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Banking on KC – Ora Reynolds

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Click here to listen now, or read the transcript below:

 

Kelly Scanlon:

Welcome to Banking on KC. I'm your host Kelly Scanlon. Thank you for joining us. With us on this episode is Ora Reynolds, the president of Hunt Midwest. Welcome, Ora.

Ora Reynolds:

Thank you, Kelly. Glad to be here.

Kelly Scanlon:

Hunt Midwest, as its name implies, it's part of the Lamar Hunt family real estate portfolio. So tell us about some of the sectors that you're most involved with.

Ora Reynolds:

Hunt Midwest is a full service real estate development company, and we're privately held by the Lamar Hunt family. So we're a sister companies to the Kansas City Chiefs. Go Chiefs!. So what we focus on, our M.O. Is really ground-up real estate development. And we do it, like you said, in a variety of real estate product types. There's six or seven of them. We do industrial, and we build buildings both underground and SubTropolis, and then on the surface in Kansas City, and outside the area. And then we do senior housing and we're really in the part of the continuum called assisted living and memory care. And we're doing that in Kansas City, as well as outside the metro. We do climate controlled self-storage, which is under the store propolis brand. And then in the last six, seven years, we've gotten back into our luxury multifamily building high-end apartment projects. We do master plans, single family, residential communities, and have been doing that for over 25 years. And then we do just general development services, build-to-suits. We build infrastructure for cities and things like that.

Kelly Scanlon:

One of the things that just fascinates me is the SubTropolis. That's, as you said, part of Hunt Midwest Real Estate Holdings. Many of our listeners may have heard about it. Kansas City is fairly well-known for its underground cave system, but what they might not realize is that the SubTropolis is the world's largest underground business complex. So tell us about its history and what it's become.

Ora Reynolds:

Yeah, so it's really cool how it came about. A predecessor company years ago, Midwest Precote, came in and started doing what's called underground lateral mining. So you've got this bluff, which is really rock, and you basically blast into the side of a hill of rock. And so that was our predecessor company. When Lamar brought the Kansas City Chiefs to Kansas City, or I should say the Dallas Texans to Kansas City, he wanted to reinvest back into the community. And so he got involved with this company and ultimately took it private. So in the mid 1960s, there was kind of that aha moment. What can we do with these caves? We basically created by blasting and taking rock out, crushing it, putting it into asphalt and concrete. And now we have these open areas. And so back in the mid-sixties, there were three companies really that were started storing things down there.

Ora Reynolds:

And one of them Russell Stover and the other one was Ford. And it's really interesting because we still do so much business with Ford. We have been so fortunate NBC's Sunday Today's show where Harry Smith came and toured with us, and we've been on CNN Business and Bloomberg Business because of what you said. I mean, it's the world's largest underground business complex. So we, right now, have almost 7 million square feet leased underground to 55 companies, probably somewhere between 2,000 and 2,500 people actually work within these companies, really is an underground city. Our guy that runs maintenance and security and facilities, we call him the mayor.

Kelly Scanlon:

Yeah, it really is. And it astounds me. I don't remember it off the top of my head, but the amount of road that you have there as well.

Ora Reynolds:

Yeah. So basically, it tells you something. We've basically mined out about 1,150 acres. So we've got probably about eight miles of roads, maybe eight-and-a-half miles of roads. Yeah. It's crazy. We have roads, we have parking lots and then we build buildings, and we build them because we keep a pillar of rock that's 25 feet and then we have 40 feet between us. So we build this on what we call 65 foot centers. And so when you take four pillars, that's a room in a building and that's 3,600 square feet. And then you might have another group of pillars. And so we can add up how many square feet we have. And it's really great for people that want something that is more constant temperature, where they can control humidity. And so it really is great for e-commerce, we have a lot of automotive users. In fact, we've coined it automotive alley, and then we have another whole area that's animal health. And then we do a lot of record storage. The postal service is our largest tenant.

Kelly Scanlon:

You've got a lot of records as you mentioned, there's some fascinating ones that are housed there. Can you tell us about any of those?

Ora Reynolds:

Yes, yes. So Underground Vaults & Storage is in our underground ,one of our larger tenants and they have a lot of connections with Hollywood Media. And so we have the original tape of Gone with the Wind, the original real.

