Incentives, industrial leasing strategy start paying off for Hunt Midwest
Rob Roberts – Kansas City Business Journal
Hunt Midwest officials are crediting incentives and a focus on smaller industrial tenants for strong leasing activity at the company’s Logistics I and II buildings in the Hunt Midwest Business Center, a 2,500-acre development at Interstate 435 and Parvin Road in Kansas City.
The following new HMBC tenants recently qualified for 25-year, 100 percent property tax abatements through an Enhanced Enterprise Zone that the business center is located within:
- American Tire Distributors Inc. opened a 108,860-square-foot regional warehouse and distribution center in HMBC Logistics II, a 200,000-square-foot, multitenant warehouse and distribution facility.
- Orbis Corp. opened a 40,777-square-foot service center for its Reusable Packaging Management division in HMBC Logistics II. The service center focuses on inventory management and cleaning of plastic reusable packaging used in the food, beverage and consumer goods supply chain.
- Spartan Motors Inc. expanded its cargo van and fleet upfit assembly operation in HMBC Logistics I to 63,169 square feet. The expansion comes less than a year after Spartan launched its all-new service line in HMBC Logistics I, which also is a 200,000-square-foot warehouse and distribution facility.
- A leading supplier to the e-commerce industry will launch a 37,888-square-foot manufacturing and fulfillment center in April at HMBC Logistics I, its first Midwest location.
“These leases validate Hunt Midwest’s decision to invest in multitenant facilities geared to tenants ranging from 40,000 square feet to over 100,000 square feet,” Hunt Midwest CEO Ora Reynolds said in a release. “Phase 5 of the Hunt Midwest Business Center includes a third 200,000-square-foot multitenant building along with room for additional buildings ranging from 450,000 to 1.2 million square feet. As businesses grow, we will have the inventory to meet their growing demands within HMBC.”
The abatements for qualified companies available through the Enhanced Enterprise Zone are based on investment and job creation.
“The EEZ is a game-changer for companies looking to locate in HMBC,” Mike Bell, Hunt Midwest’s vice president of commercial real estate, said in the release. “With the tax incentives offered, companies are benefiting greatly from substantial savings.”
With immediate proximity to FedEx and UPS hubs and a location that’s minutes from interstates 35, 29 and 70, HMBC also offers companies the ability to reach 85 percent of the U.S. market within two days while benefiting from one of the Midwest’s strongest labor pools.
“Hunt Midwest offers what we term the ‘three Ls’ of industrial real estate: location, logistics and labor,” Bell said in the release. “We are seeing a cluster effect of automotive, 3PL and e-commerce companies taking advantage of HMBC’s central location, strong workforce and direct access to public transportation.”
HMBC ultimately will include an additional 8 million square feet of master-planned, Class A warehouse and distribution space in future phases.
Serving as Hunt Midwest’s partner in the development is HSA Commercial Real Estate, a full-service firm specializing in office, industrial, retail and health care real estate leasing, management, marketing, development and financing. Besides developing and acquiring more than 50 million square feet of commercial real estate nationwide with a total value in excess of $2.5 billion, HSA Commercial Real Estate has represented owners and tenants in more than 10,000 transactions and manages a property portfolio in excess of 16 million square feet.
Stacey Meadwell – National and supplements editor, Estates Gazette
E-commerce, technology, shortage of land, urban logistics, autonomous vehicles, staff shortages, power… these and many other factors are increasingly influencing distribution warehouse design. But what will warehouse space look like in the future?
Large warehouses have already seen the introduction of mezzanines and there are more outlandish proposals for airborne or underwater distribution units out there.
Jonathan Compton, head of industrial and logistics strategy at CBRE, says: “For warehouses in urban areas, design features will be more innovative and dramatic as the solutions to overcome the ever-more acute reduction in available industrial land.
“Every day we read about another patented idea to solve the supply chain challenges. We have seen proposals for underground warehouses, multi-storey buildings, underwater solutions and airships that could hover at 45,000ft releasing drones for fast delivery.
“Ultimately, it will boil down to familiar issues such as overcoming congestion, reducing pollution and sourcing suitable land close to the chimney pots.”
Just 10 minutes outside Kansas is the world’s largest underground business complex. The SubTropolis is an industrial park housed in an excavated mine the size of 140 football fields.
