Categories Narrative

SubTropolis: The Massive Business Complex Buried Under Kansas City

You won’t believe what is happening underground in Kansas City. SubTropolis has been around since 1964, but I just found out about it thanks to Ann McCartney with Lighthouse Commercial Finance. Check out all the companies that have space in this underground industrial park. The entire thing is an excavated mine the size of 140 football fields. WOW.

If you want to lease an office in cool underground space in Phoenix give me call, I represent some.


P.S. We were grateful to represent AEGON Realty Advisors, LLC in the sale of their property located at 7855 S. River Parkway in the ASU Research Park in Tempe.

ConnexionASU-PostCard-Updated_Page_1 2For the full postcard and a larger view, please click here.

Welcome to SubTropolis: The Massive Business Complex Buried Under Kansas City

More than 1,000 people spend their workdays in SubTropolis, an industrial park housed in an excavated mine the size of 140 football fields

February 4, 2015
By: Patrick Clark

Bloomberg 2

Subtropolis 1

About 10 percent of Kansas City’s commercial real estate is underground, says Ora Reynolds, president of SubTropolis landlord Hunt Midwest. Landlords have made a cottage industry out of underground industrial space, thanks to rock formations near the Missouri River that allow trucks to drive into the old mines instead of tenants needing to use elevators to get things in and out.

The underground industrial park known as SubTroplis opened for business in 1964 in an excavated mine below Kansas City, Mo., attracting tenants with the lure of lower energy costs and cheap rents. The walls, carved out of 270-million-year-old limestone deposits, help keep humidity low and temperatures at a constant 68 degrees, eliminating the need for air conditioning or heating. Tenants have reported saving as much as 70 percent on their energy bills, says Ora Reynolds, president of SubTropolis landlord Hunt Midwest. Rents run about $2.25 per square foot, about half the going rate on the surface. “It’s also a question of sustainability,” says Joe Paris, vice president at Paris Brothers, a specialty foods packager that employs about 200 workers underground. In addition to Paris Brothers, 51 tenants have rented nearly 6 million square feet of space. Others include LightEdge Solutions, a cloud computing company that uses the mild climate to help cool servers, and an underground archive that contains the original film reels to Gone with the Wind and Wizard of Oz.

The U.S. Postal Service keeps hundreds of millions of postage stamps in an underground distribution hub at SubTropolis. There’s still plenty of space here, with about 8 million square feet of land to develop—almost 10 times the floor area of Kansas City’s tallest building. To reach capacity, Hunt Midwest may have to consider additional uses. Underground real estate has been used to grow mushrooms in Pennsylvania and vegetables in London. “We’ve talked about that,” says Reynolds. “We’ve talked about fish, too. For now, we’re trying to stick to what we’re good at.”
—Patrick Clark

Photographs by Connie Zhou/Bloomberg Business

Subtropolis 2 2Industrial chic: Subtropolis boasts 17-foot-high ceilings supported by rough-hewn columns. The 270-million-year-old limestone deposits are six times stronger than concrete, according to Hunt Midwest’s marketing materials.

Subtropolis 3Subtropolis’s cool climate helped attract cloud computing company LightEdge, which has become the anchor tenant in what Hunt Midwest hopes will develop into a major data center.

Subtropolis 4The U.S. Postal Service uses Subtropolis as a distribution hub for postage stamps, storing hundreds of millions of stamps in the facility.

Subtropolis 5The USPS rents more than 500,000 square feet at SubTropolis.

Subtropolis 6The National Archives and Records Association keeps old tax records and federal court documents at the facility. Pick a fight with the Internal Revenue Service and the paper trail may lead to these shelves.

Subtropolis 7 2Vanguard Packaging prints retail packaging and supermarket displays in its 500,000-square-foot space.

Subtropolis 8Vanguard calls itself the most sustainable packaging company in North America.

Subtropolis 9Journey to the center of the earth—or at least, to EarthWorks, an educational program that schools students on the Midwest’s natural habitats in a 32,000 square-foot space in SubTropolis.

Subtropolis 10Some canisters in this archive hold the original film from Gone with the Wind.

Subtropolis 11“I have no idea how many pounds of coffee I have down here,” says Joe Paris, vice president at Paris Brothers, a specialty foods company. “I have thousands of bags. Some of them are 60 or 70 kilos. It’s a lot.”

Subtropolis 12SubTropolis is down the road from an assembly plant at which Ford manufactures F150 pickups. This has attracted companies such as Knapheide, shown here, which manufactures steel bodies that get rigged onto Ford trucks.

Subtropolis 13One tenant in SubTropolis’s Automotive Alley is Ground Effects, which provides a variety of conversion services.

