COVER STORY, NOVEMBER 2006

THE TEXAS INDUSTRIAL CLIMATE HEATS UP
Cities across Texas are ramping up economic development in the industrial sector.
Dan Marcec

Across the state of Texas, industrial development is flourishing as companies are taking advantage of the friendly conditions in the market, such as available land and attractive incentives. This new development is not merely a positive move for the companies involved, but also for the towns that are attracting them; for a small city off the traditional radar, bringing in economic development is a huge factor to maintain positive growth and quality of life. Texas Real Estate Business recently spoke with several economic development authority executives in various cities around the Lone Star State to discuss how their cities are benefitting from this increasing industrial activity. 

Situated just outside Austin, Texas, the city of Bastrop is one attractive place to locate an industrial development, according to Joe Newman, CEO of the Bastrop Economic Development Corporation. “Quality of life is one of the main reasons companies consider Bastrop when looking to establish or relocate facilities. The town is a perfect mixture of the best of small-town life combined with the close proximity of “big city” Austin,” he says. Bastrop retains a rich history — in fact, it commonly is dubbed “The Most Historic Small Town in Texas” — while offering modern amenities residents and companies come to expect in more populated areas; however, the city’s lack of crime, pollution, traffic and other big city congestion provide an ideal setting for a manufacturing or distribution facility.

Newman’s organization, the Bastrop Economic Development Corporation (BEDC), works closely with the city of Bastrop to maintain this small-town atmosphere while keeping pace with modern and updated services and infrastructure. The BEDC’s 263-acre Business and Industrial Park is home to a variety of companies, both large and small. The business park’s tenant mix is extremely diverse, boasting companies ranging from art foundries to drug testing facilities. Thus, the BEDC’s open-door policy to a variety of tenants allows a flexibility in negotiations from both the company’s and the city’s perspective.

“The BEDC’s primary function is to bring employment opportunities to Bastrop residents,” says Newman. “To this end, we are pleased to offer free land as one of the many incentives to attract businesses to our Greenfield sites. The city of Bastrop provides paved streets and all underground utilities in the Industrial Park, and high-tech amenities like fiber-optic communications cable can be made available to serve any company’s modern-day needs.”

This free land is a major incentive for companies interested in relocating within the Bastrop industrial market, and the BEDC offers free or low-cost land in the Bastrop Business and Industrial Park on a sliding scale basis, based on the amount of investment and/or the number of potential jobs being created. In addition, the BEDC board of directors entertains requests for other incentives, including tax abatements, depending on the nature of the company’s potential impact to the community.

In addition to the various incentives that the BEDC offers, the aforementioned infrastructure is an attractive point as well. Bastrop’s Business and Industrial Park is located strategically at the intersection of Texas state highways 71, 95, and 21, only 22 miles from Austin-Bergstrom International Airport. Major interstates are not far away, either, as the park is situated just 25 miles from Interstate Highway 35 and 38 miles from Interstate Highway 10. Furthermore, Union Pacific Railroad runs along one side of the Industrial Park, and railway spurs are available to interested companies for their heavy transportation needs.

Another selling point for many manufacturing companies is the availability of a large, cost-effective labor force in Bastrop. According to a July 2003 study, workforce draw is from a base population of 137,000; while 36 percent of that draw commutes to Austin, many would prefer to work in Bastrop, as the survey indicated many of those commuters would work for less than $15 per hour if they were able to stay home.

To highlight the BEDC’s recent success, Newman mentions the relocation of Dig-Tech to the BEDC Business and Industrial Park. Moving its operations from Giddings, Texas (about 35 miles northeast of Bastrop), the company now occupies a 12,500-square-foot building situated on four acres. Dig-Tech was attracted by the prospect of free land, and the amenities of the site include a helicopter pad site. In effect, Bastrop’s incentives were enough to bring the company to relocate even a short distance, and for the city itself, Dig-Tech’s creation of at least 72 jobs (the number probably will be closer to 100 by the time the building is complete) at more than $50,000 a year, the impact on the local economy is significant as well.

Overall, the BEDC has been successful in its efforts. “We are seeing many more prospects than ever,” says Newman. “The new Hyatt Regency Lost Pines Resort & Spa is introducing thousands of potential companies to Bastrop, although the one shortfall would be vacant available buildings. Almost every client would need to construct a facility since none are available.”

Richardson, Texas, a city located just north of Interstate Highway 635 outside of Dallas, also has been successful in attracting industrial economic development to its local market. The Richardson Economic Development Partnership heads this initiative, employing a variety of marketing strategies, including targeting print advertising, trade show exhibits, regular contacts with consultants, brokers and developers, as well as direct contact with vendors and suppliers of local companies.

“Richardson is very creative with incentives, and rather than an off-the-shelf approach, we tailor each incentive package to the company and the specific project in order to maximize the benefits,” says John Jacobs, senior vice president of the Richardson Economic Development Partnership. “In general, we utilize a broad range of incentives, including tax abatement, infrastructure participation, fee waivers, planning assistance and cash grants.”

Richardson is attractive particularly for electronics manufacturing companies, primarily due to a deep and specialized technical workforce, convenient highway transportation linkages, buildings and facilities that support light manufacturing, in addition to a number of major high-tech companies based in town known for outsourcing manufacturing needs.

