The downside of a real estate cycle is no picnic, but it is often the time when the best-managed, best-focused companies gain market share and emerge stronger as the economy heals. Such a company is Oak Brook, Illinois-based CenterPoint Properties.
The firm is considered the largest owner and developer of industrial real estate in metropolitan Chicago; it acquires, develops and sells about a billion dollars of industrial property annually.
Just as the market was peaking in 2007 and 2008, the company sold off half of its portfolio for top dollar and then purchased thousands of acres of land in Chicago and other hub cities to develop massive new business parks with full logistics solutions, including rail terminal, warehouse/distribution, cross-dock, transloading and container/equipment storage facilities to reduce costs and improve efficiencies.
While pursuing this growth strategy, CenterPoint and its CEO, Michael M. Mullen, were delighted to learn that the firm had been selected by NAIOP as the Developer of the Year for 2011, as the company that best exemplifies industry and business leadership; involvement in NAIOP; quality of products and services; financial consistency and stability; ability to adapt to markets conditions; and social consciousness.
Stepan Company signed a build-to-suit lease for a 217,712-square-foot building on a 16.48-acre site at the CenterPoint Intermodal Center in Joliet, Ill. The park will feature up to 20 million square feet of industrial facilities as well as container/equipment management yards.
In a recent interview with Mullen and Paul S. Fisher, president of CenterPoint, Mullen said of the award: “The Developer of the Year Award means the world to us at CenterPoint. There are so many people in the company who are NAIOP members, and words cannot express what it means to us to achieve the highest recognition that NAIOP can bestow. We are so honored to win it; it is something we have coveted a long time.”
Around the time that the award announcement was made, Mullen announced his retirement as CEO and the appointment of Fisher, who has been his long-time business partner, to that post. Mullen will stay active in the company as Vice Chairman.
A Tale of Two Firms
CenterPoint was created from the merger of two companies in 1984, according to Fisher. “There were actually four original founders,” he said. “Mike (Mullen) was partnered with a man named Bobby Stovall in a company called FCL Investors, which was the dominant construction/ builder/developer of industrial real estate in the Chicagoland area. I was partnered with John Gates in a company called Capital Resource Properties.”
Mullen added that the firm grew and went public as a REIT in 1993. John Gates retired from the firm seven years ago and, unfortunately, Bobby Stovall passed away two years ago. “Paul and I are the two remaining founders active in the business,” said Mullen.
In 2006, CenterPoint was purchased by pension firm California Public Retirement System (CalPERS). Today, CenterPoint is a real estate development company, an LLC whose primary shareholder is CalPERS. CalPERS is advised by GI Partners, a private equity firm based in Menlo Park, Calif.
CenterPoint successfully partnered with the City of Chicago and a group of 18 produce vendors from Chicago’s historic South Water Market to develop the new Chicago International Produce Market.
Timing Is Everything In a Seller’s Market
Shortly after CalPERS bought the firm, CenterPoint made the critical decision to sell almost 50 percent of its holdings. “James Clewlow, our chief investment officer, deserves credit because in 2007 and 2008 he came to us and told us that he had never seen a better seller’s market,” said Mullen. “CenterPoint had about 55 million square feet of space and we sold about 25 million in about a year — just before the bottom fell out of the market.”
“We mitigated considerable risk and took that capital and invested in a unique land bank of about 7,000 acres on which we’re locating intermodals that are approximate to major ports. We refocused our capital on the markets and on the areas that we felt would outperform over time,” added Fisher.
CenterPoint is focusing on markets in Chicago, Milwaukee, Norfolk, Virginia, Los Angeles, Kansas City and New Jersey — all main supply chain routes. According to Fisher, CenterPoint is unique in its infrastructure and transportation-related development and it is the only company in the nation to have developed an intermodal logistics center in its entirety — CenterPoint Intermodal Center, the redevelopment of the former Joliet Arsenal.
Public/private partnerships have been the foundation of CenterPoint’s large-scale projects and a key to its success, collaborating with economic development and environmental protection agencies, transportation departments and key individuals from local, state and the federal government.