Subtropolis 14
Road runners have been competing in 5-kilometer and 10k races inside SubTropolis’s seven miles of roadways for 33 years.


Categories Narrative, Tech Industry

The Impending Opportunity In Real Estate Technology

The tech market is hot. The Commercial Real Estate tech market is frothy. The reasons behind why there is so much interest in real estate right now are summarized nicely in my green highlights below. The market is gigantic.   
I know I bored a few of you with my five-day-in-a-row slog of all the real estate start up tech companies (Click these links if you missed it: Day 1Day 2Day 3Day 4Day 5). But the money keeps pouring in. Below is a 30,000 SF view of where the money is going and what we should be seeing in the next year or two. I am following this with keen interest, especially:

–Tech companies trying to take traditional real estate brokerage company business (for obvious reasons).
–Market efficiency companies that will smooth the process of sales and leasing.
–Market data availability companies. Comparable, insider information and other previously undisclosed information.

This is an interesting time for all of us in the business. We really do live in interesting times.


The Impending Opportunity In Real Estate Technology
Tech Crunch
By:  (@JGut)
February 10, 2015

Editor’s note: Josh Guttman is a Partner at SoftBank Capital based in New York City.

He blogs at

Things are starting to simmer in real estate technology. The first phase of technology development in the category, which was primarily focused around listing services for the residential side of the market, has paved the way for industry leaders to broadly reconsider how technology can make their lives better.

For those of us in the technology world with some background in real estate, the opportunity may seem obvious. But real estate is a sector of the economy that’s created immense wealth without changing their workflows or processes for many decades, so there’s a predisposed lack of urgency to upgrade the ol’ tool belt.

Market Primer

The word “trillions” gets thrown around a lot when people refer to real estate as an asset class. Broadly speaking, real estate is the largest asset class in the U.S. worth an estimated $40 trillion according to this December 2014 report from the Federal Reserve.

To get specific, residential housing is the single largest “tangible” U.S. real estate asset, worth roughly $23 trillion, and commercial real estate accounts for another $15 trillion. To put this in perspective, as an asset class, real estate is meaningfully larger than other U.S. heavyweight industries like fixed income, equity and health care.

Real estate lending is by far the largest lending category, belittling credit card debt by orders of magnitude. Residential mortgages alone accounted for nearly $12 trillion as of December 2014 compared with $882 billion in credit card debt. $1.6 trillion in new real estate debt is issued each year — $1.1 trillion in residential and $500 billion in commercial. According to this report by Jones Lang LaSalle, annual commercial real estate lending is projected to reach $1 trillion by 2030.

The National Association of Realtors is the largest industry trade association in existence with 1.25 million members and there are approximately 3 million active real estate agents in the U.S. There are roughly 500,000 construction professionals and more than 120 million actively managed commercial properties. In summary, there’s a whole lot of money changing hands in the sector.

Venture funding of real estate technology startups reached a peak in the fourth quarter of 2014, with 32 companies raising nearly $300 million. In total, venture funds invested $605 million in real estate tech in 2014 versus $241 million the year before – more than 2.5x growth. There are a number of signs suggesting the trend will continue through 2015, as the category moves from niche status to one that gains widespread attention.

I believe the next phase of growth — and most exciting opportunities — will be fueled by products and services that serve the commercial side of the real estate market.

Residential Versus Commercial

The first technology innovators to focus on real estate primarily addressed the residential market. Companies like Zillow, Trulia,, RedFin and StreetEasy showcased the power that technology can have when applied to a market as large and lucrative as residential real estate. Each of these companies operate, generally speaking, as residential listing services, and this has proven to be the low-hanging fruit of the real estate vertical.

Commercial real estate encompasses office buildings, hotels, malls, retail stores, multifamily housing, industrial property, warehouses, medical centers and garages. Thus far, technology innovation on the commercial side of the market has been limited, with two outliers being CoStar and LoopNet.


This is partially the result of data that is tedious to gather and “dirty” – making it challenging to use, industry information that is opaque with incumbents who have incentive to keep it that way, and some of the early momentum that gathered in the mid 2000s being stymied by the financial crisis and subsequent pullback that commercial development and investment experienced.

With the economic recovery in full swing and money flowing back into commercial development, some of these roadblocks have been lifted and the market is, once again, ready for new entrants to build upon the work of the early pioneers in commercial real estate technology. 

Products and services that address the commercial side of the market are more exciting (versus residential) and represent a massive opportunity for a few key reasons:

  1. Higher transaction values mean there’s more at stake for the players involved.
  2. Given higher transaction values, the competition is stronger and so the players are willing to pay up for competitive advantage.
  3. Single transactions often involve multiple constituents — property brokers, mortgage brokers, lenders, developers, appraisers, builders — each of whom want an edge.
  4. There’s lots of relevant commercial data available to parse, which naturally plays into the wheelhouse of skilled data scientists and tech entrepreneurs.
  5. Broader diversity of funding sources creates newfound opportunity for pricing and product optimization.
  6. The market is antiquated and grossly underdeveloped.

