December 3, 2008

Logistics real estate: Allen Group to host Bridge Terminal

Transport container yard at Dallas Logistics Hub

By Jeff Berman

DALLAS—Commercial real estate developer The Allen Group said this week it has executed a lease with Bridge Terminal Transport (BTT) in whichBTT will develop a build-to-suit container yard at the Dallas Logistics Hub (DLH).

BTT is a maritime container hauler that covers major U.S.-based port locations and inland rail sites andalso provides global container services, agency, logistics, and terminal activities. The DLH is a 6,000 acre multi-modal logistics- and manufacturingfocused industrial park, which is being developed byThe Allen Group. It is the largest new logistics park currently under construction in North America. Allen Group officials said that with this move BTT will relocate their container yard operations from an existing facility near the Love Field Airport to a DLH site within the City of Hutchins. They added that will close proximity to Union Pacific’s Dallas Intermodal Terminal (DIT) and Interstate 45, the container yard will store inbound and outbound containers transferring through DIT, as well as chassis and trailersfor customers.Construction for the new container yard is underway, and it is expected to be completed by February 2009.

In an interview with LM, Daniel J. McAuliffe, president of the Allen Group’s Texas operations said that based on company information the UP DIT is operating at approximately 350,000 lifts, with the ability to operate at 385,000 and expand to 685,000 with some physical and operating changes.

With the addition of DDT into the fold, McAuliffesaid that the proximity of the DLH location to the UP DIT is attractive to shippers because “by choosing this location they can better service their customers’ needs and decrease the drayage costs.”

Another benefit of this new container yard, explained McAuliffe, is that it is will be the first storage facility within the DLH that will allow foraccessible integration between the DIT and distribution customers in and around the logistics park.

When asked if there are future plans for any other marine container haulers to take up residence at the DLH, he said that the Allen Group is currently in discussions with several other operators considering opportunities at the DLH, some as small as ten acres and others are more than 50 acres.

The DLH, which had an official groundbreaking ceremony for its first two industrial buildings in November 2007,is master-planned for the potential development of 60 million square feet of vertical logistics and manufacturing space. Along with Union Pacific’s intermodal facility, it is adjacent to 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 stages to facilitate cargo distribution. DLH development is part of four cities in Texas: Dallas, Lancaster, Wilmer, and Hutchins.

Cargo Container Firm Signs Deal in Dallas Logistics Hub

By Steve Brown

Developer Allen Group − which is building the 6,000−acre Dallas Logistics Hub in southern Dallas County − said Tuesday that it has signed a new deal with a cargo container firm.

Bridge Terminal Transport, a marine container hauler with locations across the U.S., will relocate its existing container yard from Love Field in Dallas to the project.

The new location is near Union Pacific Railway’s Dallas Intermodal Terminal in Interstate 45 in Hutchins.

“We are pleased to work with Bridge Terminal Transport to provide them with a perfect location for its Dallas container yard facility,” Daniel J. McAuliffe, president of The Allen Group’s Texas operations, said in a statement.

“This will be the first storage facility within the Dallas Logistics Hub that will allow accessible integration between the Dallas Intermodal Terminal and distribution customers in and around the logistics park.”

Allen Group said construction has begun on the facility which will open in February.

Bob Hagewood of Stream Realty Partners LP brokered the real estate transaction.

The Allen Group is based in San Diego and is developing about 8,000 acres in the U.S.

Dallas Logistics Hub Gains New Tenant

The Dallas Logistics Hub, a logistics park in South Dallas County developed by The Allen Group, announced this week that Bridge Terminal Transport has signed a lease and will be moving its container yard operations into a new facility in the park.

Bridge Terminal Transport is a marine container hauler that currently operates its container yard operations near Dallas Love Field Airport.

The Allen Group says construction is under way on the new Bridge Terminal Transport facility, which is expected to be operational by February 2009. The project will add 15 full-time jobs.

Allen Group to Develop Dallas Container Yard

By Thomas L. Gallagher

The Allen Group will develop a build−to−suit container yard at the Dallas Logistics Hub for Bridge Terminal Transport.

