DST Systems, Inc. Kansas City, Missouri Project Type: Commercial/Industrial Case No: C034013 Year: 2004 SUMMARY Across 20 square blocks on downtown Kansas City's west side, DST Systems developed an urban corporate campus that includes 38 buildings, 2.3 million square feet (213,670 square meters) of office space, and 7,495 parking spaces. Through a combination of historic rehabilitation and infill development, DST has created high-quality office space that accommodates the company's high-tech needs. Key to project development was the incorporation of adequate parking for DST employees, which is also available for other nearby uses. DST also set aside 30 percent of its tax increment financing revenues to encourage other area property and business owners to invest in streetscape and facade improvements. FEATURES Strategic redevelopment to achieve an urban corporate campus Use of tax increment financing to support neighborhood improvements, including additional parking and streetscape improvements Urban infill Renovation of historic structures to meet technology and office needs Inclusion of parking structures to provide necessary parking for office workers
DST Systems, Inc. Kansas City, Missouri Project Type: Commercial/Industrial Subcategory: Office Buildings Volume 34 Number 13 July September 2004 Case Number: C034013 PROJECT TYPE Across 20 square blocks on downtown Kansas City s west side, DST Systems developed an urban corporate campus that includes 38 buildings, 2.3 million square feet (213,670 square meters) of office space, and 7,495 parking spaces. Through a combination of historic rehabilitation and infill development, DST has created high-quality office space that accommodates the company s high-tech needs. Key to project development was the incorporation of adequate parking for DST employees, which is also available for other nearby uses. DST also set aside 30 percent of its tax increment financing revenues to encourage other area property and business owners to invest in streetscape and facade improvements. SPECIAL FEATURES DEVELOPER Strategic redevelopment to achieve an urban corporate campus Use of tax increment financing to support neighborhood improvements, including additional parking and streetscape improvements Urban infill Renovation of historic structures to meet technology and office needs Inclusion of parking structures to provide necessary parking for office workers DST Realty, Inc. 333 West 11th Street, Suite 101 Kansas City, Missouri 64105-1639 816-435-6403 Fax: 816-435-8210 www.dstsystems.com OWNER/DEVELOPER (Block 35 Building) Penn Seven, LLC 333 West 11th Street, Suite 101 Kansas City, Missouri 64105-1639 816-435-8260 Fax: 816-435-8210 PROJECT MANAGER MC Lioness Realty Group, LLC 114 West 11th Street, Suite 200 Kansas City, Missouri 64105 816-843-1054 Fax: 816-421-8049 ARCHITECT BNIM/CDFM2 1015 Central Kansas City, Missouri 64105 816-472-2000 Fax: 816-471-4362
STRUCTURAL ENGINEER Structural Engineering Associates (Block 35 Tower I and Tower II) 101 West 11th Street, Suite 200 Kansas City, Missouri 64105 816-421-1042 Fax: 816-421-1061 Bob D. Campbell & Company (Poindexter Building) 4338 Belleview Kansas City, Missouri 64111 816-531-4144 Fax: 816-531-8572 MECHANICAL/ELECTRICAL ENGINEER Gibbens Drake Scott (Block 35 Tower I and Poindexter Building) 9201 East 63rd Street, Suite 100 Raytown, Missouri 64133 816-358-1790 Fax: 816-358-2367 Lankford + Associates (Block 35 Tower II) 1730 Walnut Street Kansas City, Missouri 64108 816-221-1411 Fax: 816-221-1429 GENERAL CONTRACTOR JE Dunn Construction Company (Block 35 Tower I and Tower II) 929 Holmes Kansas City, Missouri 64106 816-474-8600 Fax: 816-391-2510 CIVIL ENGINEER Shafer Kline & Warren (Block 35 Tower I) 11100 West 91st Street Overland Park, Kansas 66214 913-888-7800 Fax: 913-888-7868 Taliaferro & Browne (Block 35 Tower II) 818 Grand Boulevard, Suite 1000 Kansas City, Missouri 64106 816-283-3456 Fax: 816-283-0810
GENERAL DESCRIPTION Across the west side of downtown Kansas City an unmistakable revitalization is taking place. Historic buildings such as the Poindexter Building, a 250,000-square-foot (23,225-square-meter) warehouse once occupied by a dry-goods company, have been redeveloped and equipped to handle high-tech computer operations. New office buildings like Block 35, a two-tower 366,985-square-foot (34,093-square-meter) office complex developed for State Street Bank (a financial services firm), occupy previously derelict or vacant properties. New parking decks accommodate the demand for adequate parking by office workers commuting from the suburbs. The new and old buildings are connected by redesigned and active streetscapes. A majority of this activity was spurred by DST Systems, a $2.3 billion financial services firm that provides information and computer software services to the mutual fund industry, corporations, banks, and insurance companies. DST s investment has attracted other businesses and encouraged existing property owners to improve their properties. DST embarked on its downtown location strategy in the 1980s. While the company also has operations outside of downtown to accommodate its data center, DST located its headquarters and primary office operations on downtown s west side. Early on, DST knew that any office development must meet its