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Industrial Beat

Trammell Crow, CalEAST way down on Suwanee Creek Dallas-based Trammell Crow Co. and CalEAST will develop four spec industrial buildings totaling more than 311,000 sq. ft. in Atlanta's Northeast submarket. CalEAST is a partnership between the California Public Employees' Retirement System (CalPERS) and Chicago-based LaSalle Investment Management.

The Trammell Crow/CalEAST venture will develop buildings containing 51,200 sq. ft., 54,400 sq. ft., 67,200 sq. ft. and 139,000 sq. ft. in Suwanee Creek Business Park near Interstate 85 in Suwanee. The 33-acre development will be available in October.

Also at the new $50 million business park, Trammell Crow will develop the U.S. headquarters for Sidel Inc., a French packaging company. The two-building, 175,000 sq. ft. build-to-suit office, showroom, assembly and distribution development is on schedule for completion by the end of 2000.

Redevelopment catching on in Los Angeles Santa Clara, Calif.-based Exodus Communications has acquired a renovated industrial building in El Segundo, Calif., for $15.7 million. The Klabin Co., Los Angeles, and its CORFAC colleague, San Jose, Calif.-based Commercial Property Services, represented Exodus Communications, while the building's owner, Dallas-based Legacy Partners, represented itself.

Exodus will use the new space as an office, sales and data center. The company had been occupying 91,000 sq. ft. before exercising an option to purchase the 192,000 sq. ft. building.

What more can you say about Chicago? Plenty Developers from coast to coast continue to converge on Chicago, while the locals hold their own as well. Locally based Northern Builders has begun construction on Carlow V, a 437,028 sq. ft. cross-docked facility at Carlow Corporate Center in Bolingbrook, Ill. near I-55. The building is expandable to 878,000 sq. ft.

In Chicagoland, Atlanta-based Industrial Developments International (IDI) also continues to thrive. New York-based Sony Music Entertainment has expanded its lease with IDI at Corporate Crossings Business Park in Bolingbrook by 184,250 sq. ft. Sony's expansion space will be linked to an existing 281,000 sq. ft. building the company occupies. At Bolingbrook Corporate Center, IDI has leased 93,538 sq. ft. to Dana Point, Calif.-based Freeman Tire Corp. Northbrook, Ill.-based Grubb & Ellis represented IDI, while Rosemont, Ill.-based Colliers Bennett & Kahnweiler (CB&K) represented Freeman Tire.

In Joliet, IDI signed Allentown, Pa.-based Mack Trucks Inc. to a 15-year, triple-net lease for a 248,014 sq. ft. regional parts distribution center at Rock Run Business Park. Locally based NAI-Hiffman represented Mack Trucks in the transaction, while the local office of New York-based Cushman & Wakefield represented IDI.

Also in the suburbs, San Francisco-based Catellus Development Corp. is building a 238,000 sq. ft. corporate headquarters and warehouse/distribution center in Woodridge for Midwest Warehouse & Distribution, a third-party logistics provider. The local office of Insignia/ESG represented Midwest Warehouse and Distribution, while CB&K represented Catellus.

Finally, in the farthest of the far north suburbs, Milwaukee-based Wispark Corp. recently completed a 163,970 sq. ft. spec building in Pleasant Prairie, Wis.

Flynn Co. brokers south Jersey deal for AMB The Flynn Co., Philadelphia, recently represented San Francisco-based AMB Property Corp. in the sale of a Gloucester County, N.J., portfolio. Los Angeles-based Commercial Ventures Inc. paid $25.5 million for the 13-building, 800,000 sq. ft. development.

The transaction represented Commercial Ventures' first East Coast industrial deal.

Duke-Weeks pushes northeast boundary in Atlanta Indianapolis-based Duke-Weeks Realty Corp. is pushing the boundaries of Atlanta's northeast submarket with a new business park in Braselton, Ga., and the company continues strong leasing activity in both Cincinnati and Dallas. At Braselton Business Park near I-85, Duke-Weeks plans to develop 5 million sq. ft. on 500 acres.

The first phase of the park calls for 1 million sq. ft. of development on 100 acres. The first building totals 503,000 sq. ft. and is scheduled for December completion. The facility, known as a quad building for its cross-docked configuration, will have a 7-inch concrete slab, 88 dock-high doors and four drive-in doors, and 70 spaces for trailer parking.

In Cincinnati, Duke-Weeks also has leased 208,120 sq. ft. to Boulder, Colo.-based GAIAM Inc. at Building 8 at World Park at Union Centre. GAIAM previously leased 64,000 sq. ft. at World Park, and will occupy the new facility this spring.

In Dallas, Duke-Weeks has leased the entire 310,000 sq. ft. CentrePort Distribution Center in the DFW Airport South submarket to Great Springs Waters of America, an affiliate of The Perrier Group America Inc., Greenwich, Conn. Already a Duke-Weeks tenant, Great Springs needed expansion space to distribute 14 brands of bottled water from the CentrePort facility. Also in the Dallas area, Duke-Weeks recently completed a 71,550 spec flex building near the airport.

Hirst, Transwestern keep Northern Va. fed, in the loop One of the nation's fastest growing regions, Northern Virginia's booming office and residential growth also translate into a wealth of deals for data centers and the more traditional industrial market.