BTT will relocate its container yard operations from an existing facility near Love Field Airport to the 6,000−acre DLH multi−modal logistics park near Union Pacific’s Dallas Intermodal Terminal. The yard will store inbound and outbound containers that transfer through DIT, as well as chassis and trailers.”This will be the first storage facility within the Dallas Logistics Hub that will allow accessible integration between the DIT and distribution customers in and around the logistics park,” said Daniel J. McAuliffe, president of The Allen Group’s Texas operations.

With construction already underway, the yard is expected to be fully operational by Feb. 2009.

Fresno in the Center of the Action: What Makes the Valley

Such an Attractive Redistribution Site to Warehousing

Companies?

The central San Joaquin Valley is becoming a major distribution center for the western United States — but its foothold could be challenged by competitors as diverse as a Mexican port and faraway Indian reservations.

An industry survey says relatively low operating costs and a mid-state location make the Valley a strong candidate when businesses are looking for new warehouse sites. “Fresno shows exceptionally well,” said John Boyd, a site relocation specialist.

He estimated the cost of operating a 500,000-squarefoot warehouse employing 225 people in Fresno at $17.2 million per year. It is a close second in California to Bakersfield, and only slightly more than Las Vegas and Reno. Until recently, the Nevada cities came up winners in the battle to reap property tax revenue and jobs from what economic development experts call the “logistics industry.”

But success for Las Vegas and Reno came with a price. “It’s economics 101,” said Stewart Randall, an industrial specialist at Colliers Tingey International in Fresno. “Everyone wanted to go to Reno and that drove up prices” in the region.

But cost is only part of the equation. Geography is as important, and businesses like that Fresno is dead center in the state. That makes it the best place to ship product statewide and has the added advantage of being midway between ports in Oakland and Los Angeles.

“Some have moved here because they want the option of the Oakland port if a strike occurs in Los Angeles,” Randall said.

The combination of low costs and location is the reason why Wal-Mart, Gap Inc., Sally Beauty Supply, Sears and Joanne’s have expansive distribution centers in the Valley — and why developers are building more warehouse space.

“Fresno is within a two-day drive of 11 of the largest cities in the Southwest and a four- or five-hour drive of every major market in California,” Boyd said.

Steve Geil, president of the Economic Development Corp. serving Fresno County, said the potential of warehousing and distribution can’t be overstated. “There is no question Fresno’s future is tied to that,” he said. More than 500 trucking companies operate in the area, two railways have facilities and the nation’s largest parcel companies have a presence at Fresno Yosemite International Airport.

Looking for space?

Geil said his agency continues to receive inquiries from businesses that need distribution centers, even in this slow economic climate. Logistics and distribution businesses comprise about one third of the 47 companies that are considering expanding into Fresno County, Geil said.

In the last six months, three businesses searching for sites for 1-million-square-foot distribution centers have toured the Valley, said Jon Cross, marketing director at The Allen Group, which is developing large-scale distribution centers in Visalia and Shafter.

The Allen Group has developed 2.5 million square feet of warehouses at its Mid-State 99 complex at Goshen Avenue and Plaza Drive in Visalia. About 300 of the 480 acres there remain available for development.

“Mid-State 99 works for California because it is one of the only areas in the Central Valley where UPS can reach Northern and Southern California overnight at ground rates,” he said.

Fellow developers Buzz Oates of Sacramento and Diversified Development Group of Fresno recognize the importance of geography. Both are expanding in the region.

Oates, who has 1.5 million square feet of warehouse property in Fresno, Tulare and Madera counties, is starting construction of an 82,000-square-foot building at a warehouse complex on Elm Avenue in southwest Fresno.

Oates also has bought 41 acres next to Kraft Foods at North and Orange avenues.

On Track

By Rob Roberts

Railroad tracks bisect the site of the planned intermodal facility called Logistics Park Kansas City west of Gardner. Intermodal shipping—the use of containers to move freight between trucks, trains, planes and ships—is nothing new for Kansas City.

“We’ve got intertmodal operations all over our city,” said Mark Sonnenberg, director of industrial sales and leasing for Colliers Turley Martin Tucker in Kansas City.

What’s new, Sonnenberg said are the three joint intermodal ventures with industrial developers—two launched by Class 1 railroads, the other by the Kansas City Aviation Department—that are detailed in this section.

