COVER STORY, JUNE 2008

MIDWEST’S YELLOW BRICK ROAD
Industrial users seeking their Emerald City find numerous choices along Interstate 70 in the Heartland.
Coleman Wood

If the Heartland could have one main transportation corridor, it would be Interstate 70. The east-west corridor passes through four major Midwest markets — Columbus, Indianapolis, St. Louis and Kansas City — on its trip through the region. While the cities that dot this interstate are vastly different, all have taken advantage of the road’s stellar shipping options. This month, Heartland Real Estate Business takes a look at a few of the many industrial parks that have sprung up on this Midwest transportation artery.

It doesn’t take much to see that Kansas City is quickly becoming one of the hottest areas for intermodal users. Two rail intermodal centers and one air intermodal center are currently under development, and a swarm of distribution and logistics development has followed quickly behind to take advantage of the attention these projects are sure to bring.

It should not be forgotten, though, that Kansas City is also a key area for users that rely on the interstate system for shipping. Two heavily traveled roads, interstates 35 and 70, pass through the city. Bisecting the city is Interstate 635, which contains a firmly established industrial corridor on its north side. For some time, the part of I-635 that passes through Riverside, Missouri, near Highway 9 has been a sought after, but unattainable, piece of real estate.

“For years, in the industrial market we’ve said, ‘Where’s the next site in the central part of the Kansas City metropolitan area where somebody could build?’ and it’s always been Riverside,” says Lou Serrone, senior vice president with locally based Block & Co. “But Riverside, up until the last few years, was only protected by a farm levee, whereas most of the industrial parks in Kansas City are protected by levees that were constructed by the [Army] Corps of Engineers. So the Corps built this new levee, and it brought 900 acres of good farmland out of the flood plain, which brings it online for development.”

Block & Co. is developing Horizons Business Park on newly opened land in Kansas City’s Interstate 635 corridor, 5 minutes off of a Interstate 70.

Until the construction of the levee, the Riverside and neighboring North Kansas City industrial submarkets had been seen by local developers as fully matured. With the levee complete, Block acquired approximately 450 acres of the opened-up parcel for the construction of Horizons Business Park, a $300 million, master-planned industrial park.

Horizons will be built to cater to industrial users of all sizes, from small-scale flex space to bulk industrial space 200,000 square feet and larger. At full build-out, the project is expected to encompass 3.5 million square feet of industrial product, representing one of the largest parcels of industrial land to be developed in metro Kansas City in the past 40 years.

At full build-out, Horizons Business Park will contain 3.5 million square feet of industrial product.

But not all of the development will be industrial. During the first phase of construction, approximately 40 acres on the south side of the project will be developed for various commercial uses, including restaurants, banks, truck stops and hotels — all in an effort to better accommodate industrial users at the park. The city of Riverside will also be undertaking numerous infrastructure improvements, including the construction of two parkways that will serve the development. Horizons Parkway will serve as a key traffic artery connecting I-635 on the south to Highway 9 on the north. Argosy Parkway will connect Horizons Parkway with an existing casino located on the south side of I-635.

Serrone, who is also serving as the director of development for Horizons Business Park, concedes that the project is not for users looking for intermodal access; but for users that distribute locally and regionally, there is not a better location.

Its central location puts Horizons 3 to 4 minutes from downtown Kansas City, 5 minutes from I-70 and 8 minutes from the airport. Construction is currently on track to commence at the beginning of next year, pending the construction of a sewer lift station and infrastructure at the site. In a time when many other Kansas City projects are locating farther away from the city’s urban core, Horizons Business Park has put itself right in the middle of the action.

An artist’s rendering of Business Center I, one of the industrial projects being built as part of NorthPark in St. Louis.

Located at the St. Louis transportation nexus of interstates 70 and 170, and the Lambert-St. Louis International Airport is NorthPark, a 550-acre master-planned development that sprawls across three Missouri municipalities: Berkeley, Kinloch and Ferguson. The project is being developed by NorthPark Partners, a joint venture involving McEagle Properties and Clayco, which plans to ultimately build 5.5 million square feet of manufacturing, distribution and office facilities, accompanied by complementary retail space.

On top of state-of-the-art amenities such as a fiber-optic ring and redundant power capabilities, NorthPark is also answering the call for sustainability by including green buildings and green space throughout the development. Plans are already underway to construct a facility called High Performance Office Development (HPOD), the first LEED-certified speculative office building in Missouri. The developers will also construct Maline Park Greenway, which will be a major component of St. Louis’ Great Rivers Greenway, a system of greenways, parks and trails that wind through the St. Louis area. The developers are reaching out to the local community by donating new civic centers and other amenities to each of the three cities in which the project is located.

In addition to industrial space, NorthPark will also contain offices such as the corporate headquarters and St. Louis campus of Vatterott Educational Centers.

The first building for NorthPark was completed last October. The $15 million, 90,000-square-foot facility houses the corporate headquarters for Vatterott Educational Centers, as well as the college’s new campus. A $12 million Hilton Garden Inn will also be built by Clayco and Paric, with completion scheduled for the end of the year. Full build-out of NorthPark is expected in 2020.

Indianapolis-based Duke Realty is also active in the St. Louis market. The company has partnered with Gundaker Commercial Group for the development of Premier 370, an approximately 835-acre master-planned park located at the intersection of I-70 and 370 in the St. Louis suburb of St. Peters, Missouri. The project will cater to industrial users of all sizes, with parcels divisible from 3 to 30 acres. Gundaker has already announced plans to develop an approximately 330-acre parcel it owns at the north end of the site, and will invest $350 million for the development of approximately 3.5 million square feet of industrial space on a build-to-suit and speculative basis.

