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When the Market Turns Sour, Make a Contact Center!
If you’re looking for a case study on getting a deal done amidst the collapse of the financial markets, the people involved in closing the deal on Hewlett Packard’s (HP) 218,000-square-foot build-to-suit contact center is an excellent example.
The project, currently under construction in the Rio Rancho-Albuquerque, New Mexico metro area, includes Titan Development, the HP real estate team, Rio Rancho and Albuquerque’s Economic Development agencies, the state of New Mexico and a consortium of local bankers. Everyone worked together during the worst financial meltdown since the Great Depression to bring a project out of the ground that will mean 1,300-1,800 new jobs and an annual $100 million payroll for the region.
Planned during early 2008, the deal progressed, was finalized and closed over the course of the year as major real estate lenders rode a terrible pendulum swing from aggressively seeking to finance prime projects such as the HP center to spurning the very thought of investing in this asset class. Ground was broken on January 7, 2009, and the project will be completed in December of this year.
According to Kevin Reid, chairman, and Drew Dolan, director of development for Titan Development, one of New Mexico’s largest commercial real estate developers, the HP real estate team had been looking at various states for a number of years for its new contact center. During that time, the HP team focused on due diligence in labor markets, tax rates and, of course, incentive packages. When HP came to the Albuquerque area in early 2008, it was shown a number of potential sites, including properties owned by Titan Development.
Getting the Deal Done
Both Dolan and Reid said that the HP team was highly focused and knowledgeable about the area. “A couple of weeks after our meeting,” said Dolan, “HP informed us that it wanted to see a proposal from us and in about two weeks we actually turned out three different proposals. What took us a little by surprise was how quickly the company came to its decision. They were obviously engaged from day one and ready to act.” One of the three proposals included a site in the city of Rio Rancho, where Titan had holdings. Once HP made its decision to go to that location, Titan put together a team that consisted of a partnership with the city.
“Securing this opportunity for New Mexico was a huge victory,” explained Dolan. “HP is bringing incredible jobs and a wonderful corporate environment to our state at a most critical time. During the negotiation for this deal, we had an unprecedented financial market meltdown. Thankfully, HP’s great credit and corporate success, combined with some unbelievable hustling from our development team, made it possible for us to close this deal.” To add fuel to the fire, along with the financial meltdown and a national election underway, this deal was complex in its own right. It was a build-to-suit on 16.3 acres in the heart of the city of the Rio Rancho business district and involved a land lease with the city, which took considerably more coordination than a fee simple project. Further, the city had never done a project like this before so there was a big learning curve. The land in question was nothing more than a pile of dirt with no infrastructure in place.
Timing Is Everything
Although Titan delivered the proposal for the Rio Rancho property to HP in early August 2008, it took months for all of the parties to come together and to get the lease signed. Since time was truly of the essence on this project, in early October, Titan took action. “Starting in October, based only on a handshake, we pulled the trigger on the build-to-suit design. We did this so that we could get a leg up on what the building would look like, how it would fit the site and what the construction costs would be. There was a lot of trust between us and HP that each of the parties would live up to its commitments. I think that the trust that was built up and the relationship that was established really made this opportunity very successful for all concerned,” commented Dolan.
Both Dolan and Reid recalled that as the project progressed, it was truly breathtaking to watch the financial pendulum swing. Only a few months prior to this project, a typical deal in the Albuquerque market on an office building would have seen the project one-third filled before construction and 100 percent leased as the structure was completed. The developer would have put up 20 percent equity and borrowed 80 percent from enthusiastic lenders looking for projects by great developers for highly rated corporations. There was plenty of construction money and permanent financing available. Titan enjoyed numerous relationships with top lenders but then it all changed. “I don’t know how many times I heard from various lenders… ‘this has nothing to do with you, Titan. You are a great company, HP is a great company and this is a great project. However, we are no longer lending money on real estate of any kind’,” noted Dolan.
Looking back over the five toughest deals the developer had ever put together, Titan agreed that the HP deal was the hardest. About 20 financial packages were sent out for the deal with most of them coming back unopened. The ones that were opened were also sent back. “This had to be one of the biggest challenges we ever faced,” said Dolan. “What was so frustrating was that this was a great deal. It was a super project but people’s hands were tied.”
It’s All in Who You Know
With no luck working with national lenders, Titan went back to its local lenders with whom it had had a long relationship. While none of them could or would handle the construction financing on the project, they all recognized the critical nature of bringing the project to fruition. Local banks formed a syndication together to raise the capital. In the end, the state of New Mexico also participated in a portion of the loan to basically close the gap between what the local lenders could come up with and what was needed.
The Titan Development team said that the company leveraged every relationship it had built up prior to this project. They were thankful for the help of Governor Bill Richardson and Rio Rancho Mayor Tom Swisstack. “Not only did we leverage our relationships but our legal team and our brokerage team both leveraged all of their relationships as well. It is very satisfying to know that you have friends in the community to get the deal done,” said Dolan.
Founded in 1999 by Ben Spencer and Reid, Titan Development provides a full range of real estate services for clients throughout the state. Its scope of skills includes raw and developed land acquisitions, full entitlement processes and implementation, fee development, design/build leaseback, joint ventures and acquisitions. The Titan team has a wealth of experience in both land and infrastructure development and strong credentials in build-to-suit development. The principals have been involved in the development of more than 10 million square feet of industrial and commercial space in New Mexico and Texas.
For more information
Titan Development
www.titan-development.com
By Ron Derven, contributing editor, Development.
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