Each will result in a modern, uncontested freighttransferring hub surrounded by hundreds of acres of distribution centers, most ranging from 400,000 to 1.5 million square feet. And together they will generate a brand-new industry for the region.

“We’re not making the pie bigger; we’re making a whole new pie,” said Bill Crandall, Kansas City president of The Allen Group, a San Diego-based developer planning more than 7 million square feet of industrial buildings around BNSF Railway Co.’s proposed intermodal facility in Gardner. Crandall, who formerly served Zimmer Real Estate Services LC as master developer for the Village West development in Kansas City, Kan., and development manager for the Sprint, World Headquarters campus in Overland Park, said his new job satisfied his flair for transformational developments.

“Historically, 250,000 square feet would be the biggest industrial, building you would see built in this market,” Crandall said. “But because of the new system of intermodalism being created by the railroads here, Kansas City is becoming a megadistribution market with demand for huge buildings.”

Although Crandall said he doesn’t expect the 1,000-acre Logistics Park Kansas City in Gardner to have its first pad-ready site available until at least mid- 2009, he already is courting two large distribution centers, including a 1.1 million-square-foot facility. The undisclosed user of that facility plans to consolidate 16 smaller distribution centers throughout the country at one site in the Kansas City area, Crandall said, and that’s just the tip of the iceberg.

“Because of the general malaise of the economy, the major national retailers are trying to control their bottom lines rather than build their top lines,” Crandall said, “and they’re doing that by consolidating 16 different distribution centers into one, or nine into five…. There’s probably about 5 million square feet of pending deals like that floating around in this market.”

Paul Licausi, president of Overland Park-based LS Commercial Real Estate, said he is working to give some of those deals a place to land before the intermodal parks are up and running. On Oct. 17, Licausi’s firm broke ground on the infrastructure for Midwest Commerce Center, a 151-acre business park in Gardner that will include big-box warehouse and distribution facilities totaling about 2.2 million square feet.

Licausi said he thinks the influx of big-box industrial users would have transpired aside from any intermodal development, for the economic reasons Crandall mentioned. As evidence, he pointed to 400,000- to 700-000-square foot distribution centers that companies such as Musician’s Friend Inc., Kimberly-Clark, Pure Fishing and Pacific Sunwear of California Inc. have announced here in the past few years.

But Licausi acknowledged that Midwest Commerce Center’s location, near the BNSF-Allen Group intermodal park, will make his site more attractive to many users.

“Is that the only factor in play? No,” Licausi said. “I chose that site because of its proximity to 1-35, the New Century AirCenter and both a skilled and nonskilled employment base. But does it help me to be three miles from the intermodal? You bet it does.”

Similarly, Dan Jensen, a principal of Kessinger/Hunter & Co. LC, credits the Gardner intermodal park and the CenterPoint-Kansas City Southern Intermodal Center in south Kansas City with increasing demand for a 600,000-squarefoot spec facility he has built in Olathe, plus an additional 2.5 million square feet he plans to develop nearby.

“It is truly remarkable that, right now, there are three major intermodal facilities under construction in a market of this size,” said Tim Cowden, senior vice president of business development for the Kansas City Area Development Council.

Sonnenberg, of Colliers Turley Martin Tucker, said he demand for intermodal facilities was kicked off ears ago by the offshoring of U.S. manufacturing to sian-Pacific countries. Initially, as the foreignmade oods re-entered the United States through est Coast ports, the bulk of them were loaded onto trucks, he said. Then, the railroads began to improve their track speed and capacity to get a bigger slice of the inbound-freight pie, Sonnenberg said, and fuel costs and other factors began diminishing the trucking industry as a long-distance shipping alternative.

“It takes one truck driver to haul one container,” Sonnenberg said, “and let’s say it takes three guys to drive a train carrying 300 containers. That’s a 100-to1 manpower advantage for rail.” Consequently, shippers began placing many of their inbound containers on rail lines running between the West Coast ports and intermodal facilities in big cities such as Chicago and Dallas. But, Crandall said, those facilities have grown congested as the volume of U.S. trade has ballooned – from $84 billion in goods in 1970 to more than $3 trillion today.

