FEATURE ARTICLE, JUNE 2006

INTER-ACTION
Interstate developments in the Midwest are still going strong despite rising fuel prices, thanks in part to a little help from rail and intermodals.
Nina Glickman

The recent increase in oil prices has affected the consumer, the developer and everyone in between. However, office and industrial developments located along major midwestern interstates have yet to experience negative side effects. The rise in rail usage and the benefits of intermodals have helped these interstate developments remain strong.

Interstates 270,80; Ohio

In Columbus, the Rickenbacker Logistics Park and Tuttle Crossing are two developments that enjoy proximity to Interstate 270. Tuttle Crossing, which is located at I-270 and Tuttle Crossing Boulevard off Emerald Parkway, was developed in 1989. “We’ve got a majority of our assets here,” says Jim Clark, senior vice president of Columbus operations with Duke Realty Corporation. “I think we’re getting to the point where Tuttle Crossing has matured.”  While Tuttle Crossing benefits from its proximity to the interstate, it is located in three different jurisdictions: the cities of Hilliard, Dublin and Columbus. “We’ve got some improvements that we have to figure out,” Clark says, indicating that the park’s tri-jurisdictional locale can make improvements complicated. Despite this hurdle, Tuttle Crossing is home to several larger-user tenants such as Qwest and Nationwide.

Duke also is involved with Rickenbacker Global Logistics, a two-building park totaling more than 1 million square feet. “It’s about 1,400 acres,” Clark says, adding that the park will soon benefit from an intermodal yard in its southwestern portion. “It’s going to be a success,” Clark predicts. The intermodal was a result of Norfolk-Southern’s deal with the local port authority.

According to Clark, the I-270 submarket has been a hot area for bulk distribution for a number of years. “In Columbus, being closer to the outer belt or the interstate gives you the advantage,” he notes. “For office users, proximity to the interstate broadens the potential employee base, while industrial users can still enjoy the benefits of the interstate from a few miles away.” However, parks that are too far off from the interstate are sometimes not that well received.

Rising gas prices and recent labor legislation have had an effect on the role of rail. “Rail has done a good job of working on their logistics side: making it more reliable, making it faster, coordinating with the steamship lines,” Clark says. “We haven’t had demand for rail in Columbus for years, [but now] you need to incorporate rail somewhere in your supply chain. It’s critical; this is a trend that I don’t see changing anytime soon.”

 Albrecht Incorporated’s Hudson Drive Business Campus (HDBC), located in Stow, Ohio, is within proximity to both I-80 and Chrysler’s major stamping plant in Twinsburgh, Ohio. “HDBC is located within a mile of two interchanges on State Route 8 [the north-south route connecting to I-80/Ohio Turnpike] and Interstate 77, and is in close proximity to Interstates 71 and 90,” says Jack Juron, vice president of Albrecht. “With a new interchange planned a half-mile to the north, HDBC’s location is only getting better.” The campus also benefits from its proximity to Chrysler’s plant. “Many major auto manufacturers are requiring their suppliers to locate within a given radius of their plants,” Juron explains. HDBC, a former Goodyear Tire & Rubber Company mold plant, is within a 10-mile radius of Chrysler’s facility. Noble Metal Processing - Ohio has occupied the 130,000-square-foot former mold plant building since January. Albrecht spent more than $2 million to renovate the facility and accommodate Noble, which is a laser welder of steel parts for the automotive industry.

According to Juron, the HDBC site presents other benefits aside from its interstate proximity. “Our site [has] rail service available  — there is a rail line that [divides] our site, providing the opportunity for rail users to avail themselves of a dual-hub line that connects to CSX at one end and Southern Pacific on the other,” he says. “Having two major rail companies available is key, because rail users can actually shop rates between the two providers with the prospect of much more competitive rates.” Special users such as heavy manufacturers or those who require very large spaces will often not consider sites that do not have availability to rail.

“Major interstates are a basic key component on the requirement list of any major company doing site selection,” Juron says. “There is just no company that is content with limited access to transportation. With rising costs of fuel and never-ending pressure to reduce prices, making a wise transportation choice is crucial.”

Interstates 39, 55, 72, 80 and 88; Illinois

In Illinois, Interstates 39, 55, 72 and 80 are the major transportation arteries, along which several major developments are situated. Developments have been increasing in size and scope during the past 5 to 7 years. “Ten years ago, a 500,000-square-foot building was considered to be extremely large,” says Michael Chivini, senior vice president with Columbus, Ohio-based Pizzuti. “These days, we’ll see them in excess of 1 million square feet.” As fuel prices rise and the service legislation impacts the trucking industry, the future of these large buildings is questionable; however, for the time being, this large building trend shows no signs of slowing.

“I-55 is the single most active corridor in all of Chicago,” Chivini says. For the past 5 years, the corridor has been top-ranked for growth and absorption rates. The industrial market alone totals more than 1 billion square feet. Pizzuti’s Pinnacle Business Center, located right off I-55 in Romeoville, contributes more than 4 million square feet to the I-55 corridor. Encompassing approximately 804 acres, Pinnacle has enjoyed success from its combination of large build-to-suits, such as Pactiv’s 871,200-square-foot building, and several speculative projects all in excess of 400,000 square feet.