need for high-speed technology, to provide always-on-demand services to clients and to attract suburban employees. DST learned a lot about what type of buildings would help meet these criteria when it acquired its first large office space in 1982. Initially, the historic Insurance Exchange Building s downtown location seemed appropriate, but limited parking and truck access and a small floor plate restricted the efficiency of work completed at the location. Now, whether DST is considering historic renovation or creating new structures, it considers the size of the floor plate, building accessibility, and the ability to incorporate nearby parking. SITE DESCRIPTION During the late 1970s and early 1980s, many companies preferred suburban office park locations to downtown locations due to the latter s high rents, limited parking, and high crime rates. On Kansas City s west side, which would eventually become the focus of DST s development plans, decaying historic buildings and abandoned properties dominated the landscape. For some this might have been a deterrent, but DST saw an opportunity to help revitalize the area and create unique office space that met the company s technological, space, and employee needs. The area s lower land costs, connection to the interstate highway system, and location on the northern edge of Kansas City s central business district, combined with DST s corporate heritage of community commitment (as an offshoot of the Kansas City Southern Industries, owner of Kansas City Southern Railway), led DST to purchase its first building in 1982 as well as to encourage others to invest in the area. Revitalization of the west side, once a prosperous area, also provided an opportunity to acknowledge the area s importance to Kansas City s history. Many of Kansas City s distinguished residents lived on the west side in the fashionable neighborhood of Quality Hill, located on a bluff overlooking the Missouri River to the north. As the nearby stockyard and railroad line developed, the neighborhood began to decline. The Garment District, located on the eastern edge of the DST redevelopment area, was the center of the Midwest s retail commerce after World War I. However, its prominence declined as demand and trade policies changed. While revitalization has taken time, the western quadrant of downtown Kansas City is experiencing a revival. Redevelopment of the Poindexter Building, located in the Garment District, and development of Block 35, sited on the bluff overlooking the confluence of the Missouri and Kansas rivers, illustrate the range of development undertaken by DST and how it is spurring other investment in the area. Built in 1901, the Poindexter Building is an eight-story Second Renaissance Revival warehouse that housed the Burnham-Hanna-Munger Dry Goods Company. Because the Poindexter Building is strategically located near other DST holdings, rehabilitation of the brick and timber structure acts as a link between other buildings in DST s urban corporate campus. Development of Block 35 represents a major investment in Kansas City s west side. Consisting of two newly constructed office towers containing a combined 366,000 square feet (34,001 square meters) and a 1,200-space parking garage on 3.5 acres (1.42 hectares) over two city blocks, State Street Bank, one of DST s partners, occupies the office space. Its location in the northwest side of the central business district provides easy access to streets and highways into and out of the downtown area. PLANNING AND DEVELOPMENT PROCESS DST s space needs started modestly, but as the company s business quickly grew, its need for office space increased dramatically. Decisions made during the 1980s still guide the firm s real estate projects. First, the company decided to develop and own its office buildings. In the financial services industry, clients demand secure and always available information. By developing its own office space instead of leasing or depending on others to create the space, DST
controlled the quality and was able to procure redundant building systems to prevent systems failures that could damage core business functions. Instead of creating a corporate master plan that called for a centralized corporate campus, DST decided to purchase well-sited and reasonably priced properties as they became available across the west side. At the time, it was difficult to project the company s future space needs. There also was concern that if a long-term development plan was developed, uncertainty and delays in implementing the plan would depress and delay the rehabilitation of properties around DST offices. Corporate leadership felt that a strategy of developing office space based on need across the target area would spur a mix of uses and allow DST to focus on its core business. This approach has proven successful. New businesses catering to downtown employees are now located around DST s offices. And with the help of the Downtown Council of Kansas City, over 1,271 housing units (many of them loft units) have been developed in the Quality Hill and Garment District neighborhoods, creating an active community where DST employees can live and work. Knitting together an urban corporate campus required DST to undertake both new construction and rehabilitation