Bill Crandall, Kansas City president of The Allen Group, says,“It takes three days to get to Chicago” by rail from the WestCoast ports “and three days to get through Chicago.” KansasCity offers transcontinental shippers a less congested route.

Kansas City, which lies in the Mexico-to-Canada corridor served by Kansas City Southern and on BNSF Railway’s southern transcontinental main line between Los Angeles/Long Beach and Chicago, offered shippers an opportunity to avoid such costly congestion, said Chris Gutierrez, president of Kansas City SmartPort.

In Gardner, for instance, BNSF found a piece of affordable real estate long enough – at least 8,000 feet – to accommodate the intermodal trains, doublestacked with 250 to 280 containers, that will pull off its transcontinental line to be loaded from trucks or unloaded onto trucks.

In addition, Gutierrez said, Kansas City International Airport is one of few big airports in the country with enough land to accommodate an operation like the 800-acre KCI Intermodal Business Centre that Trammell Crow Co. is developing for air cargorelated logistics.

As construction on the new intermodal parks continues, Sonnenberg said, existing modern distribution space in this market continues to be gobbled up. The metro-wide vacancy rate for such space was just 2.3 percent in the third quarter, according to a report from Colliers Turley Martin Tucker.

“That means, as the economic recovery happens, we’re not going to have a glut of vacant space that’s going to take two or three years to fill up like Memphis, Chicago and Dallas do,” Sonnenberg said. “We will have no supply, so you will see Kansas City explode with development. Between the intermodals and other private developments, we are on the cusp of the most important two or three years in the history of our industrial real estate market.”

Logistics Park Kansas City will Become Crucial U.S. Hub

By Rob Roberts

DESCRIPTION: Logistics Park Kansas City will be home to several large distribution and warehouse facilities surrounding BNSF Railway’s rail-truck intermodal facility near 191st Street and U.S. Highway 56 in Gardner.

ACRES: The Park covers 1,000 acres. It is long enough to handle mile-and-a-half-long trains carrying 250 to 280 double-stacked containers, which are loaded and unloaded by crane at the intermodal facility.

DEVELOPER: The Allen Group, a San Diegobased industrial developer, was selected by BNSF to develop the logistics park.

WAREHO– USE SPACE: More than 7 million square feet COST: $735 million

PUBLIC ASSISTANCE: Gardner approved a 65 percent property tax abatement for the project. However, tenants of the logistics park will be charged a 15 percent origination fee, meaning a net 50 percent abatement for the tenants. The 15 percent origination fee will be used to help retire city bonds for infrastructure improvements required by the project. In addition, Johnson County recently agreed to finance the $14 million cost of improving 191st Street near the project, and Gardner has agreed to cover the remaining $31 million in road and bridge improvements. The city-financed improvements, which include improvements to Waverly Road and a connection to a future state-financed interchange with Interstate 35, will be completed in three phases based on development milestones: commencement of construction, completion of 1.5 million square feet and completion of 3 million square feet.

ALMOST DERAILED: The logistics park faced a potential construction delay earlier this year, when a bill calling for the state to back $60 million in cityand county-issued bonds for the infrastructure improvements got attached to unrelated legislation authorizing construction of two coal-fired power plants in Western Kansas. Gov. Kathleen Sebelius vetoed the legislation, threatening progress on the intermodal project. But Bill Crandall, president of

The Allen Group-Kansas City, said the threat was avoided by reducing the scope of the infrastructure projects to a total of $45 million and getting the city and county to finance those projects. Debt for the city-financed projects will be repaid through the tenant origination fees plus utility, franchise and excise tax revenue generated by the development.

TIMELINE: Target date for completion of the BNSF Railway intermodal facility is the fourth quarter of 2010. But Skip Kalb, BNSF’s director of strategic development and project manager for the Gardner project, said that assumes the U.S. Army Corps of Engineers quickly approves the railroad’s request for a Section 404 permit to move a stream on the site. The target date for the first pad-ready building sites in the logistics park is mid-2009. Total buildout of the park is expected in 12 to 14 years.

