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Friday, June 10, 2011

Machine Ready - The I-39 Corridor

By Michael Fonda (Chicago) with Christine Choi and Garrett Fonda

On Thursday June 2, Avison Young’s Chicago office hosted a group of developers, brokers, contractors and architects who are active in what has come to be known as the I-39 Corridor named for a section of the American Interstate Highway System and defined as the 150 miles between Beloit, WI and Bloomington, IL.

A very important insight came to light during the two hours of presentations that were delivered by the participants of the group. This insight, as articulated by Mark Goode of Venture One Real Estate, LLC (someone known for his thought-provoking insights into our business), was that the I-39 Corridor – although integral to the supply chain of many United States-based companies because the Corridor has all the elements required to help these companies deliver their products quickly and efficiently is more than simply a transportation corridor. It is an area of the United States that is particularly well-suited for manufacturing because of the area’s highly-skilled and productive workforce.

As Mark told the group, the I-39 Corridor is an area where:

· People know how to work with machines – you might say that it’s in their DNA.

· People prefer to work where they grew up and where they intend to raise their families.

· And they are people who understand, value, and enjoy working productively.

Because the people of the I-39 Corridor are skilled at working across a broad spectrum of production machinery platforms, we can say that this area of the country is “Machine Ready.” When companies bring the machinery and the capital, the I-39 Corridor has people who will operate and repair the machinery. Additionally, these people have the talent to innovate with existing machinery and even invent new machinery. This was Mark’s insight. The I-39 Corridor is much more than a center of transportation it can and will be a center of manufacturing.

Bill Gahlberg, the developer of Oak Brook, IL and Bolingbrook, IL preeminent places of commerce in metropolitan Chicago – and who is now the managing partner of the Woodland Path Fund (which is the largest owner of commercially entitled land in the I-39 Corridor) grasped the importance of Goode’s remarks immediately. There are many great land developers in America but there are none better than Gahlberg. He understands this corridor like no other and has chosen to put his fund’s capital squarely behind the next great land opportunity in the U.S. Midwest.

Woodland Path owns approximately 2,000 acres of land in the I-39 Corridor. Galhberg and his partners are willing to work with developers and corporate occupiers of real estate by providing exceptionally well-located and configured land parcels on terms that incentivize developers and users to locate on sites that Woodland Path owns in the Corridor. The first developer who worked with Woodland Path to create a Machine-Ready site is IDI – a national industrial real estate developer. IDI purchased 215 acres from Woodland Path at the southeast quadrant of a four-way interchange at Route 78 and I-80. Under the guidance of Tom George and Jeff Smith of IDI, this land parcel was zoned, entitled and improved so that construction can begin immediately. Utica Logistics Park is ready to accommodate industrial buildings as large as 1.2 million square feet (sf).

Many states are throwing very significant incentive packages at companies that will locate within their boundaries. Adam Roth of NAI Hiffman – who, along with Dan Leahy and Casey Baird, is responsible for marketing the CenterPoint Intermodal Center - Rochelle pointed out the fallacy in focusing too intently on these incentives. Adam explained that labor and transportation are the two most significant expense items in a company’s cost of goods sold. If the company doesn’t select the location with the best labor pool and the best access to inbound and outbound transportation, it will burn through those incentives very quickly.

I know this from experience, by collaborating with Jim Reeb of Institute St. Onge on site selection. We found the ideal location for Valspar Corporation that was a balance of labor, transportation and real estate cost. Although incentives were part of the equation, they were not the driver. In addition to working with Jim on the Valspar site selection, we worked with Jim and St. Onge in the preparation of two studies on labor and transportation for the I-39 Corridor. One of the studies was prepared for Woodland Path and the other for Venture One. Jim is well versed in the advantages of this unique geographic area.

