Dropping a port into the heartland

By Stephanie Nall and William Hoffman

Retailers have one main concern in mind when they choose the location of a new distribution center, according to real estate logistics consultant Curtis Spencer.

The No. 1 thing when it comes to site selection is this: Where are my customers? Where are my stores? said Spencer, president of IMS Worldwide Inc. It has nothing to do with complex inbound logistics. If I m a retailer, I’m going to put my distribution center where I can reach my customers the fastest, the easiest and the cheapest way possible.

But if the determining factor is the domestic outbound reach, convenience and lower costs through economies of scale on the inbound importing side of the equation make inland ports and logistics hubs increasingly popular.

Fiesta Warehouse at inland Port San Antonio moved the first shipments by rail from East Kelly Railport earlier this month. The 3PL delivered to customers in and around San Antonio.

If the Port of Long Beach, with all its great infrastructure, could just be dropped off in the middle of Harrisburg, Pa., Columbus, Ohio, or Chicago or Dallas or Atlanta, you d have the best of both worlds, he said. You d have a distribution center in the middle of the population hub where your customers are and give them the best and least inexpensive inbound service as well.

That is really what an inland port does it ties together two pieces of the supply chain in one facility.

The flood of containerized imports hitting U.S. shores from Asia is redrawing the country’s logistics facilities map, driving a boom in intermodal centers and inland hubs that developers say will last beyond this year’s slowing economy.

The intermodal is the big paradigm shift, the realization that (global) trade is increasing, and with that, intermodal is increasing, and that s creating the development of these new logistics hubs, said Richard Allen, chief executive of industrial real estate developer The Allen Group.

As long as goods can be manufactured more cheaply overseas than in destination consumer countries such as the United States, real estate developers say demand for master-planned logistics hubs will balloon. As long as populations grow and world economic vitality continues to expand, that will continue, Allen said. A slowdown in the current container traffic and trading volumes is not going to stop the larger trends.

Many trace the move to inland ports to the Virginia Port Authority. In 1989, the agency opened the 161- acre Virginia Inland Port in Front Royal, Va., about 70 miles west of Washington. The Appalachian Regional Commission describes the intermodal transfer facility as something that effectively brings the ports of Norfolk, Newport News and Hampton Roads 220 miles inland.

More complex logistics hubs have been around for 15 years, but they ve only started to come into their own in recent years as container traffic from Asia boomed into West Coast ports. Approximately 11.7 million containers and trailers were carried on U.S. railroads in 2005, compared with 6.2 million in 1990, according to the 2007 study Integrated Logistics Centers by the Heitman real estate investment management firm.

The report suggests that the impact of the enormous logistics volume is doing more than pushing boxes onto railroads. The fat pipelines are attracting more demand for specialized handling that include the more sophisticated logistics services working in concert with intermodal transport.

The intermodal facility takes advantage of lower fuel, transport and labor costs available through rail providers and supply-chain savings made from minimizing the unloading and repacking of containers as they proceed from manufacturing source to retail destination.

More than a collection of warehouses or distribution centers, logistics hubs are master-planned communities providing multiple modes of incoming and outbound transportation as well as accessible infrastructure, continuing development and services. We re almost like city hall, said David Pelletier, director of communications for developer Hillwood. If (tenants) are having a problem with their streets, they come to us, and then we approach the municipal and other authorities.

We feel with our Alliance development we sort of developed the prototype of a logistics hub, Pelletier said. Alliance, north of Fort Worth, Texas, opened in 1994, boasting a cargo-focused airport with an adjacent BNSF intermodal facility.

It was the intermodal business, rather than the airport, that helped build Alliance s fortunes, and that developers say is the key to logistics hub success.

Let’s face it: If you are in a 1 million-square-foot (distribution) facility and getting 30,000 containers a year, the drayage from six, eight or 10 miles away . . . is probably greater than or equal to the rent, Allen said. The point is, you can’t afford not to be adjacent to an intermodal facility if you’re receiving a great amount of containers.

Most logistics hubs are near or have on-site intermodal facilities; with space at a premium at so many U.S. ocean ports, containerized cargo often goes direct from the container ship onto trains for processing elsewhere. Logistics consulting firm Tioga Group estimated that 42 percent of containers arriving at the ports of Los Angeles and Long Beach is distributed this way to the rest of the country.