projects. Initially, the costs and regulations associated with historic rehabilitations and the general lack of parking near these structures caused the firm to shy away from redeveloping historic properties. But to revitalize the area and connect DST properties, the company expanded the scope of its expertise to include renovation of several historic buildings and warehouses in the Garment District. POINDEXTER BUILDING The turn-of-the-century Poindexter Building, vacant at the time of purchase, represents one of the major historic renovation projects completed by DST. The completed restoration consists of 250,000 square feet (23,225 square meters) of office space on eight floors and a new six-level, 1,100-space parking garage located in the adjacent block. The project included the rehabilitation and integration of the adjoining Gatlin Building, also a renaissance revival warehouse, to serve as an entrance tower for the Poindexter Building. An important aspect of the Poindexter Building is its open floor plan, which accommodates DST s data processing operations. These operations are best suited for a building with a large, open floor plate. The floor plan easily accommodates standardized office systems, furniture, and equipment. The Poindexter floors, containing 30,000 square feet (2,787 square meters), are optimally efficient, striking a balance between long travel distances within a single floor and frequent elevator usage between floors. Installation of raised flooring enabled all electrical and telecom service to serve workstations from the floor rather than the ceiling. It also allowed the building s wood beams along the ceiling to remain exposed, functioning as an important architectural element. Redevelopment of the Poindexter Building required the addition of modern elevators as the building had one freight elevator and no passenger elevators. In order to create a suitable entrance to the building, preserve the open floor plan, and still provide the needed elevator access, the adjoining Gatlin Building was converted into the entrance for both buildings. Because the floors in the Gatlin Building did not match up with the floors in the Poindexter Building, the floors in the middle bay of the Gatlin were removed and later reconstructed to be level with the Poindexter floors. Elevators and restrooms were installed in the Gatlin Building to serve both buildings. The Gatlin also houses a series of conference and break rooms. Rehabilitation of the building preserved many distinctive architectural details, including stone lion heads, terra-cotta bands, and pressed copper cornices. The Poindexter s heavy timber construction includes large columns and high ceilings. One of the Poindexter s most noteworthy features is the massive columns that decrease in circumference on the upper floors. On the lower floors, the columns are made of precast iron that has been clad with plaster. The columns are topped with Corinthian capitals. Six-foot (1.83-meter) cast-iron beveled glass light fixtures flank the Poindexter s original arched entry at Eighth Street and Broadway. Innovative lighting design and furniture layout plans add "off the grid" interest to circulation patterns on each floor. Unlike most building systems where workstation furniture is installed in a grid pattern that echoes the shape of the building, the Poindexter s furniture has been laid out on the diagonal, so that workstation alignment and major "arterial" paths are at an angle to the perimeter walls and the building floor plan grid. As a result, the workstation clusters and the corners and ends of corridor spaces can be used as "neighborhood" conversation areas much like the water coolers of yesteryear. The high, unfinished ceilings lend a sense of period architecture to the now functionally modern offices. The building also contains a diesel generator to supply uninterruptible power to the building s computers. The solid timber, exposed brick walls, and open floor plan provide a contrasting environment for DST s most advanced software programming functions. Providing parking in densely developed urban locations is both a key component of DST s development strategy and a challenge. With the Poindexter Building, DST worked to creatively assemble two land parcels, as there was no single site available on which to build a parking structure. To acquire the first portion of the Poindexter garage site, DST bought a three-story building that was owned by and housed a retail luggage business. As part of the purchase agreement, DST bought another building in the neighborhood to which the property owner s retail luggage business was relocated. After the luggage business was relocated, the three-story building was demolished to make way for the Poindexter garage. Acquisition of the second parcel required purchasing an adjoining surface parking lot owned by a
