When The Sun Products Corp. decided to combine nine distribution facilities scattered across the Bowling Green, Ky. area into one giant center, an affiliate of W. P. Carey & Co. stepped in to provide $41 million in build-to-suit financing. The deal, which closed in June, illustrates how a growing company is able to secure financing for a new development despite turbulence in the capital markets.

Construction of the 1.4 million sq. ft. distribution center for Sun Products, a manufacturer and marketer of laundry and dish care products such as Wisk, All, Sunlight and Snuggle, is slated for completion in 2011. Johnson Development Associates Inc. based in Spartanburg, S.C., which has a long track record in the industrial build-to-suit arena, broke ground on the project this summer.

Upon completion, Sun Products will lease the facility from New York-based W. P. Carey (NYSE: WPC) for 20 years under terms of a triple-net lease. Located adjacent to one of Sun Products' four manufacturing plants in Bowling Green, the center will be one of two distribution facilities serving the entire East Coast for Sun Products.

Attractive financing vehicle

“These build-to-suit transactions, particularly in today's financing and economic climate, are really a win-win-win for the tenant, the developer and for us,” says Kathleen Barthmaier, director and member of the acquisitions team at W. P. Carey. “Neither the tenant nor the developer has to invest any of their own equity. That's why we're seeing this as an opportunity in the market now.” In the Sun Products deal, one of W. P. Carey's publicly held, non-traded REIT affiliates provided the capital.

Build-to-suit financing — a form of sale-leaseback financing — enables a company to expand an existing facility or construct a new building that is tailored to meet its needs. Rather than purchase an existing property as in a traditional sale-leaseback, W. P. Carey finances 100% of the construction costs and enters into a sale-leaseback agreement with the company upon the project's completion.

W. P. Carey is a huge player in this business niche. It specializes in sale-leaseback and build-to-suit financing for companies worldwide and manages a global investment portfolio of nearly $10 billion. The company's share price registered $28.30 at the close of trading Aug. 31, virtually unchanged from a year ago.

In one of the biggest sale-leaseback deals in recent memory, W. P. Carey and two of its publicly held, non-traded REIT affiliates paid $225 million for 21 floors, or 750,000 sq. ft of rentable space, at the New York Times Building in March 2009. The lease term was for 15 years.

At the end of 2008, The New York Times Co. had more than $1 billion in debt. The capital generated from the sale-leaseback transaction enabled the company to retire a portion of its long-term debt.

Building for the future

Consolidating nine distribution centers into one facility in Bowling Green and utilizing build-to-suit financing to do it is a smart business move by Sun Products, observes Barthmaier. “They are streamlining operations, saving money and not investing any of their capital [in the deal] so they can put it to use in their own business. It has all the benefits of a pure sale-leaseback transaction, with the addition that they get the facility they want and need.”

W. P. Carey generally seeks an internal rate of return in the low to mid-teens on transactions it enters into, Barthmaier says, and more for build-to-suit deals because of the inherent risks associated with construction. But she is quick to add that no two transactions are alike.

“We look at each deal based upon the credit of the company we're entering into a long-term relationship with, the quality of the facility, where that facility is located, how easily it would be to re-tenant that facility, and how important that facility is to the company,” emphasizes Barthmaier.

Although the credit rating of Sun Products, headquartered in Wilton, Conn., is below investment grade, says Barthmaier, it's overall “credit metrics” remain quite favorable. “They are a large, strong corporation.”

With annual net sales of more than $2 billion, Sun Products employs approximately 3,500 full-time workers. The company was established in September 2008 as a result of a merger between Unilever's North American fabric care business and Huish Detergents Inc. Sun Products is a portfolio company of private equity firm Vestar Capital.

Guy Lawrence, a public relations spokesman for W. P. Carey, says the $41 million in construction financing for the distribution center was a shot in the arm for Bowling Green and the surrounding area. “We like to think of ourselves as a catalyst in terms of economic stimulus at a time when maybe this deal couldn't be financed.”

Matt Valley is editor of NREI.

National Real Estate Investor

August/September 2010

JACKSONVILLE — Georgia-Pacific Corp. will consolidate its paper goods manufactured at two Southeast plants into one 546,000-square-foot distribution center at Westlake Industrial Park.

The company is consolidating a 175,000-square-foot warehouse in Savannah and a total of 440,000 square feet of warehouse space on Western Way and Baycenter Drive on the Southside to the facility on the Westside because of its easy access to Interstate 95 and Interstate 10, said Georgia-Pacific spokesman Jeremy Alexander.