One of CenterPoint’s hallmarks is its conservative capitalization strategy, keeping debt quite low as a percentage of its balance sheet. The company is primarily an unsecured borrower and actively manages interest rate risk by limiting exposure to floating rate debt. The company maintains strong relationships with a well-diversified group of lenders, using both bank debt and unsecured notes. CenterPoint’s recycling strategy of disposing low-growth property or land holdings reduces its dependence on the capital markets and lowers its overall cost of capital.
CenterPoint Properties began developing air freight facilities at O’Hare Airport in Chicago in the mid-1990s. This opportunity allowed the company to go from being industrial builders to air freight developers.
CenterPoint is also able to match transactions with different “buckets” of capital to broaden its opportunities. The company has extensive experience securing Tax Increment Financing (TIF) districts at brownfield, traditional business park and intermodal-related developments. It has also completed credit tenant lease securitizations as a way of monetizing bond-like long-term leases, including a recent $700 million securitization of a federal government lease. CenterPoint continues to use joint ventures, which allow it to extend its investment opportunities, spread risk and still earn an above-average return on investment.
Acquisition and Disposition Strategies Pay Off
Despite the downturn, CenterPoint continues to experience excellent demand at its intermodal parks because of logistics savings offered to its tenants, according to Mullen and Fisher. The company noted that all freight indicators point to intermodal as the future preferred mode of goods movement. Further, railroads continue to surge both in volume and profitability.
Besides its major commitment to intermodal parks in major hub markets, CenterPoint has emerged in recent years as a top developer in the government service sector. CenterPoint is building a facility in Kansas City, Mo. for the National Nuclear Security Administration (NNSA). The $687 million complex will be created in four buildings, totaling 1.5 million square feet on 186 acres immediately north of the firm’s CenterPoint Intermodal Center in Kansas City. This project opened the door for CenterPoint to work on numerous government-related projects throughout the nation. Key executives at CenterPoint had to get security clearances to do this project, which has provided access to similar projects.
The company has an active development program going on at its other parks as well. One project the company is now completing is a build-to-suit for Crothall Laundry Services, Inc. It is a LEED-certified 82,950-square-foot building on 5.64 acres located in the Creekside Corporate Park, Oak Creek, Wis. Crothall is the second largest healthcare laundry provider in the United States.
CenterPoint is building a LEED-certified, 82,950-square-foot, build-to-suit laundry facility in its Creekside Corporate Park for Crothall Laundry Services.
CenterPoint’s investments fall into two broad categories — strategic assets to hold long-term and opportunistic assets to trade, according to Mullen and Fisher. Over the past year, CenterPoint’s acquisition team has acquired more than $390 million in product. This includes the transfer of 87 North American Terminal properties throughout 38 states. The transaction was completed in just 45 days.
On the disposition side, CenterPoint recognized the demand from capital markets for high-quality, well-occupied industrial product, completing a three-building portfolio sale totaling 399,669 square feet. The development was a combination of new assets and acquisitions of leased product in liquid submarkets, and valued at around $31.5 million.
NAIOP Commitment Contributes to CenterPoint Success
CenterPoint is heavily involved in NAIOP both at the Chapter and national levels. Thirty-two of CenterPoint’s executives participate in NAIOP at the Chicago, Milwaukee and Los Angeles Chapters. CenterPoint sponsors the NAIOP conference series, the annual Cubs rooftop function, golf outings, bus tours, market updates and the Developing Leader programs. Many employees are active supporters and fundraisers for NAIOP activities, including educational events, various conferences and trade shows.
CEO Mullen was NAIOP’s 2007 Chairman and he recently participated in Development ‘10: The Annual Meeting for Commercial Real Estate. CIO Clewlow has served on the Chicago Chapter board for the past four years and currently holds the title of president- elect/sponsorship chair. He will be chapter president in 2012. This year, Clewlow played an important role in raising $142,500 from NAIOP Chicago Program Sponsors. Michael Murphy, chief development officer, has served on the Chicago Chapter for more than 20 years and was the Chicago Chapter president in 2003. Murphy is also a member of the NAIOP Industrial Developer’s I Forum. Kit Sultz, vice president regional manager, has been a member of the Industrial Developer’s III Forum since 2001 and served as vice chairman in 2008. Two of CenterPoint’s young professionals are active members of Chicago’s Developing Leaders Board.