There are many companies that require rail service. The I-39 Corridor has an abundance of rail. The primary nodes are located in Ottawa, Rochelle, and Peru, Illinois. The CSX serves the Ottawa Industrial Park. The Union Pacific and BNSF serve both ProLogis Park Rochelle and CenterPoint Intermodal Center – Rochelle. Union Pacific Global III Intermodal is located in Rochelle. BNSF also serves Peru via the Illinois Railway short line railroad. George Cibula of Darwin Realty pointed out that although there are many companies that require rail, few have the volume to grab the attention of the six tier-one railroads.

Fortunately, there are alternatives. George and Adam Haefner are marketing the I-80 / I-39 Rail Center for Janko Group. Short-line rail companies like Illinois Railway will handle the switching of cars from a company’s spur track – like The I-80/I-39 Rail Center to one of the Big Six. According to Cibula, being on a spur track serviced by a short-line railroad works to the advantage of the small-volume rail user. The smaller short-line railroad’s business model is focused on serving the small-volume rail car user, whereas the Big Six concentrate on only the biggest users. Janko is working with development consultant and design-builder Peak Construction to create opportunities for rail users. With almost 4000 feet of track on this 100-acre parcel, the site can accommodate both large volume and smaller volume users.

The biggest news to come out of the I-39 Corridor is the groundbreaking for Nippon Sharyo’s new railcar manufacturing plant in ProLogis’ Park Rochelle. Kajima USA Group is building a 400,000 square foot rail served (naturally) facility on 35 acres for Nippon Sharyo to receive rail car bodies that are built in Japan, outfitted with all the accouterments in Rochelle and shipped out to customers (transit authorities) in Toronto, Minneapolis/St. Paul, Chicago and Europe. Jim Planey of Lee & Associates offered interesting commentary on Rochelle’s pursuit process of Nippon Sharyo. He told our group that Rockford sent their economic development officials to Rochelle for Rochelle’s presentation to Nippon Sharyo. This was not to compete with Rochelle but to collaborate with Rochelle in order to help convince Nippon Sharyo to select Rochelle for Nippon’s new facility. Rockford officials explained to the executives of Nippon Sharyo that there was a talented manufacturing community (Rockford) only 30 miles to the north that would be readily available as a support network of machine operators, engineers and managers to assist Nippon Sharyo in its endeavors. The cooperation among the communities of the I-39 Corridor is outstanding.

Rockford is always re-inventing itself. It starts at the top with a mayor, Larry Morrissey, who works diligently to attract business to his community. He is backed up by an excellent workforce and enlightened group of community leaders. Paul Ahern of Ahern Development has developed a first-class cargo center on the Rockford International Airport. He has benefited by working closely with Rockford’s leadership in the development of this new 70,000-sf air freight facility on-tarmac at the airport and contiguous to the second largest UPS airport freight operation in the United States. This facility is configured to park two Boeing 747-800 cargo jets. Between vectoring time, taxi time and landing fees, it costs approximately $20,000 less to land and park a jet at Rockford than it does at O’Hare, according to Paul Ahern.

Many new facilities have been built in the I-39 Corridor in the last four years including distribution centers for Staples, Lowe’s, Target, PetSmart and Bay Valley Foods. In the last year, manufacturing plants are being built by Nippon Sharyo for rail cars (mentioned previously) and Wanxiang America Corporation for a new solar panel plant in Rockford, proving that companies are recognizing the value of the I-39 Corridor as a center for industrial production.

Shovel ready? The I-39 Corridor is way beyond shovel ready. It’s Machine Ready powered by one of the greatest groups of skilled workers in the United States and underpinned by infrastructure that is world class.

Afterthought

Click here to read an article authored by Matthew Dolan in the June 10, 2011 issue of the Wall Street Journal. I have never been involved in labor negotiations so I don't know if it's possible for management and labor work cooperatively toward a common goal of producing wealth for all stakeholders in the organization. But if Bob King and the UAW now see the value in a profit-based pay plan, good times may be in the offing for shareholders, labor and management.

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