A new generation of huge distribution centers is sprouting from the fields of far southwest Johnson County along the Interstate 35 corridor, confirming Kansas City’s arrival as a major national logistical hub.
Attracted by anticipation of the new BNSF Intermodal facility scheduled to open this fall in Edgerton, these behemoths, longer and wider than the Navy’s largest super-carriers and blandly referred to as Class A bulk space, bear little resemblance to old-fashioned warehouses.
With floors spanning more than a dozen basketball courts and shelves three stories tall, these buildings can swallow vast amounts of products hauled in containers by rail from Pacific ports and then ship orders by truck to 80 percent of the country’s population within two days.
“We haven’t had this kind of product for a significant amount of time,” said Joseph S. Accurso, a principal at Kessinger/Hunter & Co. “We kept hearing Kansas City was the next ring after Chicago, Dallas, Indianapolis, Los Angeles and Memphis.”
Now, increased congestion and costs in those cities mean its Kansas City’s turn to land national companies seeking to consolidate their logistic operations or new Internet-based firms looking for a central location to process and ship orders.
Over the past 10 years, the amount of bulk warehouses in the area, defined as buildings bigger than 200,000 square feet with at least 28-foot ceilings, has grown 47.5 percent, from 13.1 million square feet to 19.4 million square feet last year, according to Cassidy Turley commercial real estate services.
And that bulk space is expected to more than double over the next 10 years with the developments already announced. The biggest is the more than 8 million square feet of buildings expected in the first phase of the new BNSF Intermodal center.
The first project at the BNSF complex is expected to break ground next month, a 500,000-square-foot speculative distribution center, according to Richard Allen, CEO of the San Diego-based Allen Group.
“The interest is peaking as the Intermodal development nears completion,” he said.
The Allen Group, which has offices throughout the United States, is negotiating a deal with NorthPoint Development, a Kansas City firm, to partner in developing the distribution side of the BNSF Intermodal center.
“We are merging our operations with NorthPoint,” Richard Allen said. “NorthPoint would be the lead developer, and we’d continue to be involved with the project as partners.”
The 443-acre Intermodal center being developed by BNSF will be able to unload a half-million containers annually to start and is expandable to 1.5 million per year.
In comparison, the current BNSF Intermodal at its Argentine yard in Kansas City, Kan., was designed for 285,000 containers and actually handled 330,000 last year.
And the BNSF Intermodal facility already has attracted its first tenant, a Wisconsin exporter who plans to refill those empty containers with grain and feed, and ship them back overseas.
The exporter, DeLong Co. Inc., is planning to start work next month on a $7.5 million operation that will include facilities to store the grain and load the containers. said Bill DeLong, co-owner and vice president of grain operations. About a dozen jobs will be created.
The I-35 corridor in southwest Johnson County may be the hottest area right now for mega-warehouse development, but it’s not the only one.
Other major developments include KCI Intermodal Business Centre near the airport and CenterPoint-Kansas City Southern Intermodal Center at the former Richards-Gebaur Airport. Smaller warehouse projects also are being developed in Riverside and Lenexa.
The newest building to go up is a 821,663-square-foot speculative warehouse built by Kessinger/Hunter at its I-35 Logistics Park near 155th Street and old U.S. 56 in Olathe.
It’s the first of three such monsters planned for the 200-acre development seven miles north of the BNSF Intermodal center.
It has 36-foot ceilings, loading docks on each side and a floor covering more than 14 football fields. At 1,445 feet, it’s longer than a Nimitz-class aircraft carrier, the biggest warship afloat, and it encloses 29.6 million cubic feet, the volume of more than four Hindenburg dirigibles, the huge airship that crashed in flames in 1937.
And the new Kessinger/Hunter building, which will rent for $3.95 per square foot, is not the largest.
