Kansas City Plans to Develop Its Large Land Holdings

Jan. 16--Kansas City International Airport is a relatively inexpensive place to fly and, with 8,000 acres of surplus land, a great place to raise cattle and corn.

Airport officials, at the urging of City Manager Wayne Cauthen, want to change that formula. Not the affordable air travel part, but the crops and cows side of the equation.

Economic development is the priority at KCI these days, and the airport has been making some aggressive moves, starting 2½ years ago with the hiring of Mark VanLoh as director of the City Aviation Department.

"Wayne brought me aside," VanLoh recalled, "and said, 'Mark, when I fly into KCI at night, I don't see anything, and during the days, I see cows. We have a big asset there, and nothing's happened in 30 years.' "

VanLoh was hired to make things happen. And in a big switch from previous thinking, he is focusing on using the airport's expansive real estate holdings, not its air service, as the primary engine for growth.

Last August, the airport signed a contract with Dallas-based Trammell Crow Co. to be the master developer of a 640-acre parcel in the southeast corner of its property. The company, which was purchased recently by CB Richard Ellis, is planning to break ground later this year on a distribution center of more than 300,000 square feet.

A few days after the Trammell Crow deal was signed, the airport made another move that surprised even VanLoh. It successfully bid on the mostly vacant, 260,000-square-foot former headquarters of Farmland Industries. For $18.1 million, the airport bought a six-story building that cost Farmland $35 million to build and equip five years ago.

"That was one of those way-out-in-left-field things," VanLoh said. "Some of our commercial development people suggested buying it and people laughed. But our financial people analyzed it and said this could work."

Now the airport has launched fully into the office-leasing and land-development business.

For the first time, it's willing to pay commissions to private brokers for signing tenants. Perhaps more importantly, after years of trying to land a mega-development related to air service, it's going after smaller users more interested in the airport's access to Interstates 29 and 35.

"We're leaning toward over-the-road ground transportation because of our good road access," VanLoh said. "We're an airport, but we're not holding everything for aviation use."

Michael Webber, Kansas City-based air cargo consultant with global clients, said the airport is unusual because of its size. Airport officials believe only the airports at Denver and Dallas-Fort Worth are larger when it comes to territory.

"You can't distinguish between trucking operations and air operations, because all cargo comes and goes by truck," Webber said. "The idea is airports will be the ones that can accommodate both trucking and airport operations, and only a small subset of airports can do that.

"It's hard to do anything wrong out there, because you have so much land you can make up for any errors."

A recent tour around the wide-open property underscored Webber's observation. The scenery could have been anywhere in rural Missouri or Kansas, not land belonging to the nation's 35th-busiest airport.

Cattle -- the latest census counted 580 -- grazed in the pastures. The stubble of last fall's corn harvest -- 130 bushels per acre -- remained in the fields. Throughout the rolling property, small groves of trees indicated where farmhouses once stood.

The area of land not used for airport operations covers 12.5 square miles, about the same size as Belton.

Webber said VanLoh is the right man to begin bringing industry to that pastoral scene.

"I think the world of him," he said. "I still can't get over the fact Kansas City hired somebody so competent."

Trammell Crow executives say they're in the early stages of determining what might work at KCI.

"We are working on the first phase of a master plan that involves about 100 acres," said Kevin Wilkerson, a vice president at Trammell Crow based in Kansas City.

Wilkerson said his company wants to break ground this year on what he described as a speculative building for distribution use. The scope of the project is still being determined, but it probably would be at least 300,000 square feet.

"We've had a few inquiries, but we have no tenant in tow," he said.

Steven Bradford, a principal who leads Trammell Crow's airport development group based in Dallas, emphasized that much remains to be done to determine the cost of developing the KCI property.

"We believe there is a market opportunity at KCI, but the bulk of our time and energy has been focused on infrastructure and master planning," he said.

David Long, the airport assistant director for commercial development, said that no estimate has been completed yet as to the cost of building the infrastructure required for development, but that it will run into the millions of dollars.

A final estimate as to how much the city will contribute and what Trammell Crow will invest is expected next month.

Because the airport is self-supporting, it can use its own funds when it comes to paying for infrastructure costs associated with preparing the land for development.

The total operating revenues at the Aviation Department for fiscal year 2006, which ended April 30, were $80.4 million, up 13.4 percent from the previous fiscal year. Those revenues come from both KCI and Wheeler Downtown Airport.

The biggest source of operating revenue was associated with parking, $35.8 million, followed by airfield fees, $11.7 million; terminal fees, $10.9 million; auto rental fees and concessions, $8.4 million; and aviation-related property rentals, $4.4 million.

