Turning Idleness Into Opportunity

The contraction of the U.S. manufacturing base continues to pummel North American automakers. Ford Motor Co. announced plans last September to close 16 factories by 2012 and slash 30,000 hourly and 7,000 salaried jobs from its payroll. General Motors Corp. has been on a similar tack since 2005, and has already eliminated 30,000 jobs through attrition.

GM plans to idle — or cease operations — at three assembly plants, remove an assembly line at another, and reduce shifts at still two more. GM is idling six distribution and processing operations, too, all by the end of 2008.

Most or all of those idled facilities are expected to close, although the outcome is pending the approval of the United Auto Workers when the union negotiates new contracts with automakers later this year.

Even as the massive downsizing continues, developers and communities across the country are already forming strategies to convert automotive plants into new centers of economic activity.

In January 2006, when Ford announced plans to idle the 4.7 million sq. ft. Wixom Assembly Plant later this year, the news dealt a big blow to a battered region. Workers there numbered about 1,500 — equivalent to more than 10% of the population of Wixom, Mich. Now community leaders are firing on all cylinders to attract new employers to the 318-acre site off I-96 in suburban Detroit, according to Wixom City Manager Mike Dornan.

“The shuttering of this manufacturing facility, our longtime friend, is really a sad commentary on where manufacturing is going not only in Michigan but across our country,” Dornan says. “But it also gives us an opportunity to redevelop the property. After we got done grieving the first week, we got to thinking, what are our opportunities here?” Throughout North America, communities and developers are asking the same question.

New beginnings

Ford Motor Co. was still assembling light trucks at its 1.4 million sq. ft. plant in Edison, N.J. when developer Emmanuel Stern first visited the site. Four years later, the plant has been razed, but the president of Hartz Mountain Industries Inc. has yet to begin construction on his planned redevelopment of the site.

The proposed Edison Towne Square would encompass 1.2 million sq. ft. of mixed-use space that is expected to include retail, a movie theater, several restaurants, along with a hotel and a 60,000 sq. ft. community center. The project's exact makeup is still under negotiation between the developer and city leaders.

It's still unclear when construction will begin, but the prospect of bringing that much commercial space to a prime location on New Jersey's Route 1 makes the years spent in planning and development approvals worthwhile for the Secaucus, N.J.-based developer.

“It's virtually impossible to find an assemblage of 100 acres in Middlesex County,” Stern says. “We have invested the better part of two years blending the hottest retail concepts with Edison's desire for a family-oriented facility with a classic design and manageable scale.”

Similar redevelopments are likely to play out with increasing frequency in the coming decade. All told, automakers plan to cease operations at more than two dozen manufacturing plants in the United States and Canada.

Filling a tax void

As special-purpose structures, idled assembly plants lose virtually all value beyond the land they occupy, according to John Garippa, senior partner at law firm Garippa Lotz & Giannuario in Montclair, N.J. Garippa, also president of the American Property Tax Counsel, has represented both Ford and GM in tax appeals related to closed plants. In both cases, the structures retained little worth.

“At the end of the day at both sites, the assembly buildings were worth nothing but the underlying land value,” he says. “Generally the land value is no more than 20% of the total assessment of an operating assembly plant; in many cases, even less than that.”

That lost tax base provides another incentive for communities to put idled plants back into productive use. But what can a decades-old car factory offer a modern industrial tenant? And what does it take to prep one of these manufacturing sites for new use?

A formidable challenge

Developers perceive plant closures as unique opportunities to bring modern commercial space into the heart of established communities. Some plants span more than 3 million sq. ft. and cover in excess of 100 acres, offering exceptional opportunities in high-traffic areas.

“There is no better on-off access to I-94 anywhere in this region,” explains David Smith, president of Midlink Business Park, a redevelopment of a former General Motors factory in Kalamazoo, Mich. “When they built the building in 1964, there was nothing out here,” Smith says, referring to Midlink's highway frontage. Now retail and other businesses have filled the surrounding acreage. “This whole town has grown up around it,” he says.

Offering 1.6 million sq. ft. of industrial space, Midlink has two tenants that collectively lease 900,000 sq. ft. Like most former automotive facilities, Midlink offers amenities such as heavy-load capacity floors, cranes, and greater power connectivity than general manufacturing spaces.

Built for single users, most vehicle plants require extensive renovations to subdivide and provide dock doors and dedicated electrical and mechanical service to individual tenants. Deep bays are a common challenge in repurposing massive automotive plants, which may measure 500 feet from the outside walls to the center of the building.

“You're not going to get a 1 million sq. ft. tenant in a building like this,” says Douglas Swain, regional director of First Industrial Realty Trust in Indianapolis. The company bought a 1 million sq. ft. former Chrysler plant in 1999, sold off equipment and fixtures, and redeveloped the property in 2003 into 2900 Shadeland Commerce Center.

The distribution center is capable of serving users occupying as little as 50,000 sq. ft., thanks to the strategic addition of loading docks and drive-through doors. “We were able to get the building to where it is today, 100% leased, by adding some functionality.”

Divide and conquer

Midlink Business Park solved the problem of subdividing a 2 million sq. ft. building by cutting a 300,000 sq. ft. swath down the center of the structure to create dual 800,000 sq. ft. buildings separated by a new truck court for about $38 million.