RAIL LINE: The BNSF intermodal facility will be located along the railroad’s southern transcontinental main line between Los Angeles/Long Beach and Chicago. U.S. Highway 56 and 1-35 will offer access to the intermodal facility for trucks picking up or delivering freight.

SPECIALIZATION: With the rapid growth of international trade and continuous east-west rail freight transit, Logistics Park Kansas City will be a key hub for distribution to population centers throughout the central United States.

INTERMODAL VOLUME EXPECTED: The intermodal facility will have initial capacity to handle 400,000 containers a year. Plans call for ultimate expansion of capacity to 1.5 million containers a year.

JOBS: More than 7,700 new jobs

ECONOMIC IMPACT: $1 billion annually

Logistics Sites for Every Need

CenterPoint KCS Intermodal Center

Among the largest of industrial developments in the Midwest, CenterPoint Properties is partnering with Kansas City Southern Rail to create CenterPoint KCS Intermodal Center, a 370-acre intermodal facility and 970-acre industrial park.

The industrial park, opened in March 2008, already has $30 million invested, which is set to rise to $300 million. At build-out there will be up to 7 million square feet of warehousing. Mark C. Long, senior vice president and principal of Zimmer Real Estate Services, L.C, is leading CenterPoint’s marketing efforts. “About 350 acres have utilities and roads in place,” he said. “As a former airport, the site is level and large, capable of accommodating a 3 millionsquare-foot, rail-served industrial center.” KCS has 11,340 feet of main-line track bordering the site.

Joining established resident business Mazda North America is Schneider Trucking, the first new tenant. One of the most important attributes at CenterPoint is KCS itself, a Class I railroad. Regional drays—costing upwards of $230 per container, Long said are averted. Add to that KCS’s recent acquisition of rail infrastructure in Mexico—with service to the cost-effective, deep-water, high-capacity port of Lazaro Cardenas—and customers will be well served at this site.

In its current phase, KCS will increase its lift capacity from 10,000 to 0.5 million, with an eventual goal of 1 million.

BNSF Intermodal and Logistics Park Kansas City

Logistics Park Kansas City is a 600-acre intermodalserved logistics park located in Gardner, Kan., 25 miles southwest of Kansas City. It will have up to 7 million square feet of vertical development, including spec buildings.

LPKC is located alongside BNSF Railway’s 400- acre intermodal yard, soon to be under construction. BNSF handles more units annually than all other railroads in the Kansas City area combined, said F.E. “Skip” Kalb, Jr., BNSF’s director of strategic development.

“There are three major industrial sites going up in the region,” said William “Bill” F. Crandall, president of The Allen Group’s Kansas City operations and developer of the new Logistics Park. “None of this infrastructure existed in the past, but we aren’t just expanding the pie, we’re creating a whole new appetite for it—a whole new set of market opportunities. There is a lot of pent-up demand.” As one of state’s largest economic development projects in history, the LPKC project is expected to create 7,000 new jobs and have a $1 billion economic impact at full build-out.

Crandall spoke about sustainable attributes being integrated into LPKC’s planning, including best practices in landscaping; controlling construction waste and managing storm water; and possible Leadership in Energy and Environmental Design certification. “The greatest environmental benefit of the project is that we are taking trucks off the road, reducing drayage to blocks—not miles—and reducing fuel consumption and air emissions,” Kalb said. “A mile-and-a-half-long unit train takes 250 trucks off the road.” This will be the first “greenfield,” intermodal facility to install all-electric wide-span cranes that will load and offload trains in a quiet and fuel-efficient manner, he said.

Steven E. Forsberg, BNSF’s general director of public affairs, said the new half-million-lift facility will be open at the end of 2010. At full build-out it will accommodate up to 1.5 million lifts.

KCI Intermodal Business Centre

Kansas City International Airport is surrounded by thousands of acres that are now providing an excellent opportunity for businesses. Three years in the making, the Kansas City Aviation Department and its partners broke ground on the 800-acre KCI Intermodal Business Centre on October 14, 2008. It is expected to open in 2009. Civil site work is underway by the McAninch Corporation.

Developer Steven D. Bradford, managing director for Trammell Crow Co., said that the first phase—with 183 acres, four buildings and 1.8 million square feet of commercial space—will help airlines realize their full potential. KCI’s current all-cargo airline tenants include BAX Global, DHL, FedEx, Kitty Hawk and UPS.

