developers are unsure how the city handles incentives and what they will cost, he said. Shaul Jolles, a developer and president of the Crossroads Community Association, said he would be shocked if any new rental developments are announced because of construction costs and the lack of tax incentives. In the early 1990s, the rental business in Kansas City was booming. Many developers used historic tax credits, which required units to be rentals for five years, Trabon said. After the five years passed, the cycle from rentals to for-sale units began. Many of those projects converted to condos, Trabon said.
George Birt, a principal of Downtown Developers, said it's inevitable that the downtown market will have a cycle in terms of supply and demand. "We're in a rental cycle that will last for a few years," he said. Jolles said that if current for-sale properties aren't bought, they could become rentals. "This is a sign of the times right now," Birt said. "Once the for-sale market comes around, you'll see a real strengthening in the units and convert back to for-sale products." And the cycle will continue.
Source: Kansas City Business Journal