nearby restaurant. In the negotiations with the restaurant owner, who also was concerned about parking, DST agreed to purchase the parking lot next to the restaurant and transfer ownership to the restaurant owner in exchange for the second garage parcel. Because of the historic nature of the surrounding buildings, the design of the Poindexter garage was an important consideration. The capacity of the garage was decreased so that a recessed plaza could be incorporated. The outside of the garage also features art celebrating Kansas City s Avenue of the Arts along Central Street. BLOCK 35 As in the development of the Poindexter garage, patience and creative negotiation played important roles in the planning and development of Block 35, a new construction project. Development of the project took place over nine years, starting in June 1993 when DST Realty optioned a substantial portion of one half of the block where Block 35 s five-story Tower I is now located and ending with completion of Tower II in November 2002. Much of the time spent developing Block 35 was dedicated to assembling the site by negotiating with the seven different land owners. Early on in the process, DST acquired the west half of the block that was vacant except for a burned-out house and a concrete slab. The eastern half of the site was occupied by a derelict three-story apartment building and several gravel parking lots. DST called upon the Kansas City Tax Increment Financing Commission to exercise its powers of eminent domain to remove blight and complete the assembly of the site. This is one of two times DST has worked with the city to condemn a property. According to the developer, condemnation was used as a last resort. Working with landowners and using creative negotiation, while often time consuming, are preferable strategies to the uncertainties of price and time associated with condemnation proceedings. Construction of the six-story Tower II started soon after DST acquired the last 12,000-square-foot (1,115-square-meter) parcel through condemnation in March 1999. One of the more interesting aspects of Block 35 is that it preserves an underground, abandoned rail tunnel that bisected the site. At the turn of the 20th century, an elevated streetcar connected the high ground of the city center with the West Bottoms Industrial District, which was the hub of the rail yards and packing plants. The incline descended through a tunnel underneath the Block 35 site before reaching a trestle that carried the tracts downhill. Because the tunnel was in good condition, DST worked with the local preservation community to preserve this part of Kansas City s history by building the 1,200-space parking garage around the tunnel. The creation of DST Realty in 1982 enabled the company to embark on more complicated projects such as Poindexter and Block 35 and to strategically plan the growth of the DST Corporate Campus. In an expansion of its original scope, DST Realty also handles development projects for other financial services firms and DST subsidiaries, and is also involved in the planning and development of other strategic community projects. One example of DST Realty s involvement in local community building is the development of the not-for-profit campus that houses several nonprofit organizations including the American Cancer Society, the United Way, the YMCA, and the YWCA. The campus provides a central, affordable, high-quality place for nonprofit groups to better serve the surrounding community. Another example is DST s involvement and investment as one-third owner in the renovation of and addition to Marriott Muehlebach Hotel. The expansion to 983 guest rooms helped the city fill its need for a convention-size hotel located near the convention center. In addition to these projects, DST has worked to keep other businesses actively engaged in improving the west side. The company coordinated the creation of the Downtown Community Improvement District and works with the area s condominium associations. According to the developer, being a participant in community efforts helps strengthen DST s ties to the community. FINANCING Much of the financing for DST s projects comes from a combination of private and public sources. For both the Poindexter Building and Block 35, local banks provided construction financing and conventional mortgages were issued at the completion of the projects. Outside investors also contributed to project development. Depending on the size of the development and whether it plans to fully occupy the property, DST may wholly or jointly own a project. While DST is the sole occupant of the Poindexter, the building is held in partnership with Financial Holding Company, an investor in several of DST s downtown properties. Block 35 is held in partnership through Penn Seven, a partnership among DST, State Street Bank (the sole occupant of Block 35), and another private investor. Without public financing, rehabilitating historic properties and adding adequate parking would have been more costly and difficult. DST worked with the U.S. Department of the Interior and the Missouri State Historic Preservation Office to receive 20 percent federal government historic tax credits and 25 percent state historic tax credits to cover qualified rehabilitation costs for the Poindexter renovation. The availability of public economic development incentives for urban infrastructure elements including parking garages played an important role in DST s ability to locate on the west side. The company used Missouri s tax increment financing (TIF) legislation, adopted in 1992, to construct streetscape improvements and parking structures such as the Poindexter parking garage and the Block 35 parking facility. Missouri s TIF program allows developers to use the increased real estate tax revenue and economic activity taxes (utility, sales, and earning taxes) derived from