“We intend to create an airport city,” Bradford said. “Air service is exceptional; you can be anywhere in the country by 8:30 a.m. Convenience, speed and cost savings will give tenants of the new center a competitive advantage.” Outlining the potential, he said, “We offer an excellent location for everyone— large distribution centers, high-profile headquarters or facilities with immediate proximity to air freight logistics providers. There is exceptional ground access, an educated workforce, a great quality of life and a low cost of living. These will drive the success of the KCI Intermodal Business Centre.”

Kessinger/Hunter Jensen Project

Less than 15 miles from Kansas City Southern Intermodal and six miles from BNSF Intermodal, in Olathe, Kan., is a vast speculative warehouse and distribution center. Answering the call for bigger facilities, the 40-acre, 600,000-square-foot warehouse—developed by Kessinger/ Hunter Jensen and built by one of the nation’s top builders, Walton Construction—has up-to-36-foot ceiling clearance, 136 dock-high doors, two drive-in doors, parking for 98 trailers and interior column spacing designed to accommodate 80,000 different racked pallet positions.

Indicative of a new breed of spec building, this project is the region’s first to market. Designed with flexibility in mind and situated on 40 acres, the facility is foreign trade-zone eligible, 1 mile from major interstates and essentially complete.

Daniel B. Jensen, principal of the KH Jensen project, said, “We are anticipating a user from outside the area—a company that is trying to decrease truck miles in their supply chain to save on fuel costs. Our project will appeal to retailers and high-end, highvelocity distribution centers with high-cube goods.

We are not the building for cargo that stacks 16-feet high; we will appeal to lightweight cargo, such as consumer goods.”

New Century AirCenter

Originally a naval air station that functioned in part as a logistics hub, the New Century AirCenter inherited an excellent multimodal center foundation. It is located along Interstate 35—approximately 25 miles southwest of downtown Kansas City; has an active commercial airport with 60,000 flights per year; and boasts its own rail system with spurs to customers and connections to the BNSF Railway main line. Eight of the 45 resident businesses regularly use rail. With air, rail and road it is a truly multimodal center.

Robert L. “Lee” Metcalfe, Johnson County Airport Commission executive director, described the 4.2 million square feet of office, warehouse, distribution and manufacturing space that is situated on 280 acres (out of more than 1,000 market-ready acres). Although the AirCenter offers leases only, Metcalfe said, they appeal to investor-savvy customers trying to minimize their asset numbers and improve their return on investment.

The AirCenter is located in a suburban area that can draw on rural and urban labor pools with a dependable work force. Companies in air-related businesses find the location particularly attractive. “One of our greatest strengths is that we are committed to speeding the process along, putting business in place here quickly,” said Tom Riederer, president of Southwest Johnson County Economic Development Corp.

Midwest Commerce Center

For 20 years, LS Commercial Real Estate has developed industrial real estate in the Kansas City area. The company’s latest project is 155 acres with 2.2 million square feet of buildings. Infrastructure is currently being put in the ground. There is good access to Interstate 35 and the park is just north of

BNSF Railway’s forthcoming intermodal facility. Describing the company’s approach, President Paul Licausi said, “We wanted to have the capacity to capture momentum, to build later on the initial phase. At full build-out there will be five buildings.” Essentially a distribution center equipped with crossdock facilities, its buildings will range in size from 442,000 to 750,000 square feet. “Our strategy is to put product in the ground—our first speculation building is 520,000 square feet. There are more inbound prospects needing product within 60 to 90 days than there are prospects needing product within 60 to 90 days than there are prospects for one-year build-tosuits,” Licausi said.

Kansas City – An Intermodal Mecca

Kansas City is working hard to be the location of choice for large-scale corporate distribution centers, warehouses and manufacturing operations. Economic development officials aren’t lethargic in their efforts to achieve that goal, despite the fact that the region’s attributes shine very well on their own.

The area is a full-blown intermodal mecca, presenting a very wide range of rail, road and air infrastructure staffed by talented teams who are eager to serve current, new and expanding companies. That is one of the two main factors that truly differentiate Kansas City from its competitors. The second is that the region’s table is groaning under a veritable smorgasbord of building and site options.