Southwest of Indianapolis, developer KS Hendricks Partners is developing a 1,000-acre industrial park along I-70 as it makes its way out of the city and toward the rest of the Midwest. Called 70West Commerce Park, the development fronts I-70 at its interchange with State Road 39, a prime location for users looking to take advantage of the its easy interstate access. For those looking at other options, 70West is also located approximately 9 miles west of Indianapolis International Airport.

The park has been designed to accommodate users with space requirements as small as 20,000 square feet and as large as 2 million square feet. Most buildings, though, are expected to accommodate big box users looking for 200,000 to 500,000 square feet. Negotiations are ongoing for developers looking to build speculative distribution centers in the park, but much of the initial marketing for 70West, which is being undertaken by Colliers Turley Martin Tucker, is geared toward owner/occupiers and other build-to-suit projects. Construction of the road and infrastructure is expected to begin this summer, with vertical construction coming as early as fall of this year or spring of next year.

With rising fuel costs, developers are becoming more attracted to the nation’s railways as a means of shipping freight. Developments located near intermodal centers are a hot commodity, and Duke Realty is making a huge play for this sought-after product type in addition to its other distribution facilities.

In Indianapolis, Duke has already had success with the industrial component of AllPoints at Anson, the company’s master-planned, multi-use community located north of the city. Approximately 15 miles south of Anson on I-70, the company is developing AllPoints Midwest, a 900-acre industrial park. The development will ultimately contain 12.5 million square feet of industrial product catering to big box users. Sandwiched between Indianapolis International Airport and the CSX Railroad’s intermodal facility, AllPoints Midwest’s location may be one of the project’s best features.

“[AllPoints Midwest] has kind of got a triple threat going for it, offering access to the I-70 corridor, Indianapolis International Airport and the big CSX intermodal facility,” says Will Friedman, vice president of ports and logistics for Duke.

Duke is also developing projects on I-70 on both sides of Columbus, Ohio. In the western suburb of West Jefferson, construction is underway for Park 70 at West Jefferson, a 405-acre big box industrial park. Leasing activity is off to a good start, with Restoration Hardware set to occupy an 805,125-square-foot facility scheduled for completion in July, and Kellogg’s leasing a 1.1 million-square-foot facility. At full build-out, Park 70 is expected to contain 6.8 million square feet of product.

On the east side of town, just outside of the Columbus beltway is Rickenbacker Global Logistics Park, a 1,400-acre multi-modal industrial park. Duke is partnering with locally based Capitol Square, which is under a development agreement with the Columbus Regional Airport Authority for the former air force base. Four buildings are currently complete, three of which were constructed on a spec basis. At full build-out, Rickenbacker will contain approximately 20 million square feet of big box space. The smallest buildings currently planned are 650,000 square feet, with the largest topping out at approximately 1 million square feet.

With easy access to I-70, Rickenbacker International Airport and the Norfolk Southern rail intermodal facility, Rickenbacker Global Logistics Park provides easy options for its tenants in a time where fuel prices are spiking to all-time highs.

“[High fuel prices are] going to cause users to reevaluate their supply chains,” Friedman says. “They’re going to have to look at the system in place, and analyze what these fuel costs are going to do to them. I think being near an intermodal [park] is going to get better, in terms of a developer point-of-view and in terms of fuel costs driving demand, because rail is a much more fuel-efficient means of transportation.”

In fact, Friedman sees rail shipping playing a much more important role in the future for distribution and logistics users. Even with the escalating costs for diesel fuel, rail is still more efficient than trucks per ton-mile shipped.

“I think rising fuel costs will push freight to the railroads, there’s no question about it,” he says. “There’s always been a trade-off between higher service levels that you can get from a truck and lower cost from rail. What’s been happening is that the service gap has been narrowing, where trains have been getting better on service over time. So they’ve been able to pick off more of the service-sensitive end of the market.

With an increasingly global economy, shipping freight as efficiently as possible is more important now than ever. The Midwest will always be a vital transportation and logistics hub, and the options for those seeking industrial space along any of the interstate corridors such as I-70 will only increase.

PINNACLE BUSINESS CENTER Pinnacle Business Center While it may seem like many of the largest industrial parks are being developed along I-70, the Chicagoland market is teeming with activity. In the established Interstate 55 corridor, The Pizzuti Companies is well on its way to building out Pinnacle Business Center, an 800-acre park located at the intersection of Weber and Taylor roads near I-55 in Romeoville. Due to its location minutes away from two I-55 interchanges, Pinnacle Business Center puts users within minutes of interstates 80, 294 and 355. Big box users abound at the park. Wilton Industries occupies 892,000 square feet at the park; Ozburn Hessey Logistics is in an 880,000-square-foot building; Pactiv Corporation occupies an 871,000-square-foot building with expansion capability up to 1.3 million square feet; The Home Depot is situated with 470,000 square feet; and Florstar Sales occupies 444,000 square feet. Additional tenants, including R.R. Donnelly, Sony and General Motors, have also consolidated their regional operations at the park, one of its key selling points to big box users. Even with the multitude of large users, Pinnacle Business Center is far from built out, with 200 acres of undeveloped land remaining in the park. Construction is currently underway for a 648,960-square-foot speculative industrial building, which will be delivered this month. The building can be occupied by a single user, or subdivided for multiple users. With its existing reputation as a place for distributors to consolidate and expand, Pizzuti should not have a problem leasing the rest of the development. — Coleman Wood

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