Only about $3.5 million of the airports' operating revenues came from non-aviation property rentals last year, just 4.4 percent of the total.

That non-aviation revenue share is what airport officials want to grow dramatically through property development and renting space at the former Farmland building, which has now been renamed the Ambassador Building at KCI.

Chris Gutierrez, president of Kansas City SmartPort, said the airport's strategy fits well with a push to use Kansas City's geographic location to attract more distribution and warehouse facilities.

He counted the airport as being one of three major intermodal transportation hubs now being built in the area. The others are train and truck complexes being developed by BNSF near Gardner, and Kansas City Southern at the former Richards-Gebaur Memorial Airport in south Kansas City.

He praised airport officials for hiring Trammell Crow to develop what is being called the KCI Business Airpark.

"Trammell Crow has the connections to attract people," he said.

He added the KCI property also is within a foreign trade zone and eligible for other economic incentives from Missouri. The trade zone designation allows companies to import parts and raw materials to the site without paying costly duty taxes. The duty is paid only when the finished item is shipped out of the zone.

Bob Marcusse, president and CEO of the Kansas City Area Development Council, said the airport finally has aggressive leadership when it comes to economic development.

"They have a unique and exciting piece of property, and have the mindset of a dealmaker now," he said. "The team running the airport today is a more aggressive economic development team than we've seen in the past."

Marcusse said the previous mindset had been to pursue big projects.

In the early 1990s, the push was for a major manufacturing facility then being pursued by aircraft maker McDonnell Douglas.

"I think the approach they're taking now is good," he said.

One major air-service-oriented operation that has remained has been the maintenance facility now operated by American Airlines. The airline employs 900 people at the facility.

Most recently, American signed a deal with Alcoa Inc. to convert passenger jets to cargo carriers. The subsidiary running the operation, Alcoa-SIE Cargo Conversions, has decided to move its headquarters to Kansas City from Southern California. The goal of the American maintenance base is to create $150 million in additional value through cost savings and outside work.

All of the airport property lies within Platte County, and economic development officials there say it's a great opportunity as well.

"We've been working hand in hand with the Aviation Department," said Pete Fullerton, executive director of the Platte County Economic Development Corp. "We need to have speculative space. We're missing a lot of opportunities because we don't have many ready-made sites."

Fullerton praised the Aviation Department's decision to purchase the former Farmland office building, saying it will raise the bar for office leasing in the Northland.

"I think it will be a great investment," he said.

There have been some complaints by private landlords about the city owning a competing property, but Fullerton said the criticism was unwarranted.

"My response usually is 'What did you bid for the building?' and they didn't," Fullerton said. "I have an Aviation Department that wants to invest and had a mostly empty building for a couple of years that nobody wanted."

The Ambassador is 12 percent occupied, 18 percent if you include the latest tenant, the Rock of Kansas City Church. The congregation is using the former conference center in the building until it completes a new church in about 18 months.

The remainder of the building is quietly awaiting new tenants. Each of the six floors covers 44,250 square feet, approximately one acre.

"We have some feelers out, and if someone takes a floor or two, they can put their name on the building," VanLoh said.

The Aviation Department already has had experience as a landlord.

VML, a nationally recognized marketing and technology firm, leases about 72,000 square feet at the former terminal building at the downtown airport. The firm moved into the former terminal 10 years ago and now has 270 employees.

"We're in the marketing business, and it fits our needs well," said Chris Shirling, VML's chief operating officer and chief financial officer. "The Aviation Department has treated us very well and has been very accommodating as we've expanded."

The Aviation Department also is trying to make the downtown airport more attractive to private pilots. It recently announced plans to build a $20 million aircraft hangar complex on the west side of the airport.

"Our goal is to get all the pilots that left over the past 30 years," VanLoh said. "The reason we'll get the pilots back is we're the only 24-hour airport in the region with full maintenance."

Top city officials believe the airport is on the right track these days with its new leadership.

Mayor Kay Barnes recently described developing the airport property as being vital to the future of the city.

"We're having developers and investors from around the world coming to Kansas City to look at the property," she said.

Cauthen said the airport is a priority for him.

"We haven't had much development, and it's important to work with Platte County to sell the airport as a distribution and employment area," he said.

Cauthen said that VanLoh has the right background for the job: "The balance he had between aviation and development was good."

VanLoh said the airport's success at attracting industry is not only important to the city's coffers, but to the pockets of air travelers.

"Our number one goal is to make extra money to keep airfares low," he said.

As a footnote, the airport reported a $146,496 profit last year on its farm operations, a tally that included a $5,255 federal crop subsidy.

To reach Kevin Collison, call (816) 234-4289 or send e-mail to kcollison@kcstar.com.

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