new development located in a TIF district to pay for project costs. Soon after the passage of the legislation, DST worked closely with public officials to form a TIF district in the Eleventh Street Corridor Redevelopment Area. DST used the TIF revenue to offset the higher cost of locating on center-city land, where it is often difficult to generate sufficient revenue to pay for parking structure development. In keeping with its commitment to revitalizing the area and encouraging outside investment, DST formed the Neighborhood Improvement Fund (NIF). Using 30 percent of the economic activity taxes generated from new development in the Eleventh Street Corridor Redevelopment Area, NIF provides matching grants to property owners making facade and streetscape improvements. On an annual basis, a committee of local property owners and local officials reviews and awards the improvement grants. During the six years of grant making, $2.5 million in matching grants have leveraged project investment in excess of $20 million for projects such as installing new glass storefronts on retail businesses, improving sidewalks, and restoring building exteriors. This program, which enables small property owners to access TIF funding that can be too cumbersome to attain otherwise, has become a model used by other developers in Kansas City. TENANTS AND MANAGEMENT Initially, DST developed buildings to house its own business operations. As DST Realty, the firm s real estate group, became more adept at putting together projects, it expanded and began creating office spaces to accommodate other financial industry partners and DST subsidiaries. Projects included redevelopment of the Hereford Building, a 131,459-square-foot (12,213-square-meter) building that previously housed the American Polled Hereford Association, to fit the needs of an architecture firm and the newly constructed 129,775-square-foot (12,056-square-meter) Cathedral Square that houses the new headquarters of Kansas City Southern Industries. Because financial services operations require services and information that are always reliable and available, DST believes it is important to be involved with building management. However, the company did not want to take on the full responsibility of running daily operations. To accomplish this goal, it maintains a one-third investment interest in MC Lioness Realty Group, which provides property management services to all of DST s buildings. The group provides maintenance 24 hours a day, seven days a week and maintains redundant services such as backup electrical power to prevent interruption and delays in services that could interfere with DST s ability to provide effective service to its financial clients. EXPERIENCE GAINED The creation of an urban corporate campus was achieved through project development on an as-needed basis, careful and patient site assembly over a period of years, and strategic project and infrastructure development to link existing DST properties. This strategy has resulted in a dynamic revitalization process. By adopting an ad hoc approach to development and encouraging others to invest in the west side, DST has largely contributed to revitalization of the area, but along the way it has also encountered and overcome many challenges. The developers note that site assembly is the most difficult part of urban development. In addition to purchasing land as parcels become available, patience and creative negotiation play an important role in assembling sites for new construction projects. DST is committed to improving downtown Kansas City as illustrated by its decision to locate in downtown and its involvement in other public benefit developments such as the not-for-profit campus. This commitment, however, requires balancing of neighborhood revitalization and business goals. It takes time, effort, and constant communication with the public sector, local businesses, and property owners to form the necessary community partnerships to ensure ongoing revitalization activities and investment. Tax increment financing set aside for the Neighborhood Improvement Fund provided another means to encourage local businesses and property owners to invest in the west side. Central to DST s development plan was the creation of an accessible place where employees would want to work. Locating in a dynamic and safe environment is one part of the equation, but adequate parking must also be available. The developer emphasizes that a parking solution must be found for every project in downtown. Economic development incentives, such as TIF, are important tools that have allowed DST to create the necessary parking to support downtown office buildings. The combination of public and private reinvestment shores up the values of surrounding properties and returns redeveloped properties to the tax rolls at greatly increased assessed values. Older, turn-of-the-century buildings can be successfully rehabilitated and converted into modern, state-of-the-art facilities. The Poindexter Building features many historic architectural elements while housing many of DST s advanced programming functions for client software support.