The market statistics seem to speak for themselves. According to Jacobs, 24 percent of Richardson’s 16 million-square-foot inventory of industrial and flex-type space is available for lease at an average rate of just less than $7 per square foot. Further, a year-to-date positive absorption of 915,642 square feet is an indicator that the market is beginning to tighten.

One of the most significant relocations to the Richardson area in recent months has been the occupation of the 60,405-square-foot industrial facility located at 959 East Collins by Hyundai Digitech, a wireless handset re-manufacturer and parts distributor. The building is a rear-load, 16-foot clear-height, masonry facility that was constructed in 1985. Purchasing the building for a relocation from Plano, Texas, a city just north of Richardson, Hyundai Digitech created 200 jobs at the site at an average annual wage of approximately $40,000. In addition, the company is paying property taxes on its business personal property and inventory. Both of these aspects are providing a positive impact on the Richardson economy.

“The company became interested in Richardson when the REDP ex-plained the advantages of workforce access, transportation and city support that would be provided for the relocation project,” says Jacobs, noting the success of the REDP’s incentive program.

Situated midway between Houston and Galveston, Texas, on Interstate Highway 45, La Marque is another city in an excellent location to attract industrial business. Throughout the city, commercial clients are in high demand, although the city of La Marque is highly interested in light industrial processing and manufacturing tenants.

“To attract clients to the La Marque area, we have used Center of Influence contacts and other area economic development groups,” says Jerry Grooms, executive director of La Marque Economic Development Corporation. “For example, the Greater Houston Partnership is one of our very good sources because their interest is in attracting business to the Houston MSA.”

One of the main attractions to the La Marque industrial market, according to Grooms, is the city tax abatement and utility improvements funded through the city’s economic development corporation. In addition, proving the successes of the La Marque’s efforts, activity has picked up over the last 3 months, as nine clients are interested in relocation efforts, and several other companies have expressed interest in creating a location within the city as well.

One of the major relocation efforts engendered by the city was the successful attraction of the Associated Federal Credit Union, which now is occupying the 3.5-acre, 45,000-square-foot facility located at Highway 3 and First Street. After purchasing the three-building complex in order to relocate from Texas City, Texas, the Associated Federal Credit Union has created 25 jobs within the local market.

“The company needed to relocate because another organization desired to purchase its location [in Texas City], and we had an available building,” says Grooms. With regards to the positive impact the development will have on La Marque, Grooms says, “Jobs, first and foremost [will help the local economy], and then the added tax base.”

ProLogis continues to be an industrial leader in Texas Freeport Corporate Center in Dallas is one of the many projects in Texas that ProLogis is constructing. ProLogis, a worldwide owner, manager and developer of distribution and light manufacturing facilities, operates in major Texas markets that include Austin, Dallas/Fort Worth, El Paso, Houston and San Antonio. As a large provider of distribution space in the state, the company is well aware how to be successful in the Texas industrial market. “For any company involved in North American distribution, the state of Texas is an area of obvious importance,” says Rob Huthnance, first vice president and market officer for ProLogis’ Dallas office. “Texas offers a low cost of living, a large labor pool, a strong economy and is in close proximity to Mexico, which continues to develop its manufacturing and distribution industries. Above all, Texas is an easy place to do business. It is pro-business, pro-development, and is supported by a growing state population.” ProLogis has a prominent presence in the Texas market, which can be shown by the current projects with which the company is involved. ProLogis has two major projects in Houston and two in the Dallas/Fort Worth area. “In Houston, ProLogis expects to complete 149,000 square feet at West by Northwest Industrial Park, and the company recently broke ground on a 324,000-square-foot facility in Jersey Village Corporate Center,” says Ross Matthews, vice president and market officer for the company’s Houston office. “The company expects this to be complete in the first half of 2007. In the last 18 months, ProLogis has completed approximately 1.2 million square feet of distribution space.” “In Dallas/Fort Worth, ProLogis has two buildings under construction in the Freeport submarket, which is north of the Dallas/Fort Worth airport,” says Huthnance. “The first is almost 115,000 square feet and the second is 143,000 square feet. They are scheduled for completion in late 2006/early 2007.  ProLogis also is building a 656,000-square-foot facility in Lancaster that is scheduled for delivery in the first half of 2006.” The company also is largely involved in Austin, San Antonio and El Paso. Currently in Austin, ProLogis has an industrial portfolio, which consists of 2.2 million square feet in 37 buildings. The company also recently acquired nine bulk distribution facilities in San Antonio, spanning a combined 825,000-square-feet. ProLogis also has a 3.8 million-square-foot portfolio in El Paso, which is currently 91 percent leased. In addition to its new buildings ProLogis recognizes the importance of building completions as well. “Completions are also on the rise,” says Huthnance. “The top 30 markets completed more than 56.5 million square feet of space in the first half of 2006, with 80 percent of completed projects built on a speculative basis. Comparatively, Austin completed more than 100,000 square feet, 100 percent speculative; Dallas completed more than 3.5 million square feet, 100 percent speculative; Houston completed more than 700,000 square feet, 40 percent speculative; and San Antonio completed more than 50,000 square feet, 100 percent speculative.” “The industrial market is performing well,” says Huthnance. “In an effort to trim supply chain costs, companies are consolidating their dispersed, smaller distribution centers and are relocating operations into fewer, larger facilities. Leasing activity has been strong and expected to remain steady for the next 12 months.” –Stephen O’Kane

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