However, 58 percent is processed through distribution centers in Southern California, such as those at Tejon Industrial Complex, a master-planned development 19 miles from the intermodal site. Barry Hibbard, vice president of commercial and industrial development at Tejon, said his hub’s proximity to West Coast consumer markets means it does not need as much intermodal service as inland ports.

I think it depends on who you re trying to serve and where you re located, Hibbard said. He said corporate emphasis on sustainable development will further propel enthusiasm for large, master-planned logistics hubs.

If you’re doing a one-off development, you could never afford the time to figure this out, or raise the money to do it, he said. This is why green initiatives will push toward master planning, because you have to have a meaningful scale to afford to do these broader sustainable developments.

For most users and developers, however, the key attraction to a logistics hub is a nearby intermodal facility, which Allen characterized as oceanfront property.

Large distributors of consumer goods want to be close to the intermodal, he said.

Another advantage to having an inland port located away from the port is that often you can choose routings through different ocean ports and different rail routes if needed.

Even if the Southern California ports of Los Angeles and Long Beach return to the congestion levels of 2004 or if fees there increase dramatically, cargo destined for Southern California consumers and even for those in surrounding western states will remain there, Spencer said.

But discretionary cargo the boxes headed for farflung distribution centers could be rerouted through new and expanding ports in Mexico, the Pacific Northwest or Prince Rupert. They could also reach the midsection of the country by going on all-water routes through the Suez or Panama canals to East Coast ports.

Kansas City Southern Railway, a north-south carrier in the Mexico-U.S.-Canada corridor, and BNSF Railway, an east-west carrier of Asian imports moving through West Coast ports, have chosen Kansas City as a location for rail logistics parks.

The development of intermodal rail logistics parks in recent years turned Chicago and Dallas-Fort Worth into vibrant inland ports for international freight. Retailers and large importers built distribution centers near Chicago and Dallas to process containerized imports for distribution in the Midwest and Southwest. Railroads are turning their attention to secondary hubs, and Kansas City is the current object of their attention.

KCS and CenterPoint Properties, an industrial real estate company, this month announced a partnership to develop a former Air Force base in south Kansas City into a 1,300-acre rail logistics hub. Late lastyear, BNSF and developer The Allen Group announced plans to build a 1,000-acre logistics park in Gardner, Kan., a short distance from Kansas City.

Several national retailers already have regional domestic distribution centers in the area, said Chris Gutierrez, president of Kansas City SmartPort Inc. The KCS and BNSF projects are significant because they will link Kansas City via rail to international gateways such as Los Angeles-Long Beach and Lazaro Cardenas, Mexico, giving Kansas City a tool for attracting import distribution facilities.

U.S. Customs and Border Protection has an operation in Kansas City, so cargo can move there in-bond from seaports and be cleared at the inland port. Designation of the area as a foreign trade zone further enhances Kansas City s potential for attracting international cargo.

While a trickle of cargo is being diverted from Southern California ports, a bigger flow is sure to come at least for the short-term, Spencer said.

He said that with the International Longshore and Warehouse Union contract talks under way, new and increased port and cargo fees and the whole truck fiasco unfolding in Los Angeles and Long Beach, shippers are looking at alternatives for the year.

Asked about Prince Rupert s future potential as a port that will funnel traffic to inland ports, Spencer said that within two years, no one would be asking the question because it will be solidly entrenched in the North American supply chain.

The current sticking point for moving a greater volume of containers from Asia to the U.S. Midwest through Prince Rupert is the ability of the Canadian National Railway to move it. CN is investing in new train equipment, facilities in British Columbia and track along the route. What is still missing, Spencer said, is an intermodal facility in Chicago to handle a large volume of containers. It s like Kansas City Southern talking about its service from Lazaro Cardenas (in Mexico), Spencer said. Where is the intermodal facility to hold the millions of TEUs it is talking about?

Bill Mongelluzzo contributed to this article.

Texas on a roll despite economic slowdown

By Ian Putzger

Seemingly unaffected by the slowdown in the US economy and the high cost of aviation fuel, Dallas/Fort Worth appears to be on a roll. The latest expansion at the Texan hub comes courtesy of Schenker, which is doubling its capacity at the airport.

Construction has commenced of a 19,000 sq m logistics centre for the forwarding giant. The new facility, which will handle Schenker’s air cargo as well as national supply and distribution business, is slated to open some time this autumn.

