Indianapolis-based developer, Scannell Properties, didn’t enter the Kansas City market until 2020, but it plans to make the Kansas City office its third-largest market, according to Cam Duff, Scannell’s director of development.
Scannell focuses on two product types—industrial and multifamily (specifically student housing); however, the focus in KC is industrial, according to Duff, the featured speaker at CCIM Kansas City’s March 25 breakfast meeting.
Industrial assets make up approximately 75 percent of Scannell’s total business. Duff said the amount of Scannell’s total development volume in 2021 was approximately $5 billion, nearly a four-fold increase over 2018.
“It’s a very different structure than a lot of today’s developers. We use primarily all of our own capital. We do have partners that come in on the deals, but we don’t have to. And, that gives us a ton of flexibility as far as how we can go out and structure deals. We take down land. We can move quickly. We don’t have to wait to raise capital or go out and receive approvals from investment partners, which can slow down the process and bog you down in a market that’s moving really fast. So it’s a very big advantage,” said Duff.
Duff said that from 1990 through 2013, Scannell focused on build to suit industrial projects. Today, half of its industrial assets are build to suit and the other half are speculative. Scannell outsources all of its general contractor work.
Scannell entered the Kansas City market when Amazon asked Scannell to find it a distribution facility site. In 2020, Scannell acquired the Kansas City, Kan. property which once housed The Woodlands racetrack and constructed a building for Amazon.
Amazon’s facility is part of Scannell’s I-435 Logistics Park, a 381-acre property on which Scannell plans to construct a total of six buildings containing a total of 3,552,985 SF.
Scannell acquired three additional properties across the metro area. It has plans to develop within its four parks a total of 18 buildings containing more than 9.5 million SF. Duff said the construction of six of those buildings will commence this spring.
Compass 70 Logistics Park is a 156-acre speculative development located in Bonner Springs, Kan. Scannell’s plans call for the construction of three buildings containing a total of 2,029,250 SF.
Duff said Scannell sold approximately 60 acres of the Compass 70 property to Medline Industries, LP, which plans to relocate its Kansas City distribution operations to the site.
“Another thing about being a more entrepreneurial private company is we can sell land when the right opportunity comes up,” Duff said.
Construction is underway at another Scannell acquisition, I-35 Logistics Park in Olathe, Kan. Scannell plans to construct six buildings containing a total of 3,225,198 SF on the 217-acre site. The building under construction has a mid-summer completion date, and Duff said Scannell is close to signing a lease with a tenant, whose identity he did not disclose.
Construction on a sister building will begin mid-summer. Duff said each of the buildings will contain approximately 570,000 SF.
In late 2021, Scannell acquired a 79-acre site in Lee’s Summit, Mo. on which it plans another development containing three buildings with a total of 797,860 SF, Lee’s Summit Commerce Center.
“We are going spec on all three of these buildings at the same time. With what’s happening with construction costs and material costs and things like that, it’s definitely a way to try to bring your costs down, spread them across multiple buildings by building more at the same time. . . . We’re excited to bring some more industrial product that we think is needed in that market into Lee’s Summit,” said Duff.
Duff said Scannell is targeting the Kansas City market for a number of reasons: its geographic location, rail access, highway infrastructure, ease of commuting, tenant demand for distribution space and lower cost of living.
“We also really like the competitive landscape here, which might seem odd to say because you’ve got two of the bigger developers in the country that are based out of Kansas City —industrial developers. But, comparing that to other markets like Indianapolis or a Memphis or some of what we consider peer markets to Kansas City, there are far fewer developers here and active,” he said.
Duff said building costs have increased by 30 percent in the past year, forcing Scannell to get creative, take on more risk and buy materials much sooner than it has in the past in order to control costs.
Duff said in the Kansas City market, lease rates on projects currently under construction are rising fairly significantly as a result of the increases in construction costs, a trend that Duff expects will continue.
Labor shortages also are driving rising costs. Duff said a big trend that Scannell is tracking is the use of warehouse automation.
“There’s been a ton of private equity money just dumped into that sector, and it all makes perfect sense. It’s automated robots picking your box off the rack and then taking it and throwing it on a pallet. . . . Now your high-end tenants are utilizing a lot of it. It’s very expensive, a very expensive technology, but at some point, it’s going to become more mainstream. I think it will help to alleviate a lot of labor concern, but for now, it’s something that’s very real we’re dealing with,” he said.
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Featured rendering of Building 2 at I-35 Logistics Park in Olathe, Kan., Rendering credit: Gray Design Group.