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Archive for Tuesday, January 28, 1992

EAST HILLS LEASE TO PAY DIVIDEND, OFFICIALS CLAIM

January 28, 1992

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Local economic development officials uncorked the champagne Friday afternoon at the Lawrence Chamber of Commerce offices to celebrate the long-awaited signing of a lease on the East Hills Business Park shell building.

It was the culmination of months of negotiating and waiting for Pitman-Moore Inc., an international animal health products company, to commit to becoming the third business to locate in the park.

The atmosphere of jubilation and relief was still evident at a press conference Monday morning, at which L.J. Bair of Pitman-Moore announced that the shell building would be used as a North American hub for the distribution of the company's more than 1,000 products. The facility will employ 16 people.

Local economic development officials also were congratulating themselves for having the foresight and initiative to build the 80,000-square-foot shell building, a speculative project completed in 1989 as bait to draw industrial prospects into the new East Hills park.

"We decided early on in the development of the East Hills Business Park that one of the greatest assets we could have was a speculative building," said Bob Johnson Sr., president of Douglas County Development Inc., the park's developer.

THE SHELL building was a gamble. Constructed at a cost of about $1.2 million, the building was financed by 24 investors and six local financial institutions. It sat vacant for just over two years, during which time the U.S. economy went into a tailspin and corporate and industrial site search activity tapered off.

Chamber and DCDI officials, plus the investors and bankers who backed the project, had hoped to sell the building outright. But as time wore on, the people behind the project seemed to adopt something of a beggars-can't-be-choosers philosophy and became more open to the idea of leasing the building.

"We would have liked to have sold it or leased it much sooner but considering the economy, I think we're fortunate to have someone in there," said Terry Sutcliffe, president of Lawrence National Bank, one of the institutions that provided financing for the project.

THE LEASE Pitman-Moore signed is for seven years and includes options for two five-year extensions. However, financial terms of the lease are not being made public.

Last fall, when DCDI was negotiating with Pitman-Moore, five local banks also committed another $1 million in financing about $735,000 of which will be used to finish out the building according to Pitman-Moore's specifications. The remaining $265,000 or so will be used to pay costs such as interest, which were incurred over the past two years.

Bill Martin, the chamber's director of economic development, said one of the costs associated with a vacant spec building is debt service. Interest that accrued on the loans at a rate of about $200 a day had to be tacked onto the purchase price of the building, he said.

PITMAN-MOORE plans to be operating out of the building by April 1. In the meantime, the process of getting the company set up in the building enters its next phase, that of property tax abatements.

DCDI made an initial application late last year for a 50 percent abatement for 10 years on the building and real estate. Pitman-Moore will request abatements on the equipment and personal property it puts into the building. The city is expected to schedule hearings on the requests in the coming weeks.

Although he said the abatement requests are almost certain to be approved, Allen Ford, a Kansas University business professor who has opposed other abatement applications, said this request particularly bothers him because the company's level of commitment and investment are unknown.

"Here we don't know anything about the lease arrangement," Ford said. "We do know that it's a seven-year lease, which is less substantial than a purchase of a property. What we're really doing is giving a tax abatement on rental property."

MARTIN SAYS he's convinced the investments already made, as well as the abatements being requested, will pay a dividend to the community.

Pitman-Moore, which had net sales of $663 million last year, is a growing company that is holding out the prospect of expansion in Lawrence.

"They're a very financially strong company," Martin said. "They've shown tremendous growth in the last couple of years."

Included in the lease are provisions for an expansion of the building. Like the terms of the basic lease, particulars about those provisions are not being made public.

"We hope that over time, we're going to have to add on to that building for them," Martin said, adding that he also has proposed that Pitman-Moore locate other facilities in Lawrence.

ALTHOUGH the company initially will employ only 16 people, an unknown number of whom will transfer here from the Kansas City, Mo., facility that will be replaced by the Lawrence center, Martin said the jobs are good ones.

"The lowest paying job in the plant pays about $9.50 (an hour), which in the local scheme of things is considered very good," he said. "It's true, there's only 16 jobs, but there's the potential for more."

John Elmore, president of First National Bank, which has been active in financing the project, said Lawrence would benefit from the arrival of Pitman-Moore, which he described as "a good corporate citizen."

Elmore and Martin said DCDI and the city weren't going to lose money on the project and described the terms of the lease as competitive.

"This is not a give-away by anybody in my estimation," Elmore said.

MARTIN SAID some of the other buildings Pitman-Moore looked at would have cost the company less.

"It was not the lowest quote," he said of the rent Pitman-Moore will pay.

"Over the term of the lease, we'll be recovering all of our costs," he said. "We are covering the cost of our loans, the construction costs, the finish costs and our notes to the (investors)."

Martin also said that Pitman-Moore aside, the shell building fulfilled its original purpose of luring companies to look at Lawrence.

"We tripled our prospect activity when the shell building came on line," he said.

At least one of those companies, Standard Liquor Corp., didn't choose an East Hills site, but once it began looking in Lawrence found a location it liked in the Timberedge Industrial Park in northwest Lawrence.

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