Institutional investors entering secondary markets often overlook how neighborhood opposition and complex entitlements can derail otherwise viable projects, according to a Kansas City developer who advises fund managers.
When institutional investors move into secondary markets, they typically bring strategies honed in significant cities, detailed market analysis, and the belief that their resources can overcome local challenges. But Chris Sally, owner and broker at Iconic Development, LLC, in Kansas City, warns that these investors routinely underestimate the risk posed by local political dynamics—factors not captured in standard market reports.
“Anytime you’re going into a new market, you want to make sure that all the entitlements are wrapped up,” Sally says. “I personally know that I wouldn’t do a development deal in probably three or four neighborhoods because even though it could be perfect for the neighborhood, they’ve had a history of fighting any type of change.”
Sally’s experience highlights a risk that many institutional investors recognize only after committing capital and missing deadlines: neighborhood associations, community opposition, and regulatory complexity can render otherwise financially sound projects impossible to complete.
The Entitlement Risk Premium
Sally argues that the most decisive factor in secondary market development is not market fundamentals or developer experience, but understanding which neighborhoods will support new projects and which will oppose them, regardless of the project’s quality.
He advises institutional fund managers to prioritize local expertise and secure all approvals before deploying any capital. “I would basically suggest that they first off have great consultants, local consultants, but to make sure that the entitlements, the zonings, all of the entitlements are wrapped up before infusing any debt,” Sally says.
This is not just about avoiding delays, he explains, but about steering clear of projects that are effectively undevelopable due to persistent community resistance. In Kansas City, specific neighborhoods have such strong records of blocking new development that experienced local developers avoid them entirely, even when the economics look promising.
“Even though it could be perfect for the neighborhood, they’ve had a history of fighting any type of change,” Sally says. This means that institutional investors relying solely on data on supply-demand dynamics, demographics, or recent transactions may consistently overestimate the number of projects that are actually feasible.
The Local Knowledge Advantage
Sally maintains that knowing which neighborhoods are open to development is a form of local knowledge that cannot be obtained through national market research or by hiring large consulting firms.
“You really have to go into the deal minimizing as much risk as possible,” Sally says. “Whether that’s on the front end of how you source deals and how you find deals that give your acquisition price a lot of flexibility for future mistakes.”
This local insight extends beyond neighborhood politics to understanding regulatory hurdles, incentive programs, and the interests of community stakeholders. Sally’s own focus on the River Market district of Kansas City reflects this approach—he chose an area where multiple incentive programs align, and the political environment favors historic preservation and adaptive reuse.
He describes the River Market as benefiting from “every single incentive overlay on it”—including a National Historic District designation, Planned Industrial Expansion Authority, TIF districts, and other programs. But, as Sally points out, “It does not have a local district, which is great for developers.”
This distinction is critical. A National Historic District status provides access to incentives, while a local historic district typically introduces additional review processes and community oversight that can slow or halt projects. Sally’s attention to this regulatory detail underscores that success in secondary markets depends on understanding nuances that outsiders often miss.
The Cost of Misjudging Local Politics
Sally’s warnings are grounded in real outcomes: projects that are financially viable on paper can fail when local opposition or regulatory barriers are ignored. Institutional investors frequently discover this only after investing significant time and money.
According to Sally, the solution is to ensure that all entitlements are secured before any debt is incurred. “Make sure that the entitlements, the zonings, all of the entitlements are wrapped up before infusing any debt,” he emphasizes.
This approach contrasts with strategies common in major markets, where entitlement risk is often viewed as manageable, and investors expect capital and expertise to overcome local resistance. In secondary markets, however, neighborhood associations can delay or block projects regardless of their economic merits.
Rethinking Infrastructure Investment
Sally’s perspective is that institutional investors in secondary markets must treat local expertise and community engagement as essential infrastructure rather than an optional expense. “First off, have great consultants, local consultants,” he advises, emphasizing that local knowledge is a critical risk management tool, not a discretionary cost.
Whether institutional investors adapt their strategies will depend on how quickly they learn from costly mistakes. Developers who understand local politics and regulatory details have a built-in advantage that cannot be matched by simply increasing capital or relying on sophisticated financial models.
Sally’s approach—avoiding specific neighborhoods despite their apparent economic upside—illustrates that the most successful secondary market investors will not be those with the most significant budgets or the most aggressive forecasts. Instead, they will recognize that in secondary markets, local knowledge is not just helpful—it is essential to protecting investments and ensuring project success.
