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VOL. 127 | NO. 42 | Thursday, March 1, 2012

The Right Place

Cates touts robust industrial market as way for city to compete

By Sarah Baker

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When people think of Memphis, they might picture an aerial shot of Downtown – skyscrapers, The Pyramid and all.

Andy Cates of Colliers International gives the keynote speech to the Memphis Rotary Club at the University Club earlier this week.  

(Photo: Lance Murphey)

But Andy Cates’ view of Memphis is different. He sees the city’s “dirty, industrial real estate.”

“Some of it’s dirty, some of it’s not, but most people think it is,” Cates said. “And it’s where the heart and soul of our city is, where the lead hits the ground.”

While addressing the Memphis Rotary Club Tuesday, Feb. 28, the executive vice president of brokerage services at Colliers International explained how Memphis’ manufacturing and distribution sector is poised to move forward.

And he should know – Cates and his team closed on 67 deals in 2011, averaging more than one a week.

His most recent high-profile transaction was placing Kimberly-Clark Corp. in 556,000 square feet in Airways Distribution Center in Southaven, along with Matthew Stauber of Colliers International Chicago.

Other deals he’s touched in the past include Memphis Motorsports Park, Hamilton Beach and Space Center Industrial Park.

Cates’ theory is that the local industrial market took its biggest hit in 2009, when Hewlett-Packard Development Co. LP vacated five properties totaling 2.2 million square feet.

“They had termination options in their leases, and so when they cancelled their leases, all of a sudden, everybody went, ‘Whoa, hang on a second,’” Cates said. “We were already going to feel the effects anyway of the recession, and that really hurt.”

What that move did though, Cates continued, is kept Memphis from getting overbuilt because the city had “solid, good product” that needed to be absorbed. That’s why all of the delivery seen last year was built-to-suit, such as McKesson Corp.’s new 680,000-square-foot drug manufacturing warehouse in Olive Branch.

Cates said in the DeSoto County submarket the bulk of the facilities are Class A. It started to emerge as an industrial player in the last 15 years, beginning with Williams-Sonoma’s massive build-to-suit distribution center.

“Then investment came and they said, ‘We’ll buy that, we’d love to have that as a cap rate,” Cates said. “That sort of solidified small-town Olive Branch as institutional grade investment – a place where people could build their product. When that happened, developers like IDI, Panatoni, Hillwood, H&M and Prologis all said, ‘Wow, if we build it, somebody will lease it,’… and ‘Wow, institutions will buy it.’ That really pushed the development, in conjunction with the state of Mississippi being competitive.”

But Cates will tell you that what’s good for Mississippi is good for Memphis, and vice versa. It’s the cities like Nashville; Indianapolis; Cincinnati; Columbus, Ohio; Kansas City, Mo.; and Louisville, Ky., where “the rubber really hits the road.”

The value range for buildings in Memphis compared to those in other markets is a definite advantage, Cates said.

“We have a competitive advantage on the basis of what our real estate is, and also with the transportation and logistics angle as well,” he said.

Cates is bullish about investment being made on railroad infrastructure here by Canadian National Railway Co., BNSF Railway Co. and Norfolk Southern Corp.

“What’s really key to what’s going to be the next future for Memphis is not totally the rail, but the effect it will have on the impression that these other customers have,” Cates said. “If you think about the amount of infrastructure that they have, I think that will really drive folks to our market. I feel like with that type of investment, good things will come.”

Last year’s top industrial transactions are also positive indicators of recovery, Cates said. For example, Trane U.S. Inc.’s 625,000-square-foot lease off Tradeport Drive in Southeast Memphis was the last of HP’s vacated space.

Other deals include Newegg.com and Nike’s expansions, Cummins Inc. and General Electric’s relocations, and activity from Impact Innovations – the spin-off of what was left of Cleo Inc. that bought a lot of the equipment from the former 1.75 million-square-foot plant off Viscount and started the business back up.

Also, within the next few months, Cates said, there will be a huge announcement by a company for a 600,000-square-foot consolidation. And IDI is going to build two separate buildings, one for 800,000 square feet and one for 269,000 square feet.

“Speculative construction – they’re putting their money where their mouth is and they’re betting on us,” Cates said. “I think people around the country will start saying, ‘Look what’s happening in Memphis; it must be strong to have speculative construction there.’ It helps us on cap rates, it helps us on all of the rental rates, it really drives positive activity toward us.

“Memphis stands in the right place at the right time to really benefit from hopefully an emerging economy. We have all of the parts there, now it’s time to shake the hands, make it happen, get in front of people, and really close a deal.”

PROPERTY SALES 97 410 20,632
MORTGAGES 116 472 23,745
BUILDING PERMITS 227 1,085 42,594
BANKRUPTCIES 60 300 13,180