NYC: Epicenter of Commercial Real Estate (and Real Estate Tech)

Much the same way that the Bay Area has historically claimed the highest concentration of technology startup development, New York City is the epicenter of commercial real estate.

According to Cushman and Wakefield, New York City has been the world’s largest commercial real estate market every year since 2010. In 2014, New York City captured 7 percent of global investment with $55 billion. It’s only logical that the most important technology businesses serving commercial real estate will be built and headquartered in the commercial real estate capital of the world.

We’ve already started to see this play out with more than half of the 2014 sector funding happening in New York City. Companies like VTS, Reonomy, Hightower, FieldLens, Honest Buildings, The Square Foot, Onboard Informatics, Nestio and Urban Compass – all based in New York City – are already well on their way to becoming important businesses.

Global Scale

The market of potential customers for applications and services serving the real estate market is global, with half the world’s top 12 largest commercial real estate markets outside the U.S. London, Tokyo and Paris are among the top six. Toronto, a city that doesn’t appear on most global rankings based on transaction volume, has more industrial cranes installed right now than anywhere else in North America.

India and China have been among the most active markets outside the U.S. for real estate technology investment. International startups like, PropTiger, Fangdd, Anjuke, CommonFloor and HouseTrip have all raised substantial sums of capital already.

Biggest Areas of Opportunity 

Opportunities for innovation using technology abound across the real estate industry. Some of the biggest near-term opportunities for innovation are: 

  • Property Management: Several companies are already competing for dominance in this category, most offering software that helps property owners and management companies oversee and easily track commercial real estate assets. Industry-wide adoption is still sub-10 percent, though, so lots of opportunity for growth remains.
  • Research and Analytics: Traditionally, commercial real estate developers would hunker down with teams of analysts using HP calculators and gathering demographic research to evaluate an investment opportunity. Today, open data initiatives in municipalities across the country — combined with creative needle threading by software developers — is changing this landscape, and much of the data is readily available via monthly SaaS licenses.
  • Listing Services/Tech-Enabled Brokerages: Contrary to the incumbents in the residential market, which are predominantly media businesses generating revenue from advertising, a real opportunity exists for tech-enabled commercial listing services that could level the playing field, acting as marketplaces, and replacing the less efficient relationship-driven model that still persists today.
  • Mobile Applications: By their very nature, real estate professionals are on the go, pound-the-pavement types. Brokers, landlords, appraisers and developers are constantly running around visiting properties. One can assume that many of the most successful applications serving this market will have a healthy and robust mobile component.
  • Residential and Commercial Lending: Regulatory changes have opened up opportunities for innovation in lending, and real estate lending is by far the largest sub-category. We’re starting to see a number of emerging companies target this area in different ways. Residential and commercial lending are different animals so my guess is that we’ll see a dozen worthwhile challengers going after each market.

The real estate industry is vast and we’ve only just begun to scratch the surface when it comes to opportunity for technology-enabled innovation. Given the dollars at risk and the proportion of the broader economy that real estate represents, there is every reason to believe the category will produce multiple ‘unicorns’ worth billions in enterprise value. The past two years have been the most exciting yet for real estate tech and I can’t wait to see what the next few will bring.

Categories Narrative

2015 Top Brokerage Firms

While there are some crazy numbers on the below graph (52,000 brokers at CBRE), I found the information pretty interesting. There is a huge market consolidation occurring in the commercial real estate brokerage sector. We see this continuing as firms try to keep pace with global market coverage and try to be all things to all clients.
Since 1979, the Principals at Lee & Associates have been owners of our company. We are personally committed to taking care of our clients. And we still believe our ownership model of accountability will survive and thrive in the post consolidation world. Call me anytime to learn more about how we serve our clients differently, to see how we can serve you.


P.S. Over the past month, we have talked about the national market and our local Metro Phoenix market. If you are one of those that can’t get enough of market data, today is your lucky day. Click here to view our 37 page national Q2 2015 office market brief. I find it very interesting, but then again, I am one of those people.

2015 Top Brokerage Firms

Continuing Consolidation

Be sure to check out our podcast examining trends in the brokerage sector.

Commercial Property Executive

By: Mike Ratliff
July 10, 2015

2015 Top Brokerage Firms 2

The last seven months in the brokerage sector were defined by M&A activity. Apartment heavy hitter ARA rolled into NGKF on Dec. 1, 2014. Meanwhile, an investment consortium bought DTZ and then folded in Cassidy Turley. Its sights then fell on Cushman & Wakefield—which had just acquired New York City specialist Massey Knakal in January—scooping it up in mid-May.

