Sold! Ports Help Close the Deal on Economic Development
Port authorities are expanding their focus to industrial development in hopes of attracting more factories and distribution centers to their area—and their cargo services.
These are still dark days for the country's real estate market. But on properties near many U.S. seaports, the intensifying glow of electric lights around new factories and distribution centers (DCs) creates a brighter picture.
Vacancy rates on industrial properties near seaports fell by 1.4 percent from 2010 to 2011, reaching 8.5 percent, according to a study published in summer 2011 by Chicago-based real estate services firm Jones Lang LaSalle. That compares with a 9.7 percent vacancy rate for industrial real estate in general. Demand for property near airports is picking up, too.
Companies seeking locations for warehouses and DCs, especially near seaports, are fueling much of this growth, says John Carver, head of the Ports, Airports, and Global Infrastructure team at Jones Lang LaSalle. Businesses need more logistics space because they're moving more cargo. And ports are getting ready to handle even heavier volumes.
"Businesses are investing in infrastructure to prepare for the future—the Panama Canal expansion, the emergence of Brazil and other Latin American nations, and the increase of product being transported via ocean container," Carver says. "That's driving the need for warehouse facilities, because that cargo needs a place to go once it hits the docks."
As port operators come to appreciate the role that real estate plays in their success, more of them are joining collaborative economic development efforts. "They're beginning to work with the real estate development industry to jointly promote a more complete solution," Carver says.
That hasn't always been the case. "The viewpoint of the port authorities used to be that once cargo left their gates, it was someone else's problem," he says.
But as ships grow bigger and traffic increases, ports need new strategies to keep containers from piling up on the docks. Solutions based at the port—such as longer gate hours and better automation—aren't enough to solve that problem. "There also needs to be a logistics solution, or a destination for that cargo, to keep the ports working at full capacity," Carver says.
Port authorities also focus on industrial development, because a firm with a factory or DC near a port will naturally turn to that port for transportation. And as more cargo moves through the port, more vessels are likely to call there.
That's the thinking at the Port of Portland, Ore., which competes for ocean services with larger West Coast markets such as Los Angeles-Long Beach and Seattle-Tacoma. "We want to market our industrial land to logistics users who will help us draw more carrier service to the region," says Keith Leavitt, the port's general manager, real estate and properties.
Some port authorities, such as Portland, develop and market land that they own. Others focus on upgrading the port and local transportation infrastructure, aiming to attract new shippers who will set up shop on privately owned land next door.
And sometimes "next door" isn't even important. With inland ports in vogue, many traditional port authorities are working to encourage new development on land that's as far as 200 miles away, but tightly connected to the port by rail.
Here's a look at what four U.S. port-centric areas are doing to encourage local development.
Portland: Preparing for a TRIP
As a port that both sells and leases industrial real estate, the Port of Portland has been active on several fronts. One major project is transforming a former brownfield and Superfund site into a busy industrial park.
The Port of Portland bought the property, the site of a former Reynolds Metals plant, in 2007. Now called the Troutdale Reynolds Industrial Park (TRIP), the site encompasses about 350 acres of developable land.
The first company to occupy TRIP is FedEx Ground, which opened a regional distribution hub there in October 2010. In 2011, New York-based Development Partners submitted a proposal to add two natural-gas fired power plants to the site.
Wetlands and power corridors that run through TRIP make the development a complex project requiring many years to complete. "Work on the port's newest acquisition, 222 acres in the City of Gresham, will be simpler and faster," Leavitt says.
That land, purchased from technology firm LSI Logic, is zoned for industrial use and development-ready. The Port of Portland is working with the Gresham city government to create a master plan for the site, and develop and market it.
The Gresham property should be especially attractive to advanced manufacturing firms. "They typically need larger sites, which are in short supply within our region, and within the port's portfolio," Leavitt says.
The Port of Portland used its own working capital to finance purchasing TRIP and the Gresham site. State programs are helping to finance new infrastructure at TRIP, where the strategy calls for selling the developed lots to occupants.
