JV With Pension Fund Broadens REIT's Reach

In 2005, Corporate America absorbed 280 million square feet of industrial space, the largest amount since 2000. This represents a 53 percent increase from 2004 absorption of 183 million square feet. This trend is expected to continue in 2006, as capital spending is forecasted to grow 6.5 percent, according to Duke University's Fuqua School of Business survey of more than 300 corporate executives. With Corporate America's cash coffers now in excess of $1.5 trillion, investment in business expansion is expected to increase.

Additional demand drivers include expansion of international trade and changes in supply chain configurations. With international trade in 2005 nearly $3.3 trillion, which represents a 12 percent and 29 percent increase over 2004 and 2003 levels, respectively, the demand for distribution centers has grown significantly.

The favorable environment for business spending has been very positive for industrial developers who were active in 2005, completing 135 million square feet. At year-end, they were in the process of constructing an additional 126 million square feet. Demand for new industrial properties arises as companies expand production capacity, consolidate operations, modernize facilities, or enter new markets. In 2006, investment in non-residential construction may increase nine percent according to the Associated General Contractors of America in Arlington, Virginia, while Standard & Poor's estimates it could be nearly 12 percent.

To serve this overall demand, First Industrial Realty Trust, Inc. has dramatically grown its capital resources and portfolio of owned and managed properties. The company owns and operates all of the facility types in the industrial supply chain - manufacturing, light industrial, R&D/flex and bulk and regional warehouses -- in the nation's top industrial markets. By offering comprehensive solutions, First Industrial has a sizeable, diverse portfolio to help its customers grow, improve supply chains, and increase overall operating efficiency, whether the customer is a start-up or multi-national corporation.

The 135,000-square-foot Mary Kay office/distribution center in Hoffman Estates, Illinois, increased the company's Midwest capacity by one-third. The precast concrete facade is finished with the "Mary Kay pink" color scheme.

Single Source Solutions
Industrial real estate providers do not simply supply buildings. They create solutions that help customers achieve operational and financial goals. This is true whether leasing an existing building, executing a sale-leaseback transaction, acquiring surplus assets, or developing a new facility. In each case, customers have specific supply chain needs and financial constraints, and it is up to the real estate provider to locate or develop the optimal facility and location.

To better serve its customers' development needs, in March 2005, First Industrial formed a $950 million joint venture, FirstCal 1, with the California State Teachers Retirement System (CalSTRS), the second largest public pension fund in the United States, with more than $130 billion in assets under management. The venture provides capital capacity for land purchases, build-to-suits, and speculative developments in major industrial markets across the U.S.

The partnership between CalSTRS and First Industrial came together because of a shared "value creation" investment philosophy and complementary strengths. First Industrial brings its active real estate management expertise in sourcing, developing, redeveloping, acquiring, leasing and managing industrial properties across a national platform. And CalSTRS brings access to large amounts of competitive capital. The advantage of the joint venture structure for First Industrial is that it provides lower cost debt financing and can accept more leverage that enhances returns. First Industrial contributed 10 percent of the equity, with CalSTRS contributing the rest.

To best serve corporate customers, real estate providers like First Industrial must deliver a full complement of build- to-suit services, including site searches, design, construction, and land for future growth. Working with a developer such as First Industrial provides a customer with a single source to manage all aspects of the development process. Buildings must be the right facility type in the right location, based on a customer's overall supply chain dynamics -- products, markets, logistics, staffing and tax incentives. First Industrial can offer upfront guaranteed pricing to help customers make their investment decision.

From a design standpoint, it is critical to coordinate building design and interior process layout to maximize facility function. Engineering expertise helps customers optimize costs, schedule projects and maintain overall design integrity. Additionally, providers can help customers with operational flexibility by offering both sales and leasing options for conveyors and racking.

In addition to expanding its development capabilities, First Industrial has dramatically grown its capital resources and portfolio of owned and managed properties. In 2005, the company established a record for investments of more than $2.3 billion of industrial properties, including joint ventures. A core element of the company's strategy is to own and manage all of the facility types in the industrial supply chain - manufacturing, light industrial, R&D/flex and bulk and regional warehouses -- in the nation's top industrial markets. The strategy will also drive future growth as First Industrial's customer franchise expands.

Addressing Bottling and Beauty Requirements
Two recent examples showing how different needs are addressed in customized facilities are a 500,000-square-foot bottling facility and global headquarters for Le*Nature's Inc. in the rapidly growing Phoenix market, and a 135,000-square-foot distribution center for Mary Kay Inc. in Hoffman Estates, Illinois.