Plentiful site options

The region presents a full array of choices to potential customers, including speculative buildings, build-to-suit with infrastructure in place, vacant and unimproved land and sub-surface warehousing. Spec buildings are an inducement to companies needing to expedite market entry. Their existence opens up the region to an entirely new set of relocation possibilities—companies in a hurry. Properties with utilities and roadwork in place appeal to the broadest spectrum of companies. Vacant land is also in high demand, allowing some companies to manage the development process from start to finish. Another option, subsurface warehousing, is a specialty in the region and appeals to savvy companies searching for unique advantages, such as a climate-controlled environment.

Growing demand leads to upsizing

The forecast for demand for all types of product in the region is promising. “At the end of the second quarter the net absorption of square footage in the nation’s industrial markets was a negative 9 million square feet but in Kansas City it is up,” said Paul Licausi, president of LS Commercial Real Estate. “The vacancy rate here was 2.3 percent for modern Class A space. In Memphis it is twice that.” The local market is bucking the national trend. Not dependent on one coast or one industry, diversification is helping it better weather the storm of high fuel costs, international competition and faltering financial markets.

When asked how large industrial projects continue to find funding, Licausi said, “If you have a good case study and your foundation is solid, there is plenty of money out there.” Most developers are working with a financial partner, such as an insurance or pension fund. “Only 20 years ago real estate wasn’t considered a safe investment—today’s portfolios are now moving from 20 percent real estate up to maybe 40 percent,” he said. “This represents billions of dollars of impacts and the money has to be invested in solid projects somewhere.”

Kansas City is preparing for a major change in focus—the demand for enormous spec buildings is rising. The local economic development community has noticed the trend over the last few years. Major distribution centers used to locate in Chicago, Dallas and Memphis, in part because the 100,000-squarefoot or smaller spec product being built in Kansas City was just too small. Kansas City watched prospects come in and then go, but things have changed. “We’re now routinely seeing 400,000-500,000- and even 800,000square-foot assembly facilities and distribution centers springing up here,” Chris Gutierrez, KC SmartPort president, said.

“There has been a paradigm shift, a change in strategies,” Licausi said. “It started with developers, moved to the municipalities and then the larger product was here.” One very visible example of the new government mindset is a proliferation of muchappreciated incentives, ranging from 10-year, 50-percent tax abatements to job training incentives, to the elimination of certain personal property taxes.

Spec buildings aren’t the only thing upsizing in Kansas City. As supply-chain cost management has become more sophisticated, area companies have ramped up their investment in intermodal yards and industrial parks, appealing to local cargo owners and corporate relocation specialists looking for savings. F.E. “Skip” Kalb Jr., BNSF Railway’s director of strategic development, said the timing is right for intermodal terminal expansions and business park developments too. Currently low industrial vacancy rates have spurred development and, “As companies reconsider their supply-chain strategies, they will examine not just the size but also the location of their distribution centers and warehouses.” If a region has a top product, now is a good time to offerit. “Another upside of the economy is low construction costs. When is it a bad time to save dollars?” Kalb said.

According to Robert J. Marcusse, president and chief executive of the Kansas City Area Development Council, the transportation component is approximately one-third of the total cost of a product on a store shelf. If transportation costs can be reduced, a manufacturer’s product can become much more competitive. William “Bill” F. Crandall, president of The Allen Group’s Kansas City operations and developer of the new Logistics Park Kansas City said, “Fully 60 percent of the proposals we have received recently are driven by the need to reduce expenses.” The Allen Group is answering that call with a new offering, a drayage calculator. It is a Web-accessible tool that allows companies to input numbers—including building size and container count—to compare costs and savings associated with locating in various parts of the Kansas City area.

The demand for rail-based intermodal centers is on the rise everywhere, said Steven E. Forsberg, BNSF Railway’s general director of public affairs. “Rail is needed more than ever due to its fuel efficiency,” he said. “Each ton moved by rail travels more than 450 miles on a gallon of fuel. That is almost double what it was in 1980, and three times as efficient as truck transit.” Of course, by their very design, most intermodal centers are truck-dependent, but a successful marriage occurs when railroads concentrate on higher-volume, longer hauls and trucks focus on shorter distances.