According to Schenker, Dallas/Forth Worth is a strategic hub for the company. Besides functioning as a gateway for traffic originating in Asia and Europe for distribution throughout the central US, the centre is used for consolidating freight from Texas and the US Southwest for pan-North American distribution or exports to the rest of the world.

Schenker is not the only forwarder that is boosting its footprint at Dallas/Fort Worth. US cargo agent Seko recently moved into a larger facility close to the airport to offer full-service logistics operations serving most of Texas and Louisiana. The new building gives Seko 40 percent more dock space and 35 percent more office space.

On the carrier side, the most recent boost for Dallas/Fort Worth came in October, when Lufthansa Cargo boosted its freighter flights to the airport to four a week and extended the route to Mexico City for two of these frequencies. A number of carriers and US forwarders have stepped up their business in Mexico in response to growing demand during the past year.

Dallas/Fort Worth currently has 39 weekly freighter links to Asia, including B747F service from Cathay Pacific, Air China, China Cargo Airlines and Singapore Airlines. More are on the horizon. Jade Cargo Airlines has designated Dallas/Forth Worth as the destination for its first US operation, and Air Bridge Cargo wants to route B747-400 freighters from its Siberian hub to Dallas/Fort Worth to link the US gateway with its China flights. No decisions have been announced so far from either carrier when the planned services will take off.

In another part of Dallas, the authorities are hoping for a bigger piece of the logistics pie too. The 6,000-acre Dallas Logistics Hub, which is located adjacent to the intermodal rail terminal of Union Pacific and close to four major highway connectors, has been included in the expansion plans for a foreign trade zone.

According to the local authority, the hub is “a key component of the NAFTA (North American Free Trade Agreement) infrastructure and will serve as a major ‘inland port'”, handling imports from Asia landing in California, Houston and the new deepwater ports in western Mexico for regional and national distribution.

March 13, 2008

Gardner OKs abatement for logistics hub

The Gardner City Council has endorsed an extraordinary property tax abatement for a proposed logistics hub that could be built next to an intermodal distribution center BNSF Railway Co. is building in the city.

Property taxes on the proposed hub’s development by The Allen Group would be cut by 85 percent for 10 years. The city’s usual abatement is 50 percent for 10 years.

The Allen Group projects building as much as 12 million square feet of warehouses. Also on Wednesday, the council requested state backing of the city’s draw from the state’s transportation revolving loan fund. Cities usually guarantee these loans, but Gardner’s budget is too small to support infrastructure whose cost could exceed $60 million, excluding a new Interstate 35 interchange.

March 12, 2008

Feds Clear 3,200 Acres for FTZ 39 Expansion

By Connie Gore

DALLAS-After two years of groundwork and federal hurdles, nearly 3,200 acres in South Dallas County have been cleared for Foreign Trade Zone status. Five commercial developers and Lancaster Municipal Airport will share in the tax-free windfall, which is the largest expansion of an FTZ zone in Texas and perhaps the US.

“It’s in place and ready to go as soon as they do a deal,” says Michael Pyles, the point man for Dallas/Fort Worth International Airport board’s drive to expand FTZ 39. The decision gives added negotiating leverage to developers for their distribution centers and warehouses in and around the Union Pacific intermodal yard in southern Dallas County. The zone is classified as a second site so it’s a wide open prairie instead of being structured as a subzone, which is tenant-specific.

Pyles tells GlobeSt.com that the six landowners in the expansion area paid a pro-rata share based on acreage to cover the $200,000 tab to expand FTZ 39 from 574 acres to nearly 3,200 acres. San Diegobased Allen Group is the largest stakeholder, having added 1,949 acres to its previously approved 1,303 acres of FTZ-designated land in the Dallas Logistics Hub. Sunridge Business Park’s owner, Wilmer-Pleasant Run LP of Dallas, got approval for 434 acres; Dalport Business Park, now owned by Chicago-based First Industrial, put in 356 acres; ProLogis 20/35 Park, owned by Denver-based ProLogis, paid for 175 acres; Crossroads Trade Center, a project of Fort Worth-based Hillwood, locked in 112 acres; Lancaster’s airport board secured 50 acres; and Indianapolis-based Duke Realty Corp. added 32 acres in Duke Intermodal Park. The land block straddles the cities of Hutchins, Wilmer, Lancaster and Dallas’ southernmost tip, where several million sf of spec product is rising or proposed, including the Allen Group’s first two buildings, totaling 827,850 sf, at 4800 and 4900 Langdon Rd.