Kelly Scanlon:

Another group that you work with in the storage area is NARA. What are your relationships with them? What do you store?

Ora Reynolds:

NARA, which is National Archives, has a pretty big footprint, and part of it is IRS tax records that are stored in boxes still in paper. And then the other piece of it is truly archival national archives that would have been in Washington D.C., but the ones that aren't accessed as frequently, there is a big footprint in our underground of this history that's amazing.

Kelly Scanlon:

Let's talk a little bit about the pandemic. In many ways, due to the pandemic, due to technology, and some of the other forces, commercial real estate has become a tale of two cities, if you will. There are some areas that are exploding and there are some areas that are just really struggling to hang on. But two of the areas that are growing rapidly are, you mentioned this a little earlier, senior housing and warehousing and distribution centers. So let's talk about both of those. First senior housing, and I think most people are probably aware about the demographic shift that's driving that trend. But what else is at work there besides the fact that Americans are aging?

Ora Reynolds:

The front-end of the baby boomers are just turning about 75, and there was a continuum of senior housing that goes from 55 plus to independent living, to assisted living memory care, and then to nursing. And we're in the piece of the continuum that's assisted living in memory care. So our average age of a resident is about 84. So the demographics are still moving in a positive way, as you said. So the pandemic has created such a havoc. All of a sudden, it's not about that anymore. Right now, it's about how do you keep people safe? And that's how do you keep the residents safe? How do you keep the caregivers safe? How do you get PPE? And you're helping people eat, but they may be eating in their rooms or they may be eating in the halls because you can't bring everybody into one big dining room and you can't take them out for socially events.

Ora Reynolds:

So it really is challenging, but I still do believe that from a long-term standpoint, when people are in a place where they need that physical support system and they need the social interaction, it is a better place to be. And I think one big thing we dealt with in our industry is people tend to lump everything together. They think that all of the continuum is seniors. And you'll see a lot of headlines for nursing homes and that's not what we're doing. Our assisted living and memory care people are at risk, but they're not at the same level of the at risk as the nursing homes. So we've had to pivot and find new and creative ways to do things and ways for families to visit when there's limited visitation. But I really believe that we will come out of this stronger, we'll have learned a lot using technology, having sourcing for PPE, finding good caregivers and the folks that have done good through this and taking care of their employees will keep their employees because it's been a tough time for everyone.

Kelly Scanlon:

Do you think that given some of the isolation that has had to occur because of the pandemic that you will see designs changing in some of these facilities?

Ora Reynolds:

Yes, absolutely. And I can share a few things. So we've got projects in Kansas City and projects elsewhere. In Kansas City, it's under the Baton House brand and outside of Kansas City, we have another operator and we're under the Capstone brand and we are actually using brand new, high level technology that's cleaning cleansing systems that when people go through, will take away the germs. So that is one technology that's going to keep air filtration and systems so much better. And the other one is we're building visitation rooms that are separate from the actual building, so that if we ever have a situation again where visitation is limited by the states or the cities and you can't bring people in, we'll have a visitation room that's separated from the actual building that we will be able to bring people in. Because the thing that stops people from moving people into assisted living and memory care is the concern that they won't be able to see their loved ones.

Kelly Scanlon:

The other sector that is booming right now is warehousing distribution. What factors are driving interest in these developments, and why is Kansas City a prime spot for these centers?

Ora Reynolds:

Logistics, industrial development is really crazy. And some of the trends that were out there, the pandemic has accelerated those trends, and that's what you're seeing. So you're seeing new demand drivers that we didn't see at quite the level. So e-commerce was already coming on, but they didn't buy everything online. So you're seeing that with the work from home and the pandemic, some people will go back to grocery shopping in person, but that online piece of it and that e-commerce where we basically push a button and buy everything has really accelerated. The other thing that's been crazy different is what we call the need for safety staff. And what that means is we used to always be about just-in-time inventory. Remember lean and just-in-time?

Kelly Scanlon:

Yes, yes.