Poindexter Building PROJECT DATA LAND USE INFORMATION Site area (acres/hectares): 0.95/0.38 Gross building area (square feet/square meters): 265,000/24,619 Net rentable area (square feet/square meters): 252,750/23,481 Building height: 8 floors Floor/area ratio: 6.11 Total parking spaces: 1,000 spaces in adjacent under- and above-ground garage LAND USE PLAN Use Area (Acres/Hectares) Buildings 0.83/0.33 Paved areas (surface parking/roads) N/A Landscaped areas 0.12/0.05 Total 0.95/0.38 OFFICE INFORMATION Net rentable area occupied: 100 percent Number of tenants: 3 Average tenant size (square feet/square meters): 126,375/11,740 Largest tenant size (square feet/square meters): 158,450/14,720 Length of leases: 5 to 20 years Typical term of lease: Full-service DEVELOPMENT COST INFORMATION Site Acquisition Costs: $3,160,000 Site Improvement Costs: $589,118 Curbs/sidewalks: $390,476 Landscaping/irrigation: $150,000 Fees/general conditions: $48,642 Construction Costs: $11,659,911 Superstructure: $5,197,980 HVAC: $1,803,170 Electrical: $1,355,771 Plumbing/sprinklers: $571,714 Elevators: $606,890 Fees/general conditions: $1,053,765 Finishes: $1,053,470 Graphic specialties: $17,151 Soft Costs: $2,343,996 Architecture/engineering: $575,000 Construction interest: $700,000 Project management: $582,996 Environmental remediation: $486,000 Total Development Cost: $17,753,025 Annual Operating Expenses: $1,797,846 Taxes: $49,452 Insurance: $27,960 Security: $278,387 Repair and maintenance: $220,583 Janitorial: $390,127 Utilities: $468,961 Management fee: $126,372 Operating Costs (per square foot/square meter): $7.11/$75.11 DEVELOPMENT SCHEDULE Site purchased: 1995 Planning started: 1995 Construction started: July 1995 Project completed: December 1996 DIRECTIONS From Kansas City International Airport: Take US-71 South/I-29 South toward Kansas City. Take 169 over Broadway Bridge to Ninth Street. The Poindexter Building is located at the corner of Ninth Street and Broadway.
DIRECTIONS From Kansas City International Airport: Take LP Cookingham Drive to US-71 S/I-29 South toward Kansas City. Merge onto US-169 South via exit number 2B toward Kansas City. Make a light right onto Broadway Boulevard/US-169 North and follow Broadway Boulevard. Turn right onto West Seventh Street, turn left onto Pennsylvania Avenue to 801 Pennsylvania Avenue. Driving time: Approximately 23 minutes in nonpeak traffic. Laura Million, report author Julie D. Stern, interim editor, Development Case Studies Jason Scully, editor, Development Case Studies David James Rose, copy editor Joanne Nanez, online production manager This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI the Urban Land Institute. Copyright 2004 by ULI the Urban Land Institute 1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington D.C. 20007-5201
One of the 38 buildings that make up DST Systems? downtown Kansas City corporate campus, Block 35 consists of two newly constructed office towers containing 366,000 square feet (34,001 square meters) of space and a 1,200-space parking garage. This project alone takes up 3.5 acres (1.42 hectares) or about two city blocks.
Block 35 includes a 1,200-space parking garage. Incorporating nearby parking is equally important for both renovation and new construction projects.
plan, Block 35.
The poindexter Building is actually two rehabilitated historic structures joined together internally. A new, formal entrance helps to tie the two previously separate buildings together.
During the 1920s, the historic poindexter Building served as a warehouse for a dry goods company in the center of Kansas City?s once bustling Garment District.
The renovated poindexter Building now accommodates DST Systems? most advanced software programming functions while maintaining the building?s turn-of-the-century architectural character.
plan, poindexter Building.