Industrial Property (742,000 square feet) Distribution Centre
The Advisory Team
The Advisory Team for this industrial real estate transaction consisted of some of the most experienced advisors in the industry. The Advisory Team was comprised of Norman Laff and Arnold Fox. The real estate transaction described below is an excellent example of truly seasoned, experienced advisors using their market knowledge to negotiate the highest savings and most desirable outcome for their client in a challenging real estate market.
Owens-Illinois’ (“O-I”) lease was going to be expiring in the following two years and the landlord had shown a lack of interest when approached by O-I to negotiate a renewal. The O-I management team was looking to reduce costs and expenses and this translated directly into their existing distribution center being larger than needed by approximately 100,000- 150,000 SF. Unknowingly to the Advisory Team, in late 2011 and early 2012, O-I had invited competing brokerage firms to pitch for their renewal/relocation business. The Advisory Team put together an offer of services that encompassed the spectrum of possibilities O-I had outlined to them (renewal of their current lease agreement, relocation to an existing facility or built-to-suit within their reworked size parameters). The Advisory Team ultimately won the business on the strength of their offer of services and proceeded to draft two separate Request For Proposals (“RFP”) to launch to the market with O-I’s requirements. One RFP was launched to unearth potential new sites for a built-to-suit and a second RFP was launched to search for existing warehouse/distribution facilities that could possibly meet O-I’s modified requirements of 600,000-650,000 SF. Concurrently with the RFPs being sent out to the market, the Advisory Team designed a GANTT chart to take into consideration all of the requirements and timelines that had to be fulfilled in order to accomplish what O-I wished the Advisory Team to do, within a twelve month window. A deal had to be consummated within that time-frame, prior to the commencement of 2013.
The Advisory Team received several responses for the built-to-suit RFP; while all comprised options that were outside of the desired geographic parameters, they were considered by O-I as the only possibilities. The outcome of the RFP for existing locations produced only one response, far outside of the geography that O-I was willing to consider. The only existing facility presented as an option for consideration was a Great West Life distribution facility in Pointe-Claire, which, while it had the land necessary, would still have required a significant expansion to meet O-I’s criteria. The built-to-suit proposals received in response to the RFP were all very aggressive, for this reason alone, the proposals warranted that the Advisory Team and O-I consider them seriously. 3
Simultaneously with the Advisory Team’s call to the market for proposals for a new location within an existing facility or a built-to-suit, they also began negotiations with the landlord (H&R REIT) armed with a different set of criteria. While the landlord had initially been reticent to negotiate a renewal, once it became apparent that O-I was not only willing to vacate the building but was actively seeking alternatives in the market place, the landlord realized the risk and exposure in having the entire building vacant and was therefore more amenable to discuss the renewal. O-I is one of the single largest glass packaging manufactures in the world as well as one of the largest industrial tenants in the Greater Montreal Area. Had they vacated the property it would have left a massive vacancy in the market, with no one existing tenant able to fill the void. O-I was occupying approximately 742,000 SF (100,000-150,000 SF in excess of what they believed was their current need). The RFPs to the market for existing facilities as well as for built-to-suit projects had therefore been structured for 600,000-650,000 SF. The Advisory Team, utilizing their knowledge of the GMA market, extensive years of experience in negotiating such long-term renewals, as well as armed with the details of the responses to the built-to-suit proposals was able to negotiate an extremely aggressive 10-year renewal with the existing landlord, which made the built-to-suit proposals pale in comparison, as well as any proposals that might have been received by O-I for outsourcing their warehousing requirement to third parties. The negotiations included a restructuring of the rental rate, substantial capital expenditure investments on behalf of the landlord, an early renewal date (commencing January 1, 2013 as opposed to January 1, 2014). Notwithstanding the fact that O-I never reduced its overall footprint, produced significant savings on its existing lease, which commenced immediately.
TOTAL BUILDING SIZE: 742,000 SF
TOTAL Deal Value: $28,000,000