A different strategy applies at one of the port's more mature sites, the Rivergate Industrial District, which includes an international container terminal and a bulk terminal for grains and minerals, along with industrial properties. "When a property is strategically related to the marine franchise, we typically lease that property, rather than sell it," Leavitt says.
Most of the land at Rivergate is already leased. One tenant that enjoys the location is Portland-based OIA Global Logistics, which operates a distribution center there for Keen Footwear.
OIA arrived at Rivergate in 2008, occupying a 99,000-square-foot facility, says John Danielson, director of distribution at OIA Global Logistics. It has since enlarged its footprint, taking short-term leases on various facilities as needed to accommodate surges in Keen's business. "We've occupied up to 300,000 square feet," he says.
Keen moved its distribution from California to bring the operation closer to its Portland headquarters. The footwear company and OIA chose the Rivergate complex in part because it's home to Terminal 6, the container terminal.
Portland is one of three import points for Keen, along with the ports of Los Angeles-Long Beach and Seattle. "We wanted to be near Terminal 6 to help control drayage costs," Danielson says.
Rivergate also offered the opportunity to occupy a brand new building with specific features that OIA needed, such as 33-foot-high ceilings and plenty of dock doors. And as OIA has expanded into multiple buildings, Rivergate's flat terrain has made it easy to tie those facilities together on the company's data network.
"We can put a radio frequency antenna on top of the primary Keen facility," says Danielson. "If we get another building in the Rivergate area, we shoot this signal to that building." With a straight line of sight between the various facilities, OIA's warehouse management system (WMS) can move data among them as though they were all under one roof.
Among OIA's neighbors in Rivergate, the newest is Subaru America, which finished building a 413,000-square- foot auto parts DC there in October. Trammel Crow, which developed the property for Subaru, also has rights to the one remaining parcel at the site, 68 acres adjacent to Subaru.
Trammel Crow owns the Subaru building, but the port retains ownership of the underlying property, leasing it to the developer for 55 years. That lease is long enough to let Trammel Crow realize a return on its investment in the building.
Brownsville: Building a Borderplex
While the port administration plays a major role in developing industrial land in Portland, near the Port of Brownsville, Texas, the leader in that realm is the Greater Brownsville Incentives Corporation (GBIC). Created by the City of Brownsville, based on state legislation passed in 1989, the GBIC promotes industrial and manufacturing activities in the bi-national region that stretches from Brownsville and South Padre Island to Matamoras, Mexico.
Recently, the GBIC dove directly into the real estate business, acquiring a 73-acre property four miles from the port and contracting with the not-for-profit Brownsville Economic Development Council (BEDC) to market the site's 11 lots.
"This is our first shot at developing land in the greater Brownsville 'borderplex,'" says Gilberto Salinas, the BEDC's vice president. The organization used to concentrate on attracting companies to privately developed industrial parks in the region. Today, though, those properties are mostly full, so GBIC is acquiring new land and adding infrastructure to make it shovel-ready.
A .25-percent sales tax funds GBIC's activities, including the purchase and construction of the new North Brownsville Industrial Park. Although this park is relatively small, GBIC has bigger projects on the drawing board. "We've amassed 350 acres, and we're in the process of purchasing another 200 acres near the industrial park," Salinas says.
In buying and developing these properties, Brownsville draws inspiration from the example of other South Texas communities. "We're doing what San Antonio did 10 years ago," says Salinas, citing a land purchase that eventually helped that city attract a new Toyota assembly plant. A similar project in Victoria brought that city a Caterpillar factory.
At the North Brownsville Industrial Park, which officially opened for business in June 2011, the city has already attracted one new business. Piasa, a manufacturer of condiments, flavorings, and spices based in Monterrey, Mexico, is building a manufacturing plant on two of the park's 11 lots.
Although ocean transportation was not a major issue for Piasa, the port comes up in most conversations with companies looking for a site in the area.
"The port continues to be a key asset and a significant economic engine in this region," Salinas says. "The Brownsville borderplex would not be a true international city if we didn't have the deepwater port."