“We do have others showing interest,” Pyles says. “We probably will do an expansion in the future if they go through the hoops these people did.”

CEO Richard S. Allen says Dallas Logistics Hub is the largest FTZ-designated block in the Allen Group’s portfolio with the expansion. The developer’s previously designated land was part of his 2,000-acre purchase of Southport. “It was still important that [expansion] application get processed because we need that designation on other sites,” he says about the 6,000-acre Dallas Logistics Hub. “We did have a user that did need it and we lost that user to another park.”

Dealmakers say there was more than one lost deal in recent years as the application was making its way through the process, which involved clearances from all school districts, municipalities and Dallas County before it moved to the feds’ desk. “Any amenity is valuable. With Triple Freeport and now the Foreign Trade Zone, it just adds to the marketability,” says Jeff Thornton, Duke’s senior vice president of operations in Dallas, who added. “if tenants need it in the future, it’s there.” Duke has added the 627,100-sf Duke Intermodal Park to the FTZ zone.

D/FW airport’s board is the gatekeeper for FTZ 39, having sought expansions via subzones in the past, but not a full-blown expansion. “This is the largest we’ve ever sponsored. I know it’s the largest in the state of Texas,” Pyles says, “and one of the largest in the US.” The board has 2,500 acres of on-airport designated land in its bank.

“Parks are sustainable without it. Certain customers use it and certain customers don’t,” Allen says. “Clearly we do not have any industrial parks without a Foreign Trade Zone opportunity. That’s an important part of the package.”

March 12, 2008

Logistics Real Estate: Dallas Logistics Hub Gets Foreign Trade Zone Designation

By Jeff Berman

DALLAS—Commercial real estate developer TheAllen Group announced this week that one of itsdevelopments—the Dallas Logistics Hub (DLH), its 6,000-acre multi-modal logistics- and manufacturing-focused industrial park—has been included in the expansion Foreign Trade Zone (FTZ) #39 in Dallas.

According to the Allen Group, the DLH is the largest new logistics park under development in North America. FTZ 39 is primarily located at the Dallas-Fort Worth Airport. It is comprised of 2,469 acres that are available for foreign trade zone use, according to DFW Airport officials (with the addition of the DLH, its footprint will expand to roughly 3,200 acres, according to the Allen Group). And it is a 621-acre business park north of Highway 114 along with two air cargo distribution centers that total more than 70 acres and provide sites with direct ramp access. FTZ 39 also includes a 160,000 squarefoot warehouse that is owned by DFW Airport. The warehouse offers multiple services for shippers, including: distribution handling; freight forwarding; export packing; and consolidations, among others.

The Allen Group said in a statement that the DLH officially received the FTZ 39 designation late last month, and it added that future DLH customers—or shippers—will be able to streamline domestic and international shipments by deferring and exempting goods from duty and making customs procedures more efficient.

The statement also noted that an FTZ provides U.S. importers, notably retail distribution operations, with supply chain cost savings through consolidated weekly entries to Customs, reduced duty rates through assembly or pick and pack operations, duty deferral, and local tax benefits. An FTZ designation also allows foreign items to enter the Zone and defers duty payments until those items exit the zone and enter the stream of U.S. Commerce.

While being part of FTZ 39 is likely to yield various benefits for shippers that do business at the DLH, it is likely the biggest advantage for them will come from the tax savings they will see, said Leslie Jutzi, Allen Group director of government affairs and community relations, in an interview.

Mike Pyles, FTZ 39 manager at DFW Airport, added that taxes on inventory items are exempt from being taxed and puts them in an “exempt” status, whether they are held for import or are imported into the FTZ.

“It is a big positive [for shippers], and it adds numerous jobs to the economy by having all this land as a trade zone,” said Pyles. “If the DLH has a future tenant come in that wants to buy 200 acres worth of DLH space that needs FTZ status, the Allen Group can offer them a site that is already in the zone without any waiting processes needed. All they need to do is an operating agreement with DFW Airport, and they are up and running.”

The Allen Group’s Jutzi also pointed out that when potential tenants look at potential sites, they typically have a list of items they want to see at a site. That list, she said, usually includes a certain amount of land, close proximity to highways and airports, and an FTZ designation.