A 1.1 million-square-foot distribution center opened in 2010 for the Coleman Co. outdoor goods firm at Midwest Commerce Center, developed by LS Commercial Real Estate of Overland Park, also near I-35 and old U.S. 56.
And Kessinger/Hunter, with the deep-pocket backing of Sun Life Assurance of Canada, is planning to build a 1.1 million-square-foot building and 919,000-square-foot building in future phases at its I-35 Logistics Park.
Dan Jensen, a principal at Kessinger/Hunter, said there had been a substantial shift in how companies viewed logistics, the method of transporting and storing goods. They’ve discovered it doesn’t take much more to operate a 500,000-square-foot building than a 100,000-square-foot version.
“More sophisticated companies realize their supply line and distribution operation is a profit center,” he said. “There are also more inland ports served by long-haul trains and short-haul via trucks.
“The trend is consolidation of facilities and getting into the Midwest in particular. Another thing that’s powering buildings is e-commerce. Fewer retail stores are needed, because people browse and then order online.”
Paul Licausi, president of LS Commercial, said his firm was planning a 500,000-square-foot distribution center at Midwest Commerce Center in 2008 when the opportunity to double its size for Coleman came up.
His decision to develop a mega-distribution center was in response to what was occurring in other parts of the country.
“I could see the trend was for larger footprints for distribution centers,” Licausi said.
Now, with the success of the Coleman deal, LS Commercial is planning another big project or two for its 155-acre Midwest Commerce Center, possibly a 500,000-square-foot building that could be under way before the end of the year, Licausi said.
Besides Coleman, some of the bigger deals over the past few years include PacSun, 420,000 square feet; PureFishing, 400,000 square feet; Musicians’ Friend, 720,000 square feet; and FedEx SmartPost, 350,000 square feet.
Chris Gutierrez, president of Kansas City SmartPort, a part of the Kansas City Area Development Council, said the area’s central location and excellent access by major railroads and interstate highways made it appealing to the distribution industry.
“We’ve always been a transportation hub from way back to the first bridge over the Missouri River,” he said.
“We are becoming a national hub because we don’t have the congestion, labor and other problems in traditional distribution markets like Chicago, Memphis and Dallas.”
Regulatory changes in the trucking industry that have affected the number of hours that drivers can be on the road have encouraged greater cooperation between railroads and trucking companies, Gutierrez said.
Kansas City already is the nation’s largest rail center by tonnage. By hauling containers here by train from Pacific ports, the distance required to truck the goods to their final destination is shortened greatly.
“The intermodal growth is about rail to truck,” he said. “A lot of companies are moving their international and domestic freight to the internal part of the country.”
The other major factor in the growth of the distribution industry is the rapid rise of e-commerce. As retailers sell more of their products online, the demand is increasing for big places where it can be stored and shipped quickly to customers.
Last year, Zumiez, a retail company that caters to the clothing and equipment needs of young adults who like skateboarding, surfing and snowboarding, moved its e-commerce distribution operation from Everett, Wash., to Edwardsville. The firm leased 153,000 square feet, and the move created 150 jobs.
Guiterrez also said J.C. Penney has been shifting its 1.7 million-square-foot distribution center in Lenexa that opened in 1977 as a catalog fulfillment operation to e-commerce.
Though they’re large in size, the number of jobs created at the new distribution centers is relatively small — four or five workers per 10,000 square feet. Starting pay runs $11 to $12 an hour, with full benefits and opportunities for promotion.
“Some of these facilities don’t need a lot of labor,” Guiterrez said, “but some of the Amazon-type deals can be 1 million square feet with 1,000 employees.”
For many years, Kansas City was handicapped by its lack of available buildings when companies were hunting for major blocks of space.
That began changing in 2008 when Jensen and Kessinger/Hunter, with the financial backing of Sun Life, built a 600,000-square-foot speculative building at 167th Street and Lone Elm Road.
The building was completed in 2009 and fully leased two years later. FedEx SmartPort occupied 350,000 square feet, and Bushnell Inc., a manufacturer of optical and outdoor products, leased the rest.
