Development Magazine Summer 2012

Development - Ownership

Development Through Relationship Leveraging

Penn Jersey Paper’s new distribution center is more than 75,000 square feet larger than their former building and includes acreage restricted from development for endangered trees.

For three years, Penn Jersey Paper (PJP) debated how to expand their corporate headquarters and distribution center facility. The fully integrated national distributor of packaging, paper, restaurant equipment and janitorial chemicals had already expanded the building once, and it was becoming clear that the facility was ultimately insufficient for their growing operation.

PJP turned to CBRE to begin the site selection process for a new facility. After deciding that building a new facility would be the best option, PJP again consulted CBRE who recommended Dermody Properties, parent company of DP Partners.

Finding the Land

Securing financing for a 30-acre project during a recession was a challenge. Through prior ventures at LogistiCenter at Logan, Dermody Properties’ master planned industrial park in southern New Jersey, Dermody Properties had an existing relationship with Great Point Investors LLC. Great Point is a fiduciary that invests in private equity real estate on behalf of institutional investors. For the PJP project, Dermody Properties formed their second joint venture with Great Point, who brought creative financing and significant real estate expertise to the table.

Penn Jersey Paper building

The site is part of Pennsylvania’s Keystone Opportunity Zone, which provides tax abatements and other incentives for 10 years from the date of occupancy for a qualified tenant.

PJP is a third-generation, privately-held business that had been in Philadelphia for nearly 50 years. For a company so deeply rooted in and committed to the community, it was crucial for them to remain in the city limits, near their existing location. At the project’s start, PJP had approximately 200 employees and wanted to retain all of them by remaining in the city rather than relocating outside the region. The first challenge was finding a large site of viable land within the Philadelphia city limits with potential for future expansion.
Not only did the land have to be within city limits, but it also had to be easily accessible and strategically located. PJP and CBRE had already identified a preferred site, so Dermody Properties reached out to the owner, the Philadelphia Industrial Development Corporation (PIDC). PIPC is a city-wide economic development corporation that plans and implements real estate and financing transactions that attract investment, jobs and tax ratables to Philadelphia.

Dermody Properties worked very closely with PIDC to not only acquire the land but also to help obtain tax benefits for PJP. The property ultimately obtained a KOZ (Keystone Opportunity Zone) classification from the State of Pennsylvania, which allowed PJP 10 years of tax abatement along with other benefits.

Taking the Good With the Bad

With the help of the CBRE team – which included Steve Marzullo, senior vice president of investments; Patrick Green, executive vice president; and Michael Mullen, senior associate – Dermody Properties and PJP finalized a 15-year lease. The lease was written to allow for the cost uncertainty associated with a new facility constructed on a challenging land site. There was a shared risk between PJP and Dermody Properties on the project, and the lease was designed to accommodate that.

With the land acquired and the lease in place, Dermody Properties partnered with Blue Rock Construction as the General Contractor. The Blue Rock/Dermody relationship goes back to early 2006, and together the companies have successfully developed and constructed over 1.5 million square feet of industrial space.
The site posed many development challenges for the companies, including inadequate access to the property, lack of infrastructure, wetlands permit requirements and poor soil for construction.

Penn Jersey Paper warehouse interior view

The building’s use of recycled steel and concrete and a tight thermal barrier contributed to its LEED Silver certification.

The soil was one of the first big development challenges to be addressed. Not only was the soil poor quality, but it was inconsistent across the 30-acre site. Dermody Properties established a process that allowed them to excavate the bad soil and replace it with good material or, depending on the appropriate requirement for each particular piece of land, to mitigate the existing soils with lime stabilization and compaction.

While the soil was being taken care of, endangered trees were found on the property. Dermody Properties worked closely with Marathon Engineering, an engineering and environmental services firm, and the Pennsylvania Department of Conservation and Natural Resources to formulate a plan that allowed Dermody Properties to develop while setting aside a dedicated tree area restricted from any future development.
All of these challenges required a working relationship that was flexible enough to account for these unique solutions and the potential costs that came with them. It was the strong relationship with PJP and the consulting team that made creative problem solving like this possible.

Other specialists essential to the project included NTH Consultants, an environmental engineering firm; Penonni Associates, engineering and design consultants; Transystems, an architectural design firm; and Tommy Linstroth of Trident Sustainability, a LEED consulting firm.

From the very beginning, PJP was committed to building an environmentally conscious facility, and green initiatives have long been a part of Dermody Properties’ corporate mission. In order to meet the U.S. Green Building Council’s (USGBC) requirements for LEED certification, Dermody Properties collaborated with their entire consulting team, who all monitored the project during construction to make sure practices set out at the beginning of the project were adhered to throughout.

“We made sure the project stayed green throughout the construction process, which meant using local and recyclable materials,” said James Mascaro, CCIM, LEED-AP, director of development at Dermody Properties, eastern region. “The steel and concrete in the building is nearly all recycled. We made sure to have a good ventilation system throughout the entire warehouse for employee comfort. The building also has the ability to regulate stormwater runoff.”

truck bays at Penn Jersey Paper

The Penn Jersey Paper building, which has the ability to regulate storm water runoff, was designed to achieve an energy savings of 40 percent and a water use savings of more than 35 percent.

The building is designed to achieve an energy savings of 40 percent and water use savings of more than 35 percent. It features low-VOC (volatile organic compound) floorings, finishes and paint, high efficiency mechanical equipment and a tight thermal barrier for better insulation.

In September 2011, the 255,336-square-foot facility received LEED Silver certification from the USGBC, making it the fifth LEED-certified project for Dermody Properties.

Looking and Giving Back

With all the unique challenges Dermody Properties faced during the PJP project, we always came back to a traditional building block of this industry: value your relationships.

The Dermody Properties Foundation, established by Dermody Properties in 1988, is funded by the profits generated by the hard work and dedication of their employees. When key projects with customers come to a close, it has become a tradition for the foundation to make a donation in the customer’s name to the charity of their choice. In October 2011, as a testament to their relationship and success, the Dermody Properties Foundation and PJP donated $10,000 to two Philadelphia-area charities: the Greater Delaware Valley Chapters of Autism Speaks and the National Multiple Sclerosis Society.

“A little stubbornness and tenacity in this industry never hurts. Both Dermody Properties and Penn Jersey remained committed to this project through very uncertain periods throughout the development,” said Doug Kiersey, president of Dermody Properties. “In uncertain times, it is important to continue to take strategic risks, and those risks are easier to take with partners you can trust.”

From the Archives: Development / Ownership Articles from the Previous Issue

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Are property owners from Venus and commercial real estate brokers from Mars? Do they understand enough about each other’s business to move transactions along in a challenging environment? Development magazine set out to learn what owners wished brokers knew about their business and negotiations and vice versa.

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Small Town America Is Building. And Building Green! 

At a time when few construction cranes were in operation, the small town of Effingham, Ill., had not one but two working, and on adjacent private projects. These two projects, an 80,000-square-foot mid-rise office and a 100,000-square-foot technology center, were designed with LEED certification in mind and were completed near the end of 2011.