Mile High Business Center Unusual Partnerships Pay Off in Denver

[ By Jason Tadych ]

Building 2 is also a cross-dock distribution facility 337,000 square feet in size with 32 foot clear height, 122 dock high doors and four drive-in doors.  The building was completed in July 2008 and is currently 67 percent leased to Western Paper Distributors and Alstom Power Generation.

In early 2005, the Samsonite Corporation, well-known manufacturers of luggage, issued a Request For Proposal (RFP) to acquire its 100-acre campus in Denver, Colo. The reason was that Samsonite was going to split up its corporate, manufacturing and distribution operations into three areas far away from the Denver area. The site being offered was a prime, infill parcel with Interstate 70 frontage in the Northeast I-70 corridor.

Panattoni was fortunate to win the competition for the site, not only because of a very healthy bid, but also because the seller was treated like a partner in various phases of the redevelopment process.

At the time of acquisition, there were five buildings totaling a little more than one million square feet located on the site. Because the existing buildings were designed and constructed in the late 1960’s as Samsonite’s corporate headquarters and primary manufacturing plant, they offered little utility to today’s warehouse user. As such, the original plan was to demolish all of the existing buildings and redevelop the site as a Class A, high-bay distribution park containing more than 1.5 million square feet of distribution space in eight buildings.

Building 1 is a 337,000-square-foot, 32 foot clear height, cross-dock distribution building with 122 dock-high doors and four drive-in doors.  The building was completed in November 2006 and is currently 100 percent leased to HD Supply and Nestle Waters North America.

The structure of the deal with Samsonite was a sale/leaseback, with the tenant having the option of keeping some operations in place for between two and four years. This structure allowed Samsonite to phase out of the campus and, at the same time, provided Panattoni with an income stream during construction of the initial phases of the project. This could have created an acrimonious situation without the good intention of both parties to be cooperative during each stage of the campus redevelopment. As an example, Samsonite was informed of demolition and construction activities on a continual basis so their normal business procedures weren’t unreasonably disrupted. Since Samsonite was regularly moving product from one end of the campus, through the site, into another facility on the perimeter, temporary roadways and access points were built to help facilitate these movements.

A Multi-Phase Approach Pays Off
An early key decision was made to bifurcate local permitting and approvals and break into distinct phases. The first phase involved the development and construction of a new speculative 337,000-square-foot distribution building. Since the portion of the site underneath the new building already had frontage on an existing right of way, it was relatively easy to get the necessary go-ahead and get into construction very early.

The second phase involved the construction of regional drainage and detention for the entire project as well as the construction of a new spine road, water mains and sanitary mains across the project. Since these improvements would eventually be dedicated to the City of Denver, it was likely that the design, permitting and acceptance processes would take significantly more time. The decision paid off -- two new buildings were designed, permitted, constructed and fully leased before the public improvements were finally accepted by the city. In addition, the existing Samsonite headquarters office building of 120,000 square feet was slated for destruction, to be replaced by industrial use. Instead, it was purchased for a Charter School, resulting in a significant portion of Panattoni’s purchase price being recovered at an early stage.

Second, a build-to-suit assignment was awarded for a 90,000-square-foot distribution and office building to be occupied by Rexel Corporation, an electrical supply firm. The Rexel project enabled simultaneous building of the shell of a second speculative 337,000-square-foot warehouse cutting the costs of both buildings. This later structure was completed in July 2008 and is now 67 percent leased to Western Paper Distribution and Alstom Power Generation.

Building A is a 90,000-square-foot, 30 foot clear height, front park, rear-load office/distribution building.  It offers 24 dock-high doors and two drive-in doors.  The building was completed in January 2008 and is 100 percent leased to Rexel Corporation.

Creative Financing Benefits All
Another partnership came into play with regard to the previously mentioned public improvements. With the city and county’s cooperation, a Metropolitan District was created. This is a quasi-municipal entity that allows us to issue tax exempt municipal bonds to finance the cost of the public improvements already funded by Panattoni. The bonds are repaid through incremental property taxes on the project, which, of course, benefits the city and county. The first issuance was for five million dollars and sold quickly. It is likely that another issuance will be pursued. One more interesting aspect of this type of funding is that because Panattoni advances the monies for the public improvements, proceeds are distributed as we deem fit. With this in mind, the original proposal to Samsonite suggested sharing the proceeds with the then-tenant, which certainly helped in winning the bid.

Taking Ownership of Environmental Challenges The overall position in tackling environmental issues was to take these problems on without pushing them back to Samsonite. Confidence in the painstaking due diligence process produced a complete understanding of what the environmental issues were going to be, so they could be dealt with accurately.

The first issue was minor groundwater contamination caused by prior manufacturing operations on the site. This issue was mitigated by forming an agreement with the State of Colorado to voluntarily remediate the contamination in exchange for a no further action letter upon completion. A chemical (HRC) was injected into the ground which speeds up the natural attenuation of the contaminants. Instead of passively monitoring the situation, it was attacked aggressively. It made sense to spend some money to obtain a “no further action” designation. In this way, long-term value was added to asset, without any contingent problems.

The second issue involved asbestos. Although the campus contained certain amounts of asbestos, it was impossible to gauge the exact amount that needed to be removed, building by building. Samsonite and Panattoni agreed to put part of the purchase money into escrow, and draw funds as the campus was redeveloped and asbestos removal procedures and quantities were agreed upon and undertaken. This approach provided distinct benefits. First, it removed Samsonite from future litigation and liability. Second, it allowed Panattoni to make a more aggressive initial bid for the asset, knowing that funds would be available for the remediation required to create an institutional quality project.

At the present time, approximately 750,000 square feet of new buildings have been completed, with tenants already occupying 640,000 square feet. Another 600,000 to 700,000 square feet is planned within the next three years. The success of Mile High Business Center could not have been achieved so rapidly without the enthusiastic participation of the three-way partnership between the seller, city/county and developer.