Virginia: An Ace in the Hole
Coastal Virginia is another region where local communities take the lead in promoting development near the port. Their efforts have paid off well: In 2011 alone, companies purchased more than 2.5 million square feet of industrial or warehouse space in the region known as Hampton Roads, near the Port of Virginia.
One community that has seen a lot of action is the city of Suffolk. In 2011, Ace Hardware Corporation and the Navy Exchange Service Command announced plans to build DCs in Suffolk's 920-acre CenterPoint Intermodal Center.
Ace Hardware currently receives all its imported product through the Port of Seattle. But a distribution network study showed that adding a port on the East Coast could help the company enhance its operations, says Tim Duvall, supply chain director at Ace in Oak Brook, Ill.
After considering several options, Ace chose the Port of Virginia with an eye toward the larger ships that will start sailing through the Panama Canal when the newly enlarged waterway opens in 2014.
"The Port of Norfolk—one of several facilities that makes up the Port of Virginia—is currently the only port that can accommodate the larger vessels," Duvall says. "The port will provide us with opportunities right now that other ports on the East Coast can only start talking about."
Virginia's central location on the East Coast was also an important factor. "The location will provide us with better response time to our retailers, allowing us to help them if a natural disaster occurs," Duvall says.
The new DC in Suffolk will receive and break down imported product for shipment to Ace's regional support centers (RSCs), which then send product to the independent retailers that own the Ace Hardware cooperative. When hurricanes and other disasters send customers rushing to hardware stores for necessities, a DC in Virginia will make it easier to keep those stores well-stocked.
Ace is investing $14 million in the new 330,000-square-foot DC. A $100,000 grant from the Commonwealth of Virginia will help with capital expenditures such as racking.
The company expects to start receiving product at the new facility around May 1, 2012, and start shipping from there to the RSCs around July 1, 2012. Before the Panama Canal reopens, the DC will receive shipments carried by smaller ships through the old Panama Canal.
Another new arrival in the region near the Port of Virginia is Green Mountain Coffee Roasters, which agreed in October 2011 to buy a 330,000-square-foot building in the Shirley T. Holland Intermodal Park in Windsor. Green Mountain will use this facility to roast, grind, flavor, and package coffee for its Keurig Single-Cup Brewing System.
The building that Green Mountain chose had been empty since Johnson Development Associates of Spartanburg, S.C., erected it on speculation in 2007.
"Green Mountain came along looking for some space they could get into quickly, yet have room to expand," says Russell Held, deputy executive director, development at the Virginia Port Authority in Norfolk. "At the Port of Virginia, they found the intermodal park, a community willing to put incentives on the table and a state to back them up, and a developer with a building ready to go."
Other companies that took space near the Port of Virginia in 2011 include the Belgian logistics firm Katoen Natie, which bought a former Ford assembly plant in Norfolk, and Communications Test Design Inc., which took a warehouse on the Indian River.
Miami: Looking Forward to 2014
Although the ability to receive super post-Panamax vessels gives the Port of Virginia an advantage today in the economic development race, other ports are catching up fast. The Port of Miami, for example, has gained authorization and funding to deepen its harbor to the required 50 feet by 2014.
Also scheduled for that year is the opening of the Port of Miami Tunnel, providing a direct link between the port and Interstates 395 and 95. A partnership between the Florida Department of Transportation (FDOT), Miami-Dade County—which owns the port—the City of Miami, and private consortium MAT Concessionaire, the tunnel will allow trucks to move from the port to the interstate network without encountering a single traffic light, says Bill Johnson, director of the Port of Miami.
A third big infrastructure project underway at Miami's port is construction of an on-dock rail terminal. The $50 million in funding for this project includes a $23-million grant from the federal Transportation Investment Generating Economic Recovery II program, $11 million from the State of Florida, $11 million from the Florida East Coast Railway, and $5 million from the port.