The mining of 270m-year-old limestone deposits has created a dry, brightly lit facility, with miles of wide, paved streets accessible at street level. The removal of limestone over many years by the room and pillar method has created a space which could be purposebuilt for industrial.
The upshot is 6m sq ft of lettable space with more than 8m sq ft available for expansion. There are 8.2 miles of lighted, wide, paved roads, 2.1 miles of railway track and more than 500 truck dock locations.
The complex is home to more than 55 local, national and international businesses – from auto parts suppliers to data centres – with 1,700 employees.
And whether the requirement is for 10,000 or 1m sq ft, a tenant can be in their space within 150 days.
Such an idea could be coming to the UK soon, albeit on a much smaller scale. In the summer, Hounslow Council granted developer Formal Investments planning permission for a 2m sq ft underground warehouse on a site alongside The Parkway (A312) and Bath Road (A4) near Heathrow Airport.
The space above ground will be used as a park. The warehouse will sit beneath it in a style similar to the car park beneath Hyde Park, SW1. The development will be built in phases using the sealed top-down construction method, which was used to build the Shard, SE1.
It will take between seven and 10 years to complete the project.
The sky’s the limit
John Harcourt, head of property at Kajima, the UK arm of global property developer and investor Kajima Corporation, says that for urban areas and where demand for last-mile deliveries is high, a more innovative solution to warehouse design is required.
“The logical long-term solution is to build up like our Victorian forebears. While there are inevitably questions from investors and occupiers as to the practicalities of ulti-storey warehouses, most issues are simply a question of engineering. And it is infinitely more practical a solution to the last-mile problem than alternatives such as drone deliveries buzzing around an already busy London airspace.
“In the UK the conversation is around two-, three- or even four-storey buildings, but Kajima has developed multi-storey warehouses in Japan – particularly in Tokyo – for a number of years now; the tallest of which is seven storeys high. The sky really is the limit.”
The need for more power and the need to reduce the cost of that power will increasingly influence the design of industrial and distribution facilities.
Jonathan Compton, head of industrial and logistics strategy at CBRE, says: “We expect to see a greater emphasis on the reliance of available power at the regional distribution centres, particularly if autonomous and electrified HGVs become mainstream over the next decade.”
Ian Worboys, chief executive of pan-European logistics investor-developer P3, agrees: “I can see a time when warehouses will need to be their own powerhouses.
“While the availability of labour is one of the key drivers in logistics location decisions at present, as the level of automation and technology in warehouses increases, the availability of power is likely to become an increasing concern.
“The solution might be for logistics facilities to be built with photovoltaics on the roof, powering Tesla batteries that in turn charge driverless forklifts and delivery vehicles.”
In fact, IM Properties has made a move in that direction. It built a 69,000 sq ft warehouse in Birmingham with PV roof panels. The building, which Argos has leased and will move into at the end of the year, is electricity cost-neutral and could be the first of many.
A spokesman for IM Properties says once the site is operational it will collect the data, so it has evidence of the real-time benefits to take to the market.
Going underground: Kansas City’s caves provide high-quality home to Ceva and Virbac
Joseph Harvey – Animal Pharm
With two leading animal health companies taking their warehousing and distribution facilities underground, Animal Pharm editor Joseph Harvey visited SubTropolis in Kansas City to see how caves offer the quality and safety the firms need.
The word ‘cave’ is slightly misleading when describing the ‘world’s largest underground business complex’ – a trademarked slogan.
Built into a limestone mine, SubTropolis is far from being a cave.
“It’s a skyscraper on its side,” explains Michael Bell, vice president of Hunt Midwest’s industrial and commercial teams. “Sometimes it feels like being in a big office building.”
Hunt Midwest is a real estate firm based in Kansas City. It is also the owner of SubTropolis – a 55 million square-foot space developed by the previous American football team owner Lamar Hunt, who not only headed the Kansas City Chiefs but also founded the American Football League and Major League Soccer.
“In the 1940s the area was mined for construction materials and no-one ever thought about what it would be used for after,” Mr Bell told Animal Pharm. The ‘a-ha moment’ – ultimately the spark that created SubTropolis – came when construction equipment was kept in the caves over the winter, to great effect.
