An outdated policy on mixed-use development combined with elected officials’ aversion to apartment complexes is making it difficult to build on Leawood’s last major undeveloped area, real estate experts say.
Developers have for months been urging councilmembers to change a policy that lays out a minimum percentage of floor space in such projects to residential, retail and office uses.
They have argued that the percentages are inflexible in the face of market changes, posing unrealistic requirements for office space when post-pandemic demand is low.
Leawood is the only city in Johnson County to have that type of policy, said Bob Regnier, a prominent figure in the county’s banking and real estate world. Regnier said the city would do better to get rid of the percentages altogether.
However, the Leawood City Council recently voted unanimously to continue the policy, with tweaks that members said they hoped would alleviate problems. Members declined to get rid of the percentages but did allow a more flexible mix of office and retail, which are under the combined category of “commercial.”
Developers say office buildings are in low demand
The developers’ complaint centers around changes in the real estate market that have caused a drop-off in the need for office space in particular, as well as struggles for retailers. Mixed-use projects typically depend on both, plus enough residences nearby to supply customers and office workers.
Until the vote, Leawood required 15% of those types of developments to come from office space, and 5% from retail. Another 15% would be for residential use.
The change councilmembers approved at its meeting on Feb. 19 allowed either retail or office to be as low as 5%, but together, they had to make up at least 20% of the development. It kept the 15% residential requirement.
Some developers who spoke at the meeting said they would have preferred lower percentages.
This has been a talking point in Leawood for months
The vote was the culmination of weeks of discussion between developers dating back at least to October.
Last fall, 10 people who said they represent the majority of landowners, landlords and developers along the 135th Street Corridor laid out their concerns to the city council in a letter. They noted that the corridor has remained relatively undeveloped because of the policy.
Besides Regnier, the ten included George Xiao, Kenny Xiao, Rick Oddo, Doug Weltner, Doug Henzlick, John Sweeney, Tyler Oliver, Rick Lashbrook and Len Corsi.
They noted that large shopping centers in Kansas City, Missouri, and within the 119th Street corridor in Overland Park have satisfied the demand for shopping, while changes brought about by the pandemic have caused office space demand to drop.
They recommended removing the percentage requirements or setting it to a minimum of 5% of commercial space without specifying what type of commercial use.
Some of the talk touched on Leawood’s dislike of apartments
The discussion continued over several planning commission meetings, touching at times on the city council’s aversion to higher-density apartment complexes.
Developer Rick Oddo, presented an analysis he commissioned from Jeff Stingley, executive vice president of CBRE Capital Markets.
The report said multifamily development “is extremely underserved in Leawood and would be the highest and best use,” for the area around 135th Street and State Line Road.
Leawood has only four properties totaling 943 units of multi-family housing, which comes to only 0.6% of the multifamily inventory in the entire metro area, Stingley wrote. “Given the extremely high cost of home ownership and top-rated schools, there is extremely high demand for more cost-effective living options in this location,” he continued.
Demand also exists for senior housing, but office space is the least viable development option because of its distance from a major highway and the high office vacancy in the rest of the county, according to the analysis. Johnson County office vacancy is around 21%, compared with 17.6% as a metro average, he said.
“Lenders are increasingly unwilling to commit to loans on office buildings, especially multi-tenant office buildings,” because of concerns there are too few tenants to lease the space, the report said.
Given that, the developers and landowners argued that strict percentage requirements were not useful in such a fluid market environment.
‘In short, office is dead’
Speaking at a January meeting of the planning commission, Oddo said, “As you know all the developers in the area want the required amount of office and retail reduced. We don’t think we can all be wrong. If we could build the additional retail and office, we would because it’s more profitable than residential, but we’re still afraid to do it.”
Single-family is not viable along 135th Street because, “nobody wants to put a million-dollar home along 135th Street or State Line,” Oddo said.
He also referenced negative changes in retail and office.
“In short, office is dead,” he said.
Councilmembers unanimously approved an amendment that would change the ordinance to 15% residential and 20% commercial. But some developers said during the meeting that they would have liked lower requirements or none at all.
Regnier said he would have preferred no percentages. Other cities don’t set specifics, and some use form-based code that focuses more on the type of structure than its eventual use.
“I think this is a bad policy,” Regnier said. “Every parcel of ground is different from the next parcel.” Setting up minimum percentages just guarantees the council will have to revisit them “ad infinitum” as the market changes, he said.
Regnier asked the city council to remand the ordinance back to planning for more discussion.
Oddo said he’d prefer the percentage for commercial be dropped to not more than 10%. “It’s going to be very difficult to hit the 20% mark for anybody, ” he said. A 20% requirement for the 135th Street corridor down to Nall Avenue translates into an additional 2.1 million square feet of commercial space, he said. That would be three and a half times what’s in Town Center Plaza. “I just don’t think that’s an ask that’s feasible.”
Some councilmembers were reluctant to remand it after so much time had been spent discussing it. Councilmember Julie Cain said the city has tried to respond to market changes.
“We’re not fighting for a sea of apartments as you know,” she said. “I keep fighting to maintain the integrity of our city. I don’t think we need to be like everybody else.”
Councilmember Sherrie Gayed, however, said that although the amended rule gives developers more flexibility, she was concerned about the prospect of reviewing the policy whenever the market changes. “That seems a little odd for the ordinance to keep changing like that.”
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