Along with its 6,000-acre footprint, the DLH’s land is master-planned for the potential development for 60 million square feet of vertical logistics and manufacturing space, according to the Allen Group. The DLH is adjacent to Class I railroad carrier Union Pacific’s intermodal facility, the BNSF rail line, major highway connectors—I-20, I-35, I-45, and the proposed Loop 9—and Lancaster Airport, which is in the master plan stages to facilitate cargo distribution. DLH development is part of four different cities in Texas: Dallas, Lancaster, Wilmer, and Hitchins.

The Allen Group held a grand opening ceremony for the DLH in April 2007.

March 7, 2008

Southwest JoCo can track changes from intermodal hub

The 20-year buildout of a freight hub BNSF Railway Co. plans near Gardner gradually will affect everything about southwest Johnson County, from the lay of the land to the area’s economics.

“The hub will have as much of an impact on Johnson County and the state of Kansas as the Kansas Speedway f you look at jobs and economic effects,” said Tim McKee, the Olathe Chamber of Commerce’s vice president of economic development.Johnson County around Olathe, Edgerton and Gardner.

The BNSF Intermodal Facility and Logistics Park will be on 1,300 acres. The Allen Group will have 8 million to 10 million square feet of distribution space there, and other firms are just beginning speculative development on other land in southwest Johnson County around Olathe, Edgerton and Gardner.

Twenty-five years from now, the southwest part of Johnson County will have changed drastically, McKee said. The Interstate 35 corridor south, including Gardner and Edgerton, will become a hub for distribution.

March 3, 2008

The Allen Group Names Ken Howell Chief Financial Officer

SAN DIEGO–(BUSINESS WIRE)–The Allen Group, one of the nation’s leading developers of Logistics Parks and Inland Ports, today announced the appointment of Ken Howell as Chief Financial Officer. Howell will oversee the Company’s financial operations, including accounting and tax reporting, monitoring financial resources, and securing project financing. He will also develop and implement capital raising initiatives and manage IT systems corporate-wide.

“Ken brings more than 20 years of experience in finance, accounting and real estate to The Allen Group,” said Edward B. Romanov, President and Chief Operating Officer of The Allen Group. “His combination of management and industry experience are an excellent fit to meet our Company’s future financial objectives.”

Prior to joining The Allen Group, Howell previously served as Senior Vice President and Chief Financial Officer at McWhinney, a commercial development company in Northern Colorado. During his tenure, corporate assets grew to include a portfolio of office and industrial buildings, retail centers, hotels, restaurants, apartments and 5,000 acres of land under development.

Prior to McWhinney, Howell served at ESPN Inc. as Vice President of Finance of their $150 million subsidiary based in Charlotte, North Carolina. At

ESPN, Howell helped develop the accounting, internal controls, financial reporting and IT systems for the company, which specializes in the marketing, production, and syndication of NCAA collegiate sports, PGA golf, auto racing and NFL football.

Howell also formerly served as Vice President of Finance for Clayton, Williams & Sherwood, Inc., a residential developer and property management company located in Newport Beach, California. He was also a Senior Auditor at Arthur Andersen & Co. in Austin, Texas.

Howell earned his MBA from Duke University and is a graduate of the University of Texas. He is also a certified public accountant.

Editor’s note: A high resolution photo of Ken Howell is available upon request.

About The Allen Group

The Allen Group, one the nation’s fastest growing privately held commercial development firms, specializes in high-end industrial, office, retail and mixed-use properties throughout the United States. The Company’s major focus is the development of Logistics Parks and Inland Ports that are situated adjacent to some of the most sophisticated rail, intermodal and highway infrastructure in the country. The Allen Group developed over one billion dollars in projects ranging in size up to 1.7 million square feet and currently has more than 8,000 acres under development across the United States. The Allen Group is based in San Diego with regional offices in Visalia, Bakersfield (Calif.), Dallas and Kansas City. For more information about the Company, please visit www.allengroup.com.

March 3, 2008

Real Estate’s Growth Zone: Industrial

Ask key players in the industrial development community about the effect of the ongoing real estate plunge, and you’ll get universal consensus that conditions on the commercial side are not nearly as woeful as those on the residential. Beyond that, the unanimity ends. Driven by considerations of global trade growth, local land availability and regional economic factors, the outlook varies considerably by geography.