In Reston, local developer Mason Hirst has sold 8.6 acres at Lake Fairfax Business Center to AboveNet Communications, a subsidiary of New York-based Metromedia Fiber Network. AboveNet already leases a 22,000 sq. ft. data center at Lake Fairfax, but wants to build a $150 million, 265,000 sq. ft. facility. With the new development, AboveNet will triple the capacity of its East Coast Internet service exchange (ISX), which connects and co-locates Internet service providers, content providers, and application and service providers.

In Springfield, Bethesda, Md.-based Transwestern*Carey Winston, a division of Transwestern Commercial Services, has completed a 10-year lease with Kirkland, Wash.-based Inc. for 102,800 sq. ft. of industrial space that will be used to warehouse household products and groceries for home-delivery in the Washington, D.C., area. Transwestern represented the landlord, Falls Church, Va.-based MBC Springbelt LLC.

At the Springfield property, the Government Printing Office (GPO) agreed to relinquish a portion of its lease for the HomeGrocer deal. GPO's current lease expires in September. Upon GPO's departure, an additional 80,000 sq. ft. will be available at the site.

Redevelopment catching on in Los Angeles Santa Clara, Calif.-based Exodus Communications has acquired a renovated industrial building in El Segundo, Calif., for $15.7 million. The Klabin Co., Los Angeles, and its CORFAC colleague, San Jose, Calif.-based Commercial Property Services, represented Exodus Communications, while the building's owner, Dallas-based Legacy Partners, represented itself.

Exodus will use the new space as an office, sales and data center. The company had been occupying 91,000 sq. ft. before exercising an option to purchase the 192,000 sq. ft. building.

Intel cashes in its chips with Binswanger Philadelphia-based Binswanger recently represented Santa Clara, Calif.-based Intel Corp. in the acquisition of a 1 million sq. ft. semiconductor manufacturing facility in Colorado Springs, Colo. In 1996, Milwaukee-based Rockwell Semiconductor Systems spent $150 million to build the plant but never occupied it. The site was listed at $60 million and sold for slightly less.

After Binswanger's site selection process, Intel acquired the plant based on the company's ability to produce flash memory chips by the end of 2000, an impossible task had the company built a new facility. All this after Intel announced in January that it will build a $2 billion, 360,000 sq. ft. 12-inch wafer plant in Chandler, Ariz.

The Colorado Springs site includes a 676,000 sq. ft. fabrication plant and 325,000 sq. ft. of office, testing and support buildings. In 1998, Rockwell International Corp. announced it would write off the building and spin off its chip division. The finished development sat idle for three years.

Flex space quandaries Every morning I wake up, and property taxes and property valuations immediately occupy my thoughts. Well, maybe not, so it's a good thing we have people like attorney Margaret Ford to guide us. Ford is a partner at Smith, Gandler, Shiell, Sheff and Ford in Minneapolis and a member of the American Property Tax Counsel. Her firm's clients include Duke-Weeks and Opus. NREI recently discussed property tax flex space issues with Ford.

NREI: What are some of the challenges in flex space valuations?

Ford: The challenges are really in defining the animal you have because [flex space] can be changed easily. One of the valuation methods is to cap the income stream less any subtractions for expenses you can take out. Since the income stream is so variable, depending on the type of tenants that can go in there, the space itself is fairly amorphous. Sometimes it seems as though a value derived from the income stream is much higher than the value a simple, almost box-like structure would support, and the TIs inside are worth almost nothing at the end of the lease. One year when you have an industrial user in there, the income stream may be lower, but if you put in more of an office component, the value pops up.

The biggest challenges and mistakes often relate to predicting what the taxes are going to be. The ultimate values often depend on how the income stream will vary by type of tenant. Another [mistake] is not scanning the local market to see what other sales are on these types of properties - properties that may not be exactly the same but are at least in the ballpark.

That's what your property is going to be comparable to, and the valuation's going to be similar. Even if you have something that isn't generating that kind of income now, it still can be valued that high. Many states require assessors to value property for its highest and best use.

People often come in with an income projection and assume they're going to get a certain rent rate, and they do a projection without really looking at everything that goes into it. They don't look at vacancies that could happen. They don't look at market trends for their type of product or predicted vacancies. They just predict that they're going to lease it all up and that they're not going to have to give out any TIs or any deals. These issues also apply when shopping for existing buildings. Purchase price targets can be narrowed with the support of market reality.

NREI: What issues stem from repositioning older warehouse buildings into office and loft space?

Ford: We're seeing a lot of that, and some of the things you run into are environmental issues. Other industrial users don't really care about many of these contamination issues because they can use the building without having the contamination impact their bottom line right away, but when you change it to other uses, especially if you want to be able to sell it to institutional investors, that makes it tougher.

You have to clean up asbestos and any sort of ground pollution. Any time you change the configuration of a building, it's very expensive to redo some of that old infrastructure. Repositioning gets to be more expensive than people bargain for, especially cleaning up environmental problems.

Yes, you can get office space in there, but it's going to be expensive.

In those situations, what I'm seeing across our market is tear-downs instead of reposition - just tear it down instead and build something new.

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