The solution, therefore, often becomes creating the right deal with the right tenants. Take Boeing. The Chicago-based aerospace giant has operations in 26 states and a 115-million-square-foot portfolio of office, industrial, and warehouse space. Of this, the company estimates a surplus of 20 percent, courtesy of numerous acquisitions.
Part of that surplus is an empty 2.5-million-square-foot factory in Torrance, California, inherited from McDonnell Douglas. Initially, Boeing Realty Corp. president Phil Cyburt looked to sell the building and the 170 acres upon which it sat to a real estate developer. Then, he says, “I realized there was a political element that a developer would not appreciate. We were transitioning property that once represented significant employment for the community. A developer can come in, tie up the land, and become your voice, speaking about the property on your behalf to the media, the municipality, and the community — a potential PR debacle if you’re a large employer in the state, which we are.”
So Cyburt took matters into his own hands. “I worked with the city to negotiate development rights — basically the right to rebuild the plant for multiple-tenant commercial development,” he says. “We had to measure the impact on the environment, traffic, noise, and air quality before receiving the OK. We also took care of environmental remediation and cleanup issues for the soil and groundwater, and built additional infrastructure on the property for all utilities.” Overall, Boeing spent more than $60 million during the last seven years transitioning the site and facilities directly to corporate users. Cyburt estimates the company earned more than $25 million in net profit through the disposition.
In the case of Ford Motor Co., public-relations concerns mingled with historical ones when it tried to unload a 340-acre parcel in Shelby Township, Michigan. The land included an old Packard Motor Co. test track. “We got inquiries about the land from several developers, but they wanted to turn it into tract housing,” says Tim O’Brien, vice president of real estate.
Instead, O’Brien sought to preserve the parcel’s historic heritage and still sell it at a good price. “Ford met with a group of stakeholders that included the historic folks associated with Packard and various local and city leaders to devise a way to dispose of the property that would be favorable to all involved,” he says. Ultimately, a deal was struck with a residential real estate developer to buy about half the land, with part of the proceeds used to create a green space. The parcel that contains the test track was conveyed to The Packard Motor Car Foundation, which worked out a deal with the state’s historic-preservation agency to restore the facilities. “We didn’t make much money from the deal, but we earned incalculable goodwill,” says O’Brien. “This is a good model for how we plan to rationalize our portfolio.”
For other firms, that rationalization process can mean refitting a property. “A century ago, companies built buildings that were retrofitted when needed, either for their own use or others. Today, it’s often ‘build to suit,’ and that can backfire,” says Glen Sibley, general manager of the Denver office of Corporex Colorado LLC, a Cincinnati-based real estate development and investment firm.