Le*Nature's, Inc. produces and markets all-natural, fully pasteurized, noncarbonated beverages in re-closable plastic bottles. More than a year ago, Le*Nature's needed a world-class headquarters and bottling plant to meet growing demand for its natural ICETM WATER and other all-natural premium quality beverages, serving the Western United States. Le*Nature's awarded this critical built-to-suit project to First Industrial.

A plant site of more than 30 acres (comprised of two 15-acre parcels that were united) was strategically chosen with both distribution and marketing in mind. The plant is located next to the Sky Harbor International Airport, with access to key highway routes for product distribution. To advertise its growing presence, the site also includes a giant color video screen measuring 75 feet high and 400 square feet wide, that is seen by more than 175,000 vehicles each business day.

Le*Nature's new bottling facility includes a 150,000-square-foot warehouse, incorporating state-of-the-art beverage packaging, processing and warehouse technology along with an innovative facility and infrastructure design. The property also features advancements in water treatment, ammonia refrigeration, compressed air, steam generation, electrical and cooling systems. Because of these investments, Le*Nature's is widely recognized for having one of America's most advanced beverage manufacturing facilities. The facility plant also includes more than 70,000 square feet of premium office space on three floors; skylights throughout the warehouse area; 378 parking stalls; and 30-foot clear ceiling height. The building is fully leased on a 25-year triple net lease by Le*Nature's, Inc.

The company will be able to produce more than 32 million cases annually in this plant after all phases of hiring and training are completed and expects to employ approximately 250 Phoenix-area residents in the facility.

Building a state-of-the-art facility of this magnitude required contributions from many organizations and people. Kevin Czerwinski, senior vice president of development of First Industrial's Phoenix office, directed the development of the property. Ware Malcomb Architects provided architectural and interior design services and Howard S. Wright Construction built the facility.

The Le*Nature's World Headquarters development earned several awards, including "Best Industrial Build-to-Suit Project of the Year" from the Phoenix Chapter of NAIOP, as well as the Real Estate and Development (R.E.D.) Award from Arizona Commercial Real Estate Magazine (AZRE) for "Best Industrial Project of 2005", and Southwest Contractor Magazine's "Best of 2005 Industrial Projects."

Beauty is Mary Kay's business and First Industrial worked with the company to create a facility that reflected the look and spirit of its brand. Mary Kay needed a facility to accommodate its growth, with esthetics and construction quality consistent with its image as one of the largest direct sellers of skin care and color cosmetics in the world. Mary Kay had been a customer of First Industrial, as the REIT completed a built-to-suit distribution center for the company in Franklin Township, New Jersey, in the first half of 2004. In July 2005, First Industrial won its second build-to-suit agreement with Mary Kay, to develop its Midwest distribution facility at the Prairie Stone Corporate Center in Hoffman Estates, Illinois.

First Industrial developed the 135,000-square-foot office/distribution facility along a key distribution route in Hoffman Estates, Illinois. The distribution facility is used to deliver products to the many Mary Kay Independent Beauty Consultants throughout the Midwest. The facility contains a state-of-the-art material handling system and also serves as a regional office center with air conditioned, premium finished office and lobby spaces. The new distribution center replaced another Mary Kay facility in the vicinity and is one of five regional distribution centers strategically located throughout the nation that Mary Kay maintains. The center increases Mary Kay's Midwest capacity by one third and provides an option to expand the facility by an additional 35,000 square feet.

The building features 30-foot clear height ceilings and a precast concrete fa‡ade finished with the "Mary Kay pink" color scheme made famous by the Mary Kay brand and its storied pink Cadillac incentive awards. A grand opening ceremony was held for the facility in late February 2006 and is helping ensure that Mary Kay's Independent Beauty Consultants are keeping their customers "in the pink."

Joe Mikes, senior vice president of development, led First Industrial's efforts on the project, coordinating a team of experts to make the project a success. Britt Casey, Bob Klinger, and Linda Biedron of Cushman and Wakefield contributed on the brokerage side, including identifying the site. As a testimony to the importance of customer relationships, First Industrial purchased the site from Sears, another one of its corporate customers. Heitman Architects designed the facility and Clayco was the builder. In addition, the village of Hoffman Estates and Mayor William McLeod were instrumental in facilitating the development and construction process.

First Industrial currently has projects under construction for other corporate customers with household names, including Solo Cup Company in Georgia, Maytag in Iowa, Libbey Inc. in Louisiana, Pier 1 Imports in Seattle, Staples, Inc. in Atlanta, and Walgreen Co. in Dallas.

Gerald A. Pientka is First Industrial Realty Trust's executive vice president, development. He has led the development of more than 2,000 acres of business park land and more than $2 billion of industrial and office space.