“I became involved in NAIOP because, for me, it has been a tremendous resource to learn,” asserted Mullen. “Every time I attend a NAIOP conference I spot trends. We all attend these conferences and we come back to the office smarter. We get to pick up on ideas and trends before they hit us.”
NAIOP has also been a tremendous networking opportunity for CenterPoint. “As recently as last week,” Mullen remarked, “I contacted a NAIOP member on the west coast and asked for help with an introduction to a person I needed to meet in Chicago for a very big deal. Within an hour, I was talking to that Chicago person on the phone. That’s what we and NAIOP do for each other. It’s terrific.”
Investing in Communities
CenterPoint Properties’ conservation commitment includes undertaking a large wetlands restoration program, building a bird sanctuary and recently donating $1 million to the Nature Conservancy.
One of the hallmarks of past Developers of the Year has been a strong social consciousness and commitment to the communities in which they work. CenterPoint is no exception. CenterPoint strives to make a difference in communities throughout the Chicago area and in its other markets. Recently, however, CenterPoint went above and beyond with a single monetary donation: “We made the biggest donation in the history of the company, a million dollars, to the Nature Conservancy,” said Fisher. “For the most part, though, we invest in the communities where we invest our dollars. We want to be good corporate citizens. In addition to the Nature Conservancy, we are doing a big wetlands restoration program right now. We’re going to be building a bird sanctuary as well.”
One might assume that a developer of large intermodal facilities and environmental groups would naturally be mortal enemies. Not so, at least when the developer is CenterPoint. “When we initially began to build large-scale intermodals, environmental groups were opposed to them because they felt we would come in, build enormous developments with concrete everywhere,” said Fisher. “Now they realize that we are taking 300 trucks off the road every time a train comes in. We are now getting a lot of support from these groups.”
Whether it’s Big Brothers and Big Sisters or the YMCAs or other local charities, CenterPoint gets involved and stays involved. “We have adopted a school in a very poor neighborhood in Chicago,” said Fisher. “We do a letters to Santa program every year. People bring in gifts, wrap them and deliver them to that school.
Embracing Technology and Innovation
As a real estate developer, CenterPoint is committed to building energy efficient and sustainable buildings. It completed two LEED projects in 2009, with over 500,000 square feet of sustainable development. As part of its commitment, CenterPoint became a U.S. Green Building Council national member, enabling it to work seamlessly with business and community leaders, who are also dedicated to building green.
CenterPoint has exhibited leadership through technology in its business as well. In September 2009, CenterPoint was honored to be listed 16th on the “InformationWeek 500,” the popular IT magazine’s annual ranking of the 500 most innovative users of business technology. CenterPoint was further honored by the magazine when it was named the number one IT innovator in the Consulting and Business Services category.
Real Estate Mentoring
CenterPoint Properties and the Chicago NAIOP Chapter worked together to create a real estate mentoring program with DePaul University. The firm’s Chief Investment Officer, James N. Clewlow, recruited several members of the Chapter’s board to participate in the program. This initiative was designed to have established, experienced real estate professionals volunteer their time to offer advice and counsel to undergraduate and graduate students enrolled at DePaul.
“This relationship has been so successful that now we have the University of Chicago and Northwestern University-both based here in Chicago-that are also looking to participate with NAIOP in different programs.”
The Future of CenterPoint
In looking to the future of CenterPoint, Fisher said that he is delighted that Mullen has agreed to stay on the board as vice chairman. He said that CenterPoint will pursue the strategy that it has with hub markets. “We’re going to focus more intensely on how we can work our way up the supply chain to better understand the logistics decisions of companies and position real estate to serve those needs,” he stressed. “Maybe at some point we’ll be known as a logistics investment company rather than just a real estate company.”