United Nations’ projections call for an increase in U.S. container handling from 197 million TEUs in 2005 to 492 million TEUs by 2015. This compound annual growth rate of 9.5 percent has a pronounced effect on those industrial real estate markets more closely aligned with international trade. “This longterm trend of increasing container traffic means our customers need more distribution centers for their products before transporting them inland or distributing to regional outlets,” Gerald Pientka, executive vice president of development for First Industrial Realty Trust, noted. Overall, “demand for industrial space remains strong in markets with a close tie to the global supply chain,” said Anthony Chiarello Sr., vice president for customer development at AMB Property Corp.

Brian Black of Hyundai Merchant Marine painted a conservative picture for the West Coast. “Although real estate prices have dropped in recent months, there will always be a need for land. Therefore, in my opinion, the current situation will only have a temporary impact on the industrial real estate market on the West Coast.”

Jon Cross, director of marketing for The Allen Group, concurred. “The residential slowdown has a little slower growth and development of trade, but this will not be a huge negative for anyone.” He projected that growth rates previously pegged at 10 percent might drop to 5 percent for the short term. In general, West Coast interests remain convinced that global trade expansion in the coming decade will generate steady growth in commercial development markets in the region.

A number of other factors impact trade driven commercial projects on the West Coast. Shippers rationalizing their supply chains have turned increasingly to all-water services to the East Coast via the Panama and Suez canals. Port congestion, equipment shortages and previous labor stoppages are among the factors that have driven many shippers to tweak their routings. The impending enlargements of both canals will further facilitate the all-water option.

California ports lead the nation in competition for scarce waterfront acreage. Often retail, commercial and residential projects vie for the same properties. Additionally, stringent environmental safeguards place limits on the location and nature of development.

James T. Edmonds, chairman of the Port of Houston Authority, pointed to the trade hinterland as another driver. “The markets served by the West Coast ports are not growing at a very robust rate. However, the markets served by the Port of Houston are quite strong and growing at twice the national average. One could conclude that the downturn of the West Coast C&I (commercial and industrial) market has actually been beneficial to the Port of Houston,” he said.

Matt Tramel, manager of corporate affairs and marketing for CenterPoint Properties, had a more optimistic outlook for the Midwest. “In Chicago, there is no slump in industrial real estate. We often don’t see the voluble swings that can occur on the coasts. Because of our diverse commercial community, we support a 1.3 billion-square-foot market. We’re not overbuilt, and there’s still a lot of new construction happening,” he said. Tramel cited Chicago’s fortuitous location as the prime reason for its status as a major transportation hub and predicted that irreplaceable infrastructure assets will continue to dictate a leadership role for the Windy City.

The new wish list given sufficient land availability, developers must deal with a sophisticated new breed of site seeker. Certainly, traditional demands for strategic location, accessibility, a competent labor pool and competitive utility prices still pertain. However, the proliferation of new sourcing options among global shippers has dramatically expanded their list of selection criteria.

Tramel cited the cost of transportation as the key factor driving site selection decisions. “Our goal is to have enough land to build an intermodal hub for a railroad. We need 500 to 1,000 acres to do it right. We also want to have adjacent land for development of distribution centers. To the extent that you can reduce the distribution center to rail dray, you improve the cost equation.”

Many large retailers move more than 100,000 TEUs annually. For them, the cost differential between a half-mile dray and a 10-mile-trip can represent a staggering add on to their annual transportation bill.

Chiarello of AMB observed that the most traditional of site selection criteria still applies. “Location is the most important concern in most cases. Customers want to find the best location in terms of time-to market/proximity to customers, available land, infrastructure and transportation costs. AMB’s strategy supports this approach with our focus on the optimal markets tied to global trade those near top airports, seaports and distribution hubs.”

Historically, site seekers were eager to negotiate free land as part of their location package. However, the common sense of product distribution suggests that incremental costs related to trucking to and from remote sites often make such parcels a poor bargain.

To quantify the location decision, developers in the Dallas Logistics Hub make available a “drayage calculator.” This enables the customer or tenant to specify building size and number of containers per year, and then cross-reference it with a map of potential Dallas metroplex sites to compare and contrast total costs and develop real-time drayage data.

Hyundai’s Black said, “The concerns expressed that prevail consistently start with location. A distribution center must be ideally located to meet the transit time demands of the customers that are served by that distribution center. Regardless of the price of land or labor, if a distribution center is too far from the customer, it is ineffective and will be replaced quickly.”

Given waterfront land constraints in many harbors, port and terminal operators must turn to increased efficiency as the means to absorb the monumental trade increases coming their way. Basically, their task becomes one of optimizing throughput across an existing footprint.