Those projects—along with other initiatives such as the purchase of four new super post-Panamax cranes—are all aimed at attracting vessels that will use the new Panama Canal. But to thrive in a world of larger ships and heavier container traffic, Miami needs to do more than improve its own facilities, Johnson maintains. It also needs to make sure there are places to receive all those containers.
That's why the Port of Miami recently signed memoranda of understanding with three developers that want to develop intermodal logistics centers in the region near Lake Okeechobee, each of them about 50 to 70 miles from the port.
The three developers are Florida Inland Port, which plans to build a logistics hub in St. Lucie County; Florida Crystals Corporation, which plans to build the South Florida Intermodal Logistics Center in Palm Beach County; and U.S. Sugar Corporation, which is building in Hendry County. Each developer expects its facility to receive containers from various ports along Florida's coasts.
Under the three agreements, the Port of Miami will share ideas with the developers and possibly engage in joint marketing. And it doesn't matter which of the projects succeeds, as long as Miami can rely on a direct rail connection to a major hub that houses multiple logistics facilities.
"I don't want boxes resting on the Port of Miami," Johnson says. "I want boxes moving." And if they can't move directly to their ultimate destinations, they need a stopping point away from the port.
"You need distribution centers and logistics centers—places that have land, mass, and warehousing in large quantities, and the equipment to handle those boxes efficiently and quickly," he adds.
The DCs already in place near the Port of Miami can handle current traffic, says Kevin Lynskey, the port's business initiatives manager. "But long term, we believe the state will need one or two major facilities to accommodate more trade," he notes.
What's true in Florida is also true for any region whose port is looking for more trade in the coming years. Whether they buy and develop land themselves, or collaborate with government and private sector partners in other ways, seaports need industrial properties nearby. And seaports play a crucial role in drawing occupants to those properties.
Indianapolis Aerotropolis Takes Wing
Inland waterways and ocean ports aren't the only transportation centers promoting infrastructure growth. An increasing number of communities are putting airports at the center of plans to spur fresh economic growth. Some leaders have adopted the term "aerotropolis" for the rings of real estate and infrastructure taking shape around busy air transportation hubs. Memphis, Milwaukee, Dallas-Fort Worth, and Atlanta are among the U.S. metro areas that claim the aerotropolis title.
One of the newest U.S. communities to explore the concept is Indianapolis. Last year, the board of the local airport authority approved a 30-year land use and development plan that calls for creating an aerotropolis through the use of public/private partnerships. Now, the Indianapolis Airport Authority (IAA) is seeking buy-in from local governments.
Airport officials contend that the aerotropolis offers a way to make sure that future development on and off the airport produces compatible projects.
The aim is to avoid unfortunate juxtapositions, such as a housing development next door to the airport, or a parking structure in the flight path. "The airport can only control the airport," says John Clark, director of the IAA. "All the activities outside the airport ultimately will influence the success of this effort."
To launch the collaborative aerotropolis initiative, IAA officials met in late November 2011 with representatives from governments such as the City of Indianapolis, the Towns of Plainfield and Avon, Wayne County, Morgan Township, and others. "We're starting a five- to eight-mile radius around the airport," says Corey Wilson, project manager, IND Aerotropolis, at the IAA.
On the airport's own property, the 30-year plan calls for seven development zones, three of them devoted to aviation logistics, among other uses. Two of the zones could host industrial operations such as light manufacturing.
The IAA also plans to turn part of its property into a "Logistics Center of Excellence"—a home for academic programs keyed to logistics and transportation needs in the aerotropolis. Ivy Tech Community College of Indiana is the first school to announce plans to establish a presence at the center, with classes to start there in spring 2012.
Until the IAA and its partners define the terms of their collaboration, it's too early to predict what kinds of companies the aerotropolis might attract to properties surrounding the airport. But Wilson points to the Town of Plainfield as a possible model. "A number of warehouses and distribution facilities have already located there," he says.
Infrastructure improvements, such as construction of a new connector to Interstate 70 near the airport, will be key to attracting additional facilities. "Multi-jurisdictional bodies would have to work together to make that happen," Clark says. "That's what the aerotropolis does: it gives us all a common direction."