Companies like Ford and Pilsbury then began using the mines as a storage space in the 1960s. “With a drill and dynamite” the owners expanded the space by two miles, creating a potential home for new clients. Ford is still a SubTropolis tenant, along with other high-profile clients such as the US National Archives and Records Administration, and the country’s Postal Service.
The key characteristics of SubTropolis are its quality in terms of consistent product storage temperature, high standards of security and access to distribution infrastructure, such as interstates.
“The complex naturally breathes through its several entrances, and with 200 feet of limestone above this facility, it is naturally insulated and maintains a constant temperature of 70 degrees, so it’s sustainable,” added Mr Bell.
Around 90% of the US can be reached from SubTropolis in two days, said Mr Bell – hard evidence that not only is the Kansas City area a hub for animal health but also for logistics and distribution.
Ryan Tompkins, manager of sales and leasing at Hunt Midwest, said not only is the firm able to expand the available space at SubTropolis very quickly, it is also on the lookout for more animal health companies to become tenants.
While the complex offers some spaces on a month-to-month basis – more suited for smaller firms – Mr Bell said SubTropolis’ clients tend to be more long term “50,000 square-foot tenants and above”.
“KC is a unique city underground,” added Mr Bell. “Around 10% of the city’s industrial market is underground.”
Of the 20 million square feet of storage space available in Kansas City, 6.1 million square feet belongs to SubTropolis.
Ceva intent on consolidating in caves
Ceva Animal Health has been a SubTropolis tenant for almost four years. When it first became a client in 2013, the company consolidated its US warehousing capabilities at SubTropolis. This saw it bring together operations from Kansas City, St Louis and New Jersey in the caves.
During 2015, Ceva extended its available space in the complex and now has 14 people working across 90,000 square feet of SubTropolis. The company has the option to yet further grow its warehousing at the facility. Ceva aims to further consolidate its warehousing in SubTropolis by bringing its vaccines to the complex. The company’s vaccines are currently housed at another location in Kansas City.
Craig Wallace, chief executive of Ceva’s North American and Pacific businesses, highlighted other key selling points of SubTropolis. He noted the access to the four nearby interstates as a significant boost to the delivery of products to Ceva’s distributors in all directions across the US.
Mr Wallace also pointed out the underground nature of the complex is perfect for security against theft, vandalism and severe weather.
“You don’t have to worry about the quality of storage here,” Mr Wallace told Animal Pharm. “There’s no weather problems down here. I’ve seen warehouse issues where products have been damaged by the weather before. That just can’t happen here.”
He also said the facility is recognized by leading regulatory authorities: “When we’re talking to the FDA, USDA or EPA, they’re all familiar with the facility. That’s a huge help.”
Virbac set to become tenants
Soon to join Ceva as a SubTropolis neighbor, is another North American business of a French animal health company – Virbac.
The firm is currently in the process of moving its warehousing and distribution from St Louis to the underground complex. Like Ceva, Virbac is also going through a consolidation process for its warehousing. This move will bring together operations from St Louis, St Joseph and Fort Worth. In time, Virbac intends to house all of its product lines in SubTropolis.
The company will take up 150,000 square feet of the complex, where it initially expects to employ around 10 people. Virbac is currently staffing these roles and conducting training – the move will come when Virbac gains approval from the Missouri Pharmacy Board later this year.
Paul Hays, the company’s president and chief executive of North American operations, told Animal Pharm: “Kansas City was the right fit. This facility is at the epicentre of the animal health corridor and from a GMP point-of-view, we are able to store products at a constant temperature, which is perfect. It’s cost efficient and disaster recovery is good here too.”
Mr Hays has in fact worked in SubTropolis before, when he was previously with Coopers Animal Health in the late 1980s.
SubTropolis by numbers
A total workforce of approximately 1,700 are employed in SubTropolis. They belong to a roster of 55 companies.
It features 6.5 miles of lighted and paved roads, as well as over 400 truck dock locations.
SubTropolis is built in limestone that is 270 million years old.
The strength of the limestone is 18,000-24,000 pounds per square inch, which makes it six times sturdier than concrete.
Despite being a cave, flooding is not a risk at SubTropolis – it is 12 feet above the 500-year flood plain.