Industrial Developments International is developing Rock Run Business Park along Interstates 55 and 80 in Joliet, Illinois. The park includes approximately 3 million square feet of completed development and 240 industrially zoned acres.

Among the effects of the increased fuel prices is the push to intermodal. “Intermodals are going to become a more important factor in determining where you put your distribution buildings,” Chivini says. Outsourcing to third-party logistics companies in an effort reduce costs and increase efficiency is also prevalent. “We’ve been seeing a larger and larger number of transactions in the market being driven by third-party logistics companies and not the actual client,” he says. Ozburn-Hessey Logistics recently took 750,000 square feet at Pinnacle, thus keeping that trend front and center.

Proximity to the interstate has few, if any, drawbacks; one cause for hesitation could be higher land costs. “There’s no question that close proximity to a viable interstate — within 1.5 to 2 miles — is critical,” Chivini says. The development phase can sometimes be tough due to the added approvals required by the Department of Transportation. However, people are often more than willing to pay for frontage along the interstate. Rock Run’s location at the intersection of two interstates “has definitely been a driving force in [its] success,” says George. Additional advantages to being near an interstate include access to a large labor pool and visibility. “The benefits can be as basic as the ability to provide simple driving directions to first-time visitors,” George adds.

Industrial Developments International’s Rock Run Business Park is located along Interstate 55 in Joliet, Illinois, and features approximately 3 million square feet of completed industrial space.

Being situated near interstate interchanges is especially advantageous. Interstate 39, which runs north-south, intersects with Interstates 90, 88, 80 and 55. “Our location is promising for many different types of users,” says Roger Hopkins, executive director of the I-39 Logistics Corridor Association in Sycamore, Illinois. Del Monte recently leased approximately 400,000 square feet at DP Partners’ LogistiCenter in Rochelle, Illinois, and UPS is creating an approximately 800,000-square-foot air freight hub, the second largest in the United States, in Rockford, Illinois. Many companies along I-39 are consumer products/distribution businesses such as PetsMart, Staples, Nestle and Goodyear.

“Companies are tending to favor an interstate interchange location,” Hopkins notes. “Some communities are even looking into opportunities to build new interchanges where they feel there are development opportunities.” While infrastructure and energy demands can be taxing on new development plans, there are several projects on I-39’s horizon. IDI has a new development in the works near the crossroads of I-39 and I-80 in Utica, Illinois, and Riverwoods, Illinois-based Venture One Real Estate is planning Rock 39, a business park proposed for Baxter Road and I-39.

As fuel prices rise, Hopkins notes that companies will need to do what they can to optimize their operations. Rail is also an option, with some companies, especially those in the food processing business, seeking amenities such as dual-rail access for their developments.

Companies and developers are also looking at intermodals. “ I think intermodals are going to be an important part of distribution in the future,” Pricco says.  CenterPoint Properties Trust’s Intermodal Center in Elwood, Illinois, encompasses more than 2,000 acres and has the capacity to hold up to 12 million square feet of industrial and distribution space. The center includes a 770-acre intermodal yard operated by Burlington Northern & Santa Fe Railway Company; Georgia Pacific’s 1 million-square-foot speculative distribution center; and Wal-Mart’s two-building bulk storage facility, which totals more than 3 million square feet. The intermodal is accessible from I-55 and I-80, and is the largest in the United States. The center also includes a 1,100-acre industrial park and features benefits such as low real estate taxes, flexible zoning for manufacturing or distribution and designated foreign trade and enterprise zones.

Interstates 70, 465, 65, 74; Indiana

For large bulk distribution developments, proximity to the interstate is crucial. Access to a large population base, restaurants, hotels, and gas stations are also important components for a successful bulk distribution project.

In Indiana, several major developments are taking place within proximity to Interstates 70, 465 and 65. Browning Investments and Duke are jointly developing two industrial parks: AllPoints Midwest, a 922-acre, master-planned industrial park that will comprise 14 buildings and total 12.5 million square feet; and AllPoints at Anson in Boone County, Indiana, which will encompass 616 acres and more than 7 million square feet. AirTech Park, a 500-acre, master-planned development from Browning and ProLogis, has had more than 3.5 million square feet of modern distribution facilities completed to date. Lauth Property Group is working on three projects in Plainfield, Indiana, including Southpoint Industrial Park, a 260-acre project along I-65 featuring 668,000 square feet and the potential for a total of 4 million square feet; and Eaglepoint Industrial Park, a 400-acre development along Interstate 74 that has 2.2 million square feet built to date.

“Proximity to Interstates 70, 465 and 65 has been crucial in the successful development of AllPoints Midwest, AllPoints at Anson and AirTech Park,” says John Hirschman, director of development with Browning. “East access to the interstate is key,” he adds, noting that all three parks are located within a day’s truck drive from 75 percent of the United States population. There has been interest in the rail accessibility of AllPoints Midwest, but major development deals have yet to be driven by rail requirements.

Future developments are likely to further the growth of the bulk distribution market. “Cities and counties interested in developing a strong distribution market need to be willing to invest in the infrastructure required to support bulk distribution users,” says Taggart Birge, vice president and marketing officer with Lauth Property Group. Close proximity to interstates will still be a crucial factor, and truck transportation, despite the rise in gas prices, will likely remain important to the logistics and distribution industries. Incentive programs, such as TIF and tax abatements, will aid the success of future interstate developments. 

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.