Licausi said Kansas City’s capacity to absorb inmarket uptake and large national companies is selfevident, but its attitude may not be as apparent. Capturing the region’s capabilities and aggressive marketing posture, he said, “All companies need to do … is to give us a chance at bat and Kansas City will hit a home run.”

October 27, 2008

Inland port savings

By Richard S. Allen

During the past 40 years, the United States has enjoyed unprecedented growth in global trade volume with established and emerging trade partners. This increase in the shipment of manufactured goods and raw materials has played a central role in the growth of international trade and economic globalization, forcing the U.S. to seek faster and more efficient ways to move goods throughout the country. One of the most promising solutions is the development of inland ports.

In 1970, U.S. foreign trade volume totaled $84 billion for the entire year. In 2008, U.S. foreign trade volume surpassed S84 billion in the first 10 days of the year. In 2007, international trade accounted for nearly 25 percent of U.S. gross domestic product.

Conversely, domestic production of manufactured goods decreased from 24 percent of our GDP in 1969 to less than 10 percent by 2007. These statistics demonstrate international trade’s role in transforming the U.S. into a service-based economy that sources products from countries where they can be produced more economically.

While Canada remains the United States’ largest trading partner, the Pacific Rim region, whose countries offer inexpensive labor and goods, has become the top source of U.S. imports. More than $600 billion of the $1.9 trillion of total U.S. imports is shipped from Asia, a 91 percent increase over the past decade.

The process of sourcing, handling and transporting goods between raw material suppliers, manufacturers, retailers and consumers across the world is remarkable in both its scale and sophistication.

Heitman, a real estate investment management firm, says an inland port is characterized by seven key attributes: access to a major container seaport, an intermodal facility served by a Class I railroad, at least 1,000 acres of total land, foreign trade zone status, access to a local metropolitan market, accessibility to major interstate highways, and access to a strong local labor pool.

Organizations such as the Texas Transportation Institute and the Center for Transportation Research at the University of Texas define an inland port as any site meeting the above criteria that is located away from traditional land, air and coastal borders.

Inland ports facilitate and process international trade through strategic investment in multimodal transportation assets and by promoting value-added services as goods move through the supply chain. They facilitate the movement of large volumes of goods from congested seaports to major population centers. More than 65 percent of containerized freight arriving at West Coast seaports is consumed by markets east of the Mississippi River.

U.S. cargo volumes are projected to triple over the next 20 years, and by 2020 every major U.S. container port will see its total traffic volume double. Cargo traffic at West Coast ports is projected to grow at an average rate of 5 to 9 percent per year. This growth is straining existing port infrastructure and creating serious bottlenecks in the flow of imported goods.

Seaports such as LA-Long Beach have little room for expansion. The high costs of real estate, safety, pollution and increasing traffic congestion make it apparent that imported goods can no longer be efficiently processed in the immediate vicinity of their port of entry. Much import cargo is transferred directly from ships to railcars at the docks and transported to inland ports for further processing.

As demand for imports overloads capacity at U.S. seaports, the nation’s leading industrial development companies are recognizing that a wider national solution is urgently needed.

U.S. Class 1 railroads recognize the constraints facing the ports and are investing billions of dollars annually to increase the capacity of primary rail corridors.

This will make it easier for import shipments to be delivered by dedicated stack trains from crowded seaports to new inland ports where cargo can be transferred from rail to truck for the final leg of the delivery.

This creates substantial opportunities for savings. For example, let’s compare two companies seeking the optimal location for a million-square foot distribution facility that receives 15,000 containers per year. Company A locates within an inland port next to an existing intermodal facility, while Company B locates at a site 40 miles from the intermodal terminal. Company A will spend $1.1 million in drayage costs per year compared to Company B, which will spend $2.6 million.

As U.S. demand for imported goods increases in the years ahead, the importance of inland ports will continue to grow, especially those located at the intersection of multiple shipping routes with several modes of transportation.

Richard S. Allen is founder and chief executive of The Allen Group. He can be contacted at rallen@,allengroup.com.