Making of a business park
- Published: December 5, 2013
How do business parks get developed in today’s still-troubled economy? Who pays for what