Sprint's campus in K.C. attracts tenants from Mo.
10/10/2010 12:03 AM
10/10/2010 12:03 AM
The Sprint campus in Overland Park has become the 4 million-square-foot gorilla in the Kansas City metropolitan office market, competing fiercely with landlords everywhere and raising particular ire in Missouri.
On the outside, the collection of 17 brick office buildings that began opening a decade ago at 119th Street and Nall Avenue looks as placid as the college campus it was designed to emulate.
But a decision last year to begin actively leasing buildings vacated by Sprint's downsizing has made it a hot — and sometimes controversial — commodity.
"It's definitely making my job and Kansas City's job more difficult," said Jeff Kaczmarek, president and CEO of the Kansas City Economic Development Corp.
"It's very nice space, and they're providing competitive rents with free parking and furniture, and that suburban corporate look has an appeal to some companies."
Since December, the Sprint campus, assisted by hefty tax incentives from Kansas, has lured two big tenants out of Kansas City: JPMorgan Retirement Plan Services and KeyBank Real Estate Capital. The campus also is thought to have a good shot at landing the National Association of Insurance Commissioners.
Beyond the region, Connecticut-based CareCentrix and Apria Healthcare, a California company, opened operations at the campus last summer.
Sprint officials say they're being fiscally responsible by leasing buildings that otherwise would be empty.
The campus was designed for 14,500 workers and reached its peak occupancy several years ago at the time of the Sprint-Nextel merger. It now has 11,000 people working there: 7,300 Sprint employees, the rest contractors.
"It's no news that Sprint has had challenges the past few years," said Drew Thompson, Sprint manager of real estate.
"We had reorganizations and downsizings, and after multiple years we looked around the campus and saw vacant cubicles where offices were gone. It was affecting our culture to go by and see people gone."
Deciding to sublease
Sprint officials say the decision to begin subleasing space was not taken lightly.
"We have a very valuable asset with this campus," said Melinda Tiemeyer, a Sprint spokeswoman.
"We don't want to compromise on anything. We're making it available to the right tenant that's comparable to our employees."
Thompson said the decision to begin marketing vacant space at Sprint resulted from a thorough review.
Faced with a shrinking work force, company officials looked at the campus to determine which buildings fit with their reorganization plans. They also wanted to address the problem of so much space occupied by vacant cubicles and bring employees back together "to get floors vibrant and thriving," Thompson said.
Those buildings that didn't match up with the reorganization were closed to save money.
"Once we got to that point of consolidation, people started asking questions about what will we do with these buildings," Thompson said.
In 2009, the CB Richard Ellis real estate firm was asked to explore alternatives for the vacant space. The firm already was familiar with the campus, having been hired by Sprint the previous year to manage the property.
Following the evaluation, four buildings totaling about 800,000 square feet were made available to the market.
The first real success marketing to outside tenants occurred in June 2009, when Apria announced it planned to open a customer service center at 6050 Sprint Parkway that would ultimately create 500 jobs.
Two months later, CareCentrix, which manages home health care benefits, said it was moving to 6130 Sprint Parkway and hiring 150 people.
Things started getting ugly — at least to Kansas City officials — in December.
That's when JPMorgan decided to move its 800-employee operation now at 9300 Ward Parkway in south Kansas City to 6580 Sprint Parkway.
The JPMorgan decision elevated the Kansas-Missouri competition in the area to a new level, and it proved the Sprint campus could succeed as a multitenant corporate campus.
As part of JPMorgan's 10-year lease, the firm is building a portico addition to its building covering the main entrance and will have its address changed to Outlook Street. The firm also will have a sign on the portico and a monument sign, said Chris Wally, one of the brokers representing JPMorgan.
"Sprint knows they need to rebrand the campus," Wally said. And that means "new signage to help visitors to firms and, for some larger deals, getting the corporate identity up on the building."
The Sprint campus also had a superior product to sell.
With relatively new buildings, free garage parking, excellent information technology, and telecommunications infrastructure and office furnishings thrown into the bargain, it quickly found its way to every broker's checklist.
"With the high-quality, low-cost option on top of the incentives Kansas offers, the economics are so compelling, it's hard not to consider," said Tim Schaffer, a vice president at RED Brokerage.
In addition to the basic office facilities, new tenants at the campus can use the fitness facilities, cafeterias and other spaces enjoyed by Sprint employees. The only difference between the newcomers and regular Sprint employees is the color of the strip on their ID badges.
"Our employees are excited about the move to the Overland Park campus and the opportunity to work in a parklike setting that offers so many amenities," Pamela Popp, CEO of JPMorgan Retirement Plan Services, said in a statement.
The brokers at CB Richard Ellis representing the Sprint property say the property is offering market-rate rents of $18 to $20 per square foot, in addition to $1.50 per square foot for electricity.
A recent CoStar office report put the average quoted rates for all office classes in south Johnson County at $20.37 per square foot.
For some of the real estate brokers who have lost out in the competition for tenants, it's not so much the lease rates as the Kansas tax incentives that are galling. In particular, some point to a recently enacted Kansas program that allows new employers to keep 95 percent of their payroll withholding tax.
The National Association of Insurance Commissioners is being offered an incentive package valued at $5 million by Kansas to move its 460 employees to the Sprint campus, Kansas City officials say.
Chuck Connealy of Waterford Property Co. represented Commerce Tower in its effort to keep KeyBank Real Estate Capital and its 300 employees as a tenant.
The firm decided to take its work force and expansion plans to the Sprint campus in August.
"The consumer wins in a free-market economy, and if I had the Sprint campus listing I'd do the exact same thing," Connealy said. "I think the biggest issue is the incentives.
"The local economy is not benefiting from someone moving three miles. It looks better on the statistic sheets for the states, but it doesn't help (the community)."