With the two narrower structures, the landlord can offer spaces as small as 25,000 sq. ft. Now the company is developing the rest of the 340-acre site with office, retail and new industrial space.

First Highland Management & Development Corp. based in Boston used a similar approach at Fisher Park, a former 1.3 million sq. ft. auto-body stamping plant that today is an industrial park in Fairfield, Ohio. The company bought the 101-acre property for $7.25 million in 2005, installed a new roof for $3.5 million, replaced the facade and created new entrances.

“You're losing leasable square footage, but if the alternative is not having leasable space, it's a necessity,” says Kevin Smith, regional partner at First Highland.

Developers shift gears

In large urban areas or in communities with limited demand for industrial space, the highest and best use for a closed automotive plant may call for demolition and redevelopment as a retail or mixed-use project. Once the automaker has completed any needed environmental cleanup, most sites are open to almost any use agreed upon by community groups.

The Hyatt Hills Golf Complex in Clark, N.J., for example, is on the site of a former GM plant. In Van Nuys, Calif., a Chevrolet assembly plant was demolished in 1994 and redeveloped as The Plant, an industrial and retail complex with 35 stores and restaurants and a 16-screen theater.

In Atlanta, where GM plans to idle the 3.6 million sq. ft. Doraville plant in 2008, both the city and county have appointed committees to explore redevelopment options. A study by Georgia Tech students recommends a mix of city buildings, commercial, residential and civic uses — including an arena. The project would be a miniature version of Atlantic Station in Midtown Atlanta.

One of the costliest automotive redevelopments under way is Lighthouse Landing at Sleepy Holly, on GM's former century-old Tarrytown Assembly Plant on the Hudson River. Located near valuable waterfront properties that include the Rockefeller Estate, the project will combine single-family and multifamily housing with retail, office space and a conference center. The 2.5 million sq. ft. plant employed 2,100 workers before it closed in 1996.

GM has retained Roseland Property Co. of Short Hills, N.J., to develop the 97-acre project, the value of which will likely exceed $1 billion upon completion, says Matt Cullen, general manager of economic development and enterprise services at GM's Detroit headquarters.

Cities in the driver's seat

Executives at both GM and Ford stress the importance of leaving a positive legacy in communities where they operate, and they accept responsibility for the effects closed auto plants can have on a local economy. Rather than sell a closed plant, automakers often spend years on redevelopment plans with local stakeholders.

“Our interest is to return properties to a productive reuse as quickly as possible,” says Stefanie Denby, a marketing and communications manager at Ford.

Brokering a development plan with community groups is complicated but necessary, adds GM's Cullen. “We want to make sure that it's a successful project, and we want the people who have been our neighbors and friends for the past 50 years to feel good about the outcome.”

After bearing the brunt of reduced tax rolls and continued job cuts by American auto manufacturers, community leaders are taking an active part in directing the redevelopment of closed plants.

That's particularly true in St. Paul, Minn., where a committee composed of planners, developers and local residents is mapping out zoning for the conversion of an idled 2 million sq. ft. Ford plant to a mixed-use project. The plant employed more than 1,800 people in 2006, but is slated to be idled next year.

“What we didn't want was what you would most likely expect to get — a bunch of condos,” says Cecile Bedor, director of planning and economic development at the City of St. Paul. “The job losses were so huge that we wanted to make sure we put some good jobs in there as well, and retail isn't going to cut it. We want employers with some decent manufacturing jobs.”

Establishing zoning now will make redevelopment go more smoothly if the plant is indeed closed after this year's union negotiation. “We're getting all these discussions out of the way,” she says.

In Wixom, where Ford has halted operations at the plant that once assembled its Lincoln Town Car, city leaders saw the writing on the wall in the 1990s and have attempted to diversify the local job base beyond the automotive industry.

City Manager Dornan says Ford's contribution to the local tax base decreased from about 50% in 1990 to 11% in recent years. Now, redevelopment offers the opportunity to reclaim some jobs with new employers.

Such prospects are bittersweet for community leaders, however, because new development likely won't replace the thousands of high-paying jobs lost to restructuring by automakers.

In Fairfield, Ohio, even full occupancy at First Highland Management's Fisher Park doesn't come close to the 3,500 shift workers employed at the auto-body plant, says Tim Bachman, development services director for the City of Fairfield.

The city has survived and fostered redevelopment through enterprise zone agreements and other measures, Bachman says, “but there's no question the jobs per square foot are less. Welcome to modern manufacturing.”

The challenge for the Fisher Park developer is to maximize job creation, says Smith at First Highland. “These facilities were all economic engines in their communities, so they all left vacuums when they pulled out,” he says. “If we can bring back a thousand jobs in many different industries, that will at least help.”

Worth the wait

According to Stern at Hartz Mountain Industries, the years of planning, community relations and permit applications required to redevelop an automotive plant come with the territory, and even provide a useful barrier to entry by less-experienced developers.

“It's a challenging environment for all but the most sophisticated developers to work in,” Stern says. “If it was easier, other companies would be able to do it.”

Matt Hudgins is an Austin-based reporter.

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