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VOL. 123 | NO. 28 | Monday, February 11, 2008

Picking Up the Pieces

Industrial market looks out from the rubble

By Eric Smith

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SHATTERED GLASS: The south side of Willow Lake Business Park on Raines Road took a beating during last week's storms, as evidenced by this storefront. -- Photo By Eric Smith

The industrial real estate market was thrown into a tizzy last week when Tuesday night's fierce storm whipped through the multitude of warehouses and distribution centers in Southeast Memphis and left destruction in its path.

As the heart and soul of Memphis' economy, the logistics and distribution sectors suffered immense - and still immeasurable - damage as warehouse walls and ceilings were blown off, rendering many facilities unusable and leaving a vast array of goods without cover.

But out of the wreckage came unity as competitors offered aid to one another in the form of trucking services, warehouse space and cleanup.

"This is tragic, but it's a nice thing that the development community, the lending community and the real estate community have really pulled together to make all of this work," said Dick Faulk, a partner at the real estate brokerage firm of Crump Commercial LLC. "We're not seeing any price gouging, and as a matter of fact, people are bending over backward, which is a great sign."

Starting over

Physical signs, however, are strewn all over places such as Raines and Mendenhall roads, an epicenter for much of the devastation. In fact, Katt Worldwide Logistics, whose headquarters is at that intersection, was one of the places hit hardest as the rear wall on its 100,000-plus-square-foot building was ripped away.

Mike Kattawar Sr., co-chief operating officer for the company, said first and foremost none of Katt's employees were injured during the storm. But Katt's headquarters likely is totaled.

"Once we get the products out, they're probably going to tear the building down, they'll just bulldoze it down," Kattawar said.

It's like that elsewhere in Southeast Memphis, which boasts millions of square feet dedicated to warehousing all varieties of goods. Just days after the storm, companies were coping with a myriad of products that had no homes.

"Everybody's trying to put their things back together and figure out what the next step is," Kattawar said. "We're loading up what we can, what's salvageable, onto trailers and taking it to another site. People all around us are doing the same thing."

Kattawar said the outreach from neighboring warehouse and logistics companies has been heartwarming. He added that Katt's insurance company has been doing its part, an imperative part of the recovery process.

"Everything's coming together really, really good," he said late last week. "You couldn't ask to be in a better situation than what we're in today with what we experienced (Tuesday)."

(To read The Daily News' article written about Katt before the storm hit, see Wednesday's Logistics and Distribution Focus story at www.memphisdailynews.com.)

Short-term vacancy solution

Whether or not other insurance companies do their part for businesses affected by the storm remains to be seen. This is especially critical in a soft real estate market, where rebuilding might not be an option for everyone.

"This thing gets really complicated with this magnitude of storm," Faulk said. "Then you throw in the mix that some of these pieces of real estate are underperforming financially, so it may not make sense at the end of the day to even rebuild it. They've got to weigh the risk and reward of, 'Do I build in a relatively weak market at very high construction costs and very low rental rates, or do I wait a couple of years for the return of the market and rebuild?'"

Until they get to that point, companies will continue moving products into open warehouse space, even if it doesn't offer the ideal storage locale. That began as soon as the sun came up Wednesday morning, continuing through the end of the week.

In fact, warehouse space that had previously sat unoccupied was suddenly in high demand, presenting a strange scenario for industrial brokers.

"It's a sad case, but we've automatically - and unfortunately - taken care of our vacancy problem," Faulk lamented.

For John Snyder, a principal at CresaPartners LLC and president of the Memphis Area Association of Realtors, the flurry that followed the storm was simply a testament to the city's close-knit crop of real estate professionals.

"Memphis is a relatively tight community," Snyder said. "We have lots of people that compete very heavily for tenants and people to use our space. In times like this, that tightness seems to help out. There is a willingness to help, and not a willingness to take advantage of people."

PROPERTY SALES 51 180 16,377
MORTGAGES 21 57 10,144
BUILDING PERMITS 103 665 39,209
BANKRUPTCIES 31 107 7,704