Ora Reynolds:

We just need whatever part we need when we need it, and we just need enough inventory to handle it for a day. Well, then what happened is we didn't have all the things we needed. We now say we need safety stock. We need enough inventory of PPE or handy wipes, or sanitizer or gowns. We can't just have enough that we might just need because we need a safety stock. And so all of a sudden, it isn't just about being efficient, it's about redundancy. And if you look at the amount of industrial space, the numbers of what you will need to just deal with safety stock, it's crazy numbers. And then you've got the other piece of it. So all of a sudden, right now, if you're building a new house in one of our residential developments, you may move in without a refrigerator or a stove. All those appliances are coming from overseas.

Ora Reynolds:

So now the other major demand driver is the whole concept and some people call it onshoring, some people call it nearshoring or re-shoring, which means, "Hey, we need to get our supply chain closer to here," whether that's Canada, Mexico, or back the US. So we've got to be able to mitigate global risk. So that's accelerating what we were already seeing.

Ora Reynolds:

And then Kansas City, I mean, the big piece of Kansas City is that you can get to so much of this country within two days from Kansas City based on its central location and its infrastructure. So we've got great highway systems. And then with what we have now, Kansas City itself, we have a really good skilled logistics workforce, a lot of industry training. So it's all about labor. And then we have a lot of land where we can build inventory and have vertical ready sites, I mean, there aren't a lot of obstacles to that. And I want to say we have diverse product type because we have maybe 270 to 280 million square feet of industrial in Kansas City, and 10% of it at 27, 28 million is underground. So you have something for everyone really.

Kelly Scanlon:

We've talked about senior housing, we've talked about warehousing. What are some of the other development trends that you're seeing in the projects that you're involved with? I know that you've got things going on in Kansas City, you have things underway in other parts of the country as well. Tell us about some of those and the trends that you're responding to in those developments.

Ora Reynolds:

We do a lot of what we call mission critical work. We have an underground data center with an anchor tenant called light edge, and so it's a data center. So all the applications of software applications are located in data centers where you have servers and racks that are handling all this bandwidth that's needed. So these work from home mandates, the telemedicine, everything we're doing that we need to keep up with. When Microsoft Teams doesn't work on a given day, it's probably because there was an issue. So our data centers have been growing in leaps and bounds because of all the technology needs that have really been accelerated. And also, it's just kind of crazy just since we're not able to travel anymore, and we talked about projects we have from out of town. Projects we would have immediately jumped on a plane and went to see, now we're on Google Maps using fancy software to look at sites.

Ora Reynolds:

I mean, ultimately we're still going to have to meet people in person and see sites in person, but we're delaying some of that. I tell you what's crazy right now is single family residential. So this has been a record-breaking nationwide and in Kansas City, record-breaking year for residential home sales. And if you had told me a pandemic and people without jobs would have meant we were going to sell more lots to home builders and home builders were going to sell more homes to residents, I would have told you you were lying.

Kelly Scanlon:

Yeah, but that's being driven by people needing to stay at home and have more space to work and to put their kids in a separate place to do online school and things like that, right?

Ora Reynolds:

Exactly. So they're staying at home, they need room for their own office. So they need office space, they need homeschooling area, they've got to have more outdoor space and they're not traveling. And interest rates are so low, so they've got the money they would have spent doing other things. They're moving back out to the suburbs. And going along with that, we're also in climate controlled self-storage and some of the same pieces of it. So if people had a bunch of furniture or something that they weren't really using in an extra room and now they need to create an office, they're putting their things in storage.

Ora Reynolds:

And then technology with all of these pieces of the puzzle have made us more efficient in that we've been able to lease units in our self-storage site on scene, it's all virtual leasing. People can see what their unit's going to be, they pay for it online, they pick up keys and they don't ever have to have contact with someone. And then we went the same route, we had a pivot on our multifamily. So we've got two luxury multifamily projects. And so next thing you know, you're not touring as many people through actual units. A lot of it is virtual. And then you're leasing space to people that may have never been in the unit.

Kelly Scanlon:

Tell us about how Kansas City differentiates itself, especially in the commercial real estate market from other markets in the US.