Black believes the opportunities are apparent and achievable. “As a simple example,” he said, “If a port in Asia loads an average of 50 containers per crane per hour, but a West Coast port discharges an average of 22, a bottleneck is created and vessels and containers sit, which is not efficient.” He pointed to modifications in work rules and technology advances as two primary remedies and said, “This chain of events would have a positive and efficient impact on inventory control, thereby reducing the cost to businesses that import, as lead times are reduced and less capital is invested in inventory.”

Ports are proceeding on multiple fronts to do more with what they have. Dockside, faster cranes with multiple-pick capability are the order of the day, and must be specified for the coming generations of post-Panamax vessels. On-dock and terminalproximate rail facilities expedite the loading of the unit trains that carry an increasing share of containers destined for inland population centers.

In the container yard, higher density stacking and storage facilitate increased container handling. This, of course, necessitates an entire new generation of yard handling equipment. Another burgeoning trend is the use of radio-frequency identification and scanning equipment for real-time monitoring of equipment location. The demand for increased across-terminal velocity necessitates continuous improvement of information systems utilized by port operators and their customers to view shipment status and details throughout the transportation cycle.

The Port of Savannah provides a particularly ambitious example of the trend. Under the auspices of its “Focus 2015” master plan, the port will combine technology, infrastructure and terminal layout innovations to triple handling capacity at its Garden City Terminal.

The coastal space crunch is good news for real estate developers working on inland projects. These range from stand-alone warehouse and distribution center projects to multi-user logistics parks to full-blown “inland ports.”

The latter is not a new term, and in some instances the early versions were actually developed by port authorities looking for ways to alleviate the strain on existing facilities. However, private developers are now major players in this arena, and there’s no shortage of ongoing projects. While no one enjoys a copyright on the term “inland port,” Cross of The Allen Group uses it to refer to some very specific criteria. The Transportation Institute of North America, the Inland Port Network, the Center for Transportation Research at the University of Texas and the real estate investment
management firm Heitman have developed what they consider to be a very specific set of criteria for any location to qualify as an inland port. The site must be located away from traditional land and air facilities. It must, however, enjoy strategic access to a major container port. It should be located away from coastal borders. There must be an intermodal facility adjacent to or in the park. There must be service by a Class I railroad. A minimum of 1,000 acres is needed. Customs and Border Protection clearance services must be on-site. There should be designation of a foreign trade zone. The site should be close to, but not within, a major metropolitan area. The tract should be adjacent to a north-south or east-west interstate highway. Strong labor pool availability is vital.

While agreement on this definition may not be universal, it does point out that the defining characteristics of an inland logistics facility go far beyond acreage and a spec building. Therefore, Cross sees an expanded strategic role for companies such as his. “Development companies like us are providing realistic solutions for the global supply chain. We’re enabling companies to reduce cost and be more efficient.”

LEEDership

Increasingly, real estate developers must deal with a “green” agenda. Project developers and site seekers have long since abandoned the view of environmental considerations as legislatively mandated cost add-ons. “Our development philosophy is certainly becoming greener… not because it’s a trend, but because it’s the right thing to do,” said Matt Tramel of CenterPoint Properties. Cross noted that the most compelling argument for going green is that “customers are asking for it.”

Cross detailed some of the measures his firm routinely incorporates into their site plans. “We have a long-standing practice of employing environmentally friendly and energy-efficient building standards. These include lighting and day lighting specs, on-site storm water filtration, ground water recharge, and use of recycled, locally sourced and ‘green’ building materials.”

Other examples of environmentally sound practices employed by the development community are: Recycling of building materials, including asphalt and insulation. Development of dedicated roads for trucks to mitigate traffic concerns, Wetlands preservation. AMB’s commitment is evidenced by its construction of its first LEED-certified facility in Savannah, which is also the first in the Southeast. The U.S. Green Building Council created LEED, or Leadership in Energy and Environmental Design, as a voluntary green building standard and certification system. Chiarello said, “All future AMB development in the United States will incorporate LEED specifications, and we will actively seek recognition for these projects through certification.

There is an incremental cost to build to the LEED standard, but we believe the payback in many cases is nearly instant with the marketing advantage provided by a more efficient facility.”

Cross discussed a parallel course: “Part of our commitment to going green is we are starting to develop industrial buildings as LEED-certified. We are beyond ‘if we’re doing it’ to responding to a specific customer demand.”