“We’re looking for ways to improve efficiencies across the entire organization,” Alexander said.

The company will distribute Angel Soft and Quilted Northern brand toilet paper as well as Sparkle and Brawny brand paper towels from the facility to retailers throughout the Southeast. The facility has the capacity to handle 5 million cases of finished goods each year.

Atlanta-based Georgia-Pacific, an indirect, wholly owned subsidiary of Koch Industries Inc., is an international manufacturer and marketer of tissue, packaging, paper, pulp, building products and related chemicals. The company has five manufacturing facilities and two other warehouse facilities in Florida, as well as several offices, including a customer service center in Jacksonville.

The products distributed from Jacksonville by third party provider Network Logistics Solutions are manufactured at mills in Palatka and Savannah.

Georgia-Pacific is leasing the space from Johnson Development Associates Inc., a Spartanburg, S.C.-based industrial and multifamily developer.

“It’s a significant transaction for us,” said Johnson Development Market Leader Andy Rapp. “We’re obviously very pleased to have them as a tenant.”

The industrial division operates in 12 markets throughout the Southeast, including its only property in Florida at Westlake. Johnson Development recently completed construction on its first local speculative building that Georgia-Pacific is leasing. It expects to start on the second, a 208,000-square-foot spec warehouse, sometime in the second half of 2009. Johnson Development also has the option to buy 100 acres in a separate part of Westlake that could accommodate up to 100 million square feet of space.

Mark Scott from Cushman and Wakefield of Florida Inc. represented the tenant in the multi-year lease that was signed in December and will take effect in February.

Georgia-Pacific’s neighbors at Westlake include Unilever, Southeast Toyota Distributors LLC and Laney & Duke Terminal Warehouse Co. Gary Henderson, a site development manager for the master developer of the industrial park, Norfolk Southern Corp. (NYSE: NSC), said that while development plans have slowed because of financing issues, there are still several hundred acres left to be developed at Westlake.

“We do have several prospects,” Henderson said, “just not as many as there were a year ago.”

cconte@bizjournals.com | 265-2227

By KATHERINE FESER Copyright 2008 Houston Chronicle

Johnson Development Associates has sold the first development in its 191-acre Republic Distribution Center near the Port of Houston to Alexander & Baldwin.

The sale included 18 acres with a 313,000-square-foot facility, partially leased to Bayport Global Logistics. Honolulu-based Alexander & Baldwin plans to lease the remaining 160,000 square feet to third parties.

The property is on Red Bluff Road near Bay Area Boulevard within a few miles of the Bayport and Barbours Cut terminals.

Johnson Development selected the site for its proximity to the port and location on high ground. The deal closed within a week of Hurricane Ike blowing through.

The building represents the company's first development in Houston and is part of a push to expand near ports in the southeastern United States. Johnson is based in Spartanburg, S.C.

Next, Johnson Development plans to begin build-to-suit or speculative projects and could break ground in the next 90 days. The first building was completed in 2006.

"We have plans for a second phase that we will hopefully kick off soon, although we are keeping our eye on the current financial market," said Charlie Neuhaus, director of the firm's Houston office.

The company is seeking investment opportunities in Houston and other parts of Texas, Neuhaus said.

katherine.feser@chron.com

The real estate developer that provided buildings for American LaFrance and a distributor servicing Starbucks in Jedburg is expanding its footprint into Alabama.

Spartanburg-based Johnson Development Associates announced today that it is opening its sixth office in Mobile, Ala., to focus on the market there.

In addition to its headquarters in Spartanburg, the company has offices in Charleston; Washington, D.C.; Jacksonville, Fla.; and Houston.

Johnson Development recently constructed a 343,000-square-foot speculative building on a 162-acre site on Interstate 10, about 7 miles from Interstate 65 and 12 miles from the newly expanded Mobile Container Terminal, the company said. Additional land is available for build-to-suit opportunities.

“Mobile is a dynamic, burgeoning market and a key part of our strategy of investing in port markets throughout the Southeast,” said Garrett Scott, president of Johnson Development’s Industrial Division.

In Jedburg, Johnson Development owns 192 acres off Interstate 26. It constructed a build-to-suit project for American LaFrance, whose investors purchased the building, and rents another building to Continental Terminals, which is storing Starbucks coffee beans for a new roasting facility near Columbia.