Ora Reynolds:

Well, as I had mentioned before, given where we are, I mean, we can reach 90% of the country within two days. So that's a big piece of it. We're always selling our affordable cost of living, the quality of life here and that's what keeps a talented and skilled workforce, which is what we need. I'm pretty actively involved on exec committee for the Kansas City Area Development Council, and that's our quest is to bring new people from the mid-west and the coast and have them see what Kansas City is like and how much home they can have for their money, how their commute time, if they are going to the office, how much shorter it is. And it's really a diverse, we have a very diverse industry base. There's a lot of land here. I mentioned that earlier. There's a lot of land and there's good, healthy competition between cities and economic development groups in the region, trying to bring new businesses to town. And then we're growing our existing businesses. So, it's the heartland, it's the heart of America and there's good things about that.

Kelly Scanlon:

True. And I'm sure that you get the reaction that so many other people that I talk with say, "When people come in from other areas of the country, they are just absolutely amazed at what we have here. They have no idea."

Ora Reynolds:

I mean, I just hope that when we get out of the pandemic, the things I always sold was our arts community, the beautiful treasures we have like Starlight Theater, and so many other organizations and live music and the amazing network of independent restaurants. You just don't see that in a city our size that frequently. I grew up in Chicago and have a whole bunch of residents or family on the East Coast, and when they come visit me and they see our architecture and our fountains and our green space, they're amazed by it.

Kelly Scanlon:

You've been involved in commercial real estate, Ora, for more than 30 years. Bringing your vast experience to bear on the circumstances that we're facing currently, what are your predictions for the industry in 2021 and beyond?

Ora Reynolds:

A lot of product types that you're seeing now that we're actively engaged in, we're not really what was called institutionally accepted until more recently. So you really didn't hear about the continuum of senior housing options. We didn't have definitely in Kansas City, apartment communities that were like luxury resorts that were condo quality, which we've done. There was self-storage, but there wasn't the class A climate controlled self-storage. We didn't have the amount of data centers and mission-critical campuses we have. These things were not considered mainstream investments back then, and now they really are. And so I think what's happened, I mean, everything is relying on, I think demographics, technology and lifestyle choices. Obviously, senior housing is the aging baby boomers. The multifamily now is really a renter by choice. It used to be, you rented an apartment because you didn't have a down payment, but now it's, you're renting apartments because you want the flexibility, it's condo-like.

Ora Reynolds:

You want it to be lock-and-leave, and you might be a millennial or an empty nester, and you want that work, live, play lifestyles. So you're choosing things for different reasons. What's really cool right now, too, is people are focused on what used to be the old downtowns. And we call them suburban-urban environments, like a downtown Overland Park or a downtown Lenexa. And so you're seeing that's really a technology demographics, and I think lifestyle choices are what drive so much of what we're seeing, because we talk about three-legged stools. And I think the pandemic is a three-legged stool that is all about safety, productivity and collaboration. And we're only able to get two out of the three when we're working from home.

Ora Reynolds:

And I think we're missing that collaboration. And once we're all vaccinated and we're able to move about more freely, yes, we'll work from home, we'll understand how to do it remote. And we probably won't jump on a plane to meet people for the first time, but I think we'll want to go back to the office and spend time interacting with other people and the ideas that come out of that. And so I feel pretty strongly about that. I also think people's memories are short, but the trends that have accelerated, we're at a new point.

Kelly Scanlon:

Yeah. So lots of exciting things on the horizon, lots of opportunity. You're obviously on the forefront of all of this, Ora, such an interesting perspective that you bring to the podcast today. Thank you so much for being our guest.

Ora Reynolds:

Kelly, thank you for having me.

Joe Close:

This is Joe Close, president of Country Club Bank. Thank you to Ora Reynolds for being our guest on this episode of Banking on KC. Lamar Hunt is a Kansas City legend whose legacy continues to grow. The Hunt family businesses and philanthropic endeavors not only shape Kansas City locally, they also shine a positive national and even global spotlight on our city. From the world champion, Kansas City Chiefs to the development of a creative amusement and waterpark, to innovative real estate projects, including the SubTropolis; Lamar Hunt saw opportunity all around him and helped us re-imagine how we can work, live and play. Country Club Bank is here to work with you when you discover your next opportunity. Thanks for tuning in this week. We're banking on you Kansas City. Country Club Bank, Member FDIC.