Among the major food groups, office had the biggest year on the investment sales market, with firms reporting $133.8 billion in such transactions. That’s about 36 percent of the total investment sales volume disclosed for 2014. Multi-family secured the second spot with about 20 percent of activity ($67.3 billion), followed by retail with 17 percent ($53.9 billion). A marked uptick was seen in the hospitality sector, which captured 12 percent ($42.3 billion) of the total investment sales volume. Last year, hospitality accounted for just 7 percent of activity.

These firms also detailed 2.7 billion square feet of leasing activity. We are happy to report that the total square footage leased increased by 8.2 percent from 2013 to 2014. From 2012 to 2013, this square foot value increased 8.4 percent, so perhaps a slowdown in growth is on the horizon.

2015 Top Brokerage Firms 2


The CPE-MHN Index of the Top Brokerage Firms is based on information collected from a survey. No single factor determines the ranking. For this index, we examined how firms have performed over time, using factors like investment sales and leasing activity, as well as the range of sectors covered. All firms in our index are industry leaders in some sense. Some have a strong following in just one sector; others have demonstrated leadership in LEED buildings and services.


Categories Narrative

Part Two on Population — USA

Last week, I talked about world realities. This week, the statistics on the US population, which are staggering.
–1 in 7 Americans live in one of three cities (New York, Chicago, and LA).
–If you look at the top 10 largest cities, almost one in three people live in these.
–America has become urban – a huge shift.
The numbers roll on below, but my takeaways are:

–No wonder the top cities seem to be doing so well. There is more going on.
–I live and work in one of the fastest growing areas but we are dwarfed by the top three. 
–Get used to this, the trend will continue. Smaller communities need to learn how to compete. How? From my perspective, there are lots of ways: Lifestyle, weather, SPACE, and community immediately come to mind.

I am anticipating some feedback from those of you who live in the big three. That is okay, I am a big boy. I can take it.


Metropolitan areas are now fueling virtually all of America’s population growth

Brookings logo

By: Emily Badger
March 27, 2014

Nearly one in seven Americans lives in the metropolitan areas of the country’s three largest cities: New York, Los Angeles and Chicago. That’s a startling stat that’s hard to appreciate even after pondering maps of U.S. population density like this one:
Population Census Map

(Brandon Martin-Anderson)

Add metro Dallas-Fort Worth, Houston, Phoenix, Washington, Miami, Atlanta and Boston to that group (totaling the country’s 10 most populous metros), and nearly one in three Americans lives in these few spots on the U.S. map.

“We are a much more big urban nation than a lot of people think,” says William Frey, a demographer with the Brookings Institution.

New Census data released Thursday further suggests that within the last year (from July 1, 2012, to July 1, 2013), virtually all of the country’s population growth took place in metropolitan areas, with a significant chunk of it even further clustered in and around the largest cities. Over that year, the number of people living in metropolitan America increased by 2.3 million, a figure that reflects both natural growth and in-migration. The population in what the Census calls “micropolitan statistical areas” – smaller population centers with a core of fewer than 50,000 people – grew by a mere 8,000 souls.

As for the rest of the mostly rural country, the population there dropped between 2012 and 2013 by 35,000 people.

Those areas are neither attracting new residents nor producing many of their own, a sign of the exodus of young adults who might be having their own children now. “After decades and decades of out-migration of relatively young people,” Frey says of non-metro America, “what you have is a population that’s much older.”

By contrast, looking at the sheer numbers, these are the places that grew the most in the last year:

10 Metro Areas with Largest Numeric Increase 2

Census Bureau

About one-third of the country’s population growth last year was in these 10 large metros, which grew much faster than smaller metropolitan areas. Frey has divided historic data on population growth looking at metros larger and smaller than 500,000 people, going back more than decade. Not that long ago, smaller metros were growing faster than the larger ones:

Annual Population Growth map

The Y axis shows net growth per 100 people. (Courtesy William Frey)

Among all metropolitan areas, Frey has broken down population growth over the last decade even further here:

Annual Growth Rates map

(Courtesy William Frey)

It’s a little soon in a still-weak economy to draw sweeping conclusions from these last two charts about the relative appeal of inner cities compared to exurbs, or about even broader geographic migration trends at a time when housing mobility is at a historic low. But, as the Census points out, America is still slowly, steadily, growing more metropolitan than ever.

Those 2.3 million new people living in metropolitan America now? Their arrival means the share of the U.S. population living in and around these urban places has inched up from 85.3 percent in 2012 to 85.4 percent.