These huge distribution structures aren’t sophisticated when it comes to design and comfort. There is no air conditioning or central heat in the cavernous storage areas, and the office areas are carved out of a fraction of the building.
During summer, warm air rises to the high ceilings, and circulation is generated by big exhaust fans and ceiling fans the size of helicopter rotors. Space heaters the size of small cars are scattered throughout the interior for warmth during the winter.
Still, it costs about $24 million to build a half-million-square-foot distribution center, and Jensen said it helps to have a partner such as Sun Life to reduce the financial risk of building a speculative project.
The projects also gobble up large amounts of land. The 821,663-square-foot building just completed by Kessinger/Hunter occupies 48 acres including parking and truck aprons.
“It’s a challenge to find sites that are large enough,” Jensen said. “The city of Olathe had the foresight to run utilities to the area.”
Kansas also is building a new I-35 interchange at Homestead Lane that will provide access to both the BNSF Intermodal complex and the other distribution center parks in its vicinity. In addition, a new sewage treatment plant is being built.
All three endeavors — the BNSF Intermodal, highway interchange and sewage plant — are scheduled to open this fall.
“We’re trying to market the fact we fit the new model for logistics in our area, because we have the infrastructure, transportation and utilities,” said Tom Riederer, president of the Southwest Johnson County Economic Development Corp.
Progress has been slower at other locations in the area that have been designated for bulk distribution centers.
At the KCI Intermodal center, one building has gone up so far, a 349,440-square-foot distribution center built for Blount International and finished last year. The 686-acre site is being being developed by Trammell Crow Co. and Clarion Partners.
Brian Staton of CBRE, the commercial real estate firm working with the developers, said approvals were being sought for the next project, a 320,320-square-foot distribution building. The first phase of the development calls for 1 million square feet of buildings.
On the south edge of Kansas City, the 970-acre CenterPoint-KCS Intermodal Center has yet to break ground on a project. Mark Long, a principal at Zimmer Real Estate, which is assisting the development, expects construction on a speculative distribution building to begin before the end of the year.
CenterPoint, a Chicago company with experience developing intermodal facilities, has been preoccupied until recently building the 1.5 million-square-foot replacement for the nuclear weapons parts plant operated by Honeywell Federal Manufacturing & Technologies for the federal government.
The new National Security Campus is directly across Missouri 150 from the CenterPoint-KCS Intermodal Center and is expected to be a draw for potential tenants in that project.
Though the mega-distribution centers have been capturing most of the attention in the Kansas City economic development world, developments geared toward smaller users are moving forward as well.
The Lenexa City Council recently approved a preliminary plan for the 120-acre Lenexa Logistics Centre being developed by Block Real Estate Services at College Boulevard and Renner Road.
Lou Serrone, director of brokerage operations at Block, said his firm ultimately wanted to develop four distribution buildings in the 170,000- to 260,000-square-foot range along with five smaller office and distribution buildings.
In Riverside, NorthPoint Development is building Horizons Industrial Park. Its first 155,000-square-foot speculative building was completed a year ago and is now 80 percent leased, said Nathaniel Hagedorn, president and CEO of NorthPoint.
Work is under way on a second building with 170,000 square feet of space, and the master plan for the 260-acre industrial park at Interstate 635 and Missouri 9 calls for 3 million square feet total.
Hagedorn said his market was smaller and medium-size firms serving the metropolitan area.
“We’re serving the central core of Kansas City, an area that hasn’t seen quality, Class A product,” he said.
Now with NorthPoint poised to become the lead developer at the BNSF project, Hagedorn said the entire community would benefit by the big investment being made by the railroad.
“This is the state-of-the-art intermodal facility in the country, and it’s right here in Kansas City,” he said.
“It will open new markets for larger users to come here, and Kansas City is blessed to have this facility.”