Ports play an equally proactive role in the effort. Edmonds said, “We’re certainly focused on environmental impact reduction and mitigation. The PHA is ISO-14001 certified, the first port in the United States to be so certified, and the first to become recertified.”

Port authorities and terminal operators have no shortage of environmental issues to consider. A recurring issue for many of them is the intelligent disposition of dredge spoil. On the equipment front, many are moving away from diesel electric cranes and yard equipment to fully electric options. Given their vast paved container yards, they must constantly incorporate provisions for storm water runoff into their master plans. Traffic control and green building design are other focal points. The use of long-haul rail for inland container moves offers additional potential for environmental mitigation. Given sufficient infrastructure and adequate bridge clearance, unit container trains reduce total emissions by removing hundreds of trucks from the road. This option is even more attractive for long distances, given the identified cost  advantages for rail versus motor carriage beyond 500 miles.

The Seattle development First Park Meridian Campus, a First Industrial Realty Trust project, will incorporate many green design and energy saving elements including energy efficient lighting, reflective roofing, water conservation, bicycle storage and hybrid car parking. The upfront cost for these elements is higher explained Gerald Pientka, but due to the strong consumer demand. First Industrial now “factor(s) them into the design and our investment underwriting,” he said. Whenever the potential for demand in excess of capacity exists, competition emerges. Limitations in the U.S. port complex suggest that new gateways in Canada and Mexico could soon come into play. Black summarized, “Port developments in Canada and Mexico should be praised for introducing new ideas and solutions to the port sector.

At the moment, their impact is minimal to traditional West Coast ports and resulting real estate because the container volume being handled by Canadian and Mexican ports is not consequential. However, that does not mean these developments are not positive because any relief they provide in reducing congestion in the West Coast can be helpful for the ports, the carriers, importers and, ultimately, the consumer.”

Edmonds also sees Mexican and Canadian facilities as potentially viable alternatives, but he cited certain limitations. “Capacity constraints of these emerging ports will have an impact on their use. Additional handling requirements and Customs considerations will also impact the shipper’s decision to use these alternatives. Of course, landing a container is only part of the consideration efficient intermodal transit from port to market is the more compelling consideration,” he said.

The tea leaves

Edmonds summarized the shared optimism of the development sector by saying, “The need for C&I real estate has always been directly correlated to the population growth and economic growth of target market areas. Population growth will continue to fuel demand, and economic growth will continue to provide the wherewithal to produce and procure. As such, growth in global trade and growth in the industrial C&I Page real estate marketplace will continue.”

“As global trade continues to grow, supply chains are lengthening, being reconfigured and new designs are being developed in emerging markets. These factors, in addition to customers continually rationalizing supply chains and looking for more efficient systems, translate into growth for the industrial sector,” Chiarello said.

CenterPoint’s Tramel echoed this sentiment, “We’re confident in the strength of the U.S. economy, and we foresee that there may be a balancing out of import-export ratios. There will be a time when we’llbe exporting a lot more. As far as the trend in real estate, growth in major metro areas will continue. We don’t see any lessened appetite for consumer goods, which drives our growth.”

Within the overall development landscape, two specific trends are gaining momentum. Vertical expansion in strategic markets that rely on international trade and demand in submarkets surrounding key areas in the global supply chain is increasing. “With limited land availability in the areas immediately surrounding locations tied to global trade, the demand in adjacent areas will continue to grow,” Chiarello said.

While the residential mortgage crisis has had a chilling effect on the commercial sector in certain locales, nationally the impact is seen as minimal and short-term. Particularly among entities reliant on inter- national commerce, the domestic effect of the slowdown is offset in multiples by continuing fulfillment of ambitious global trade projections. The equation is basic: Consumer demand drives trade, which in turn drives commercial real estate development. A healthy prognosis would seem indicated for all three players. Port development in Mexico may soon provide some congestion relief at West Coast ports such as the Port of Long Beach and Los Angeles. Dallas Logistics Hub is situated for prime connectivity and features a ‘drayage calculator” for clients’ cost comparison of local site use. Chicago’s industrial real estate profile has been bolstered by projects like the redevelopment of the former Joliet Arsenal into CenterPoint Intermodal Center in Elwood, III. AMB Morgan Business Park will provide the Savannah, Ga., region with 3.3 million square feet of LEED-certified speculative distribution space. The Port of Houston was the first U.S. port authority to achieve ISO 14001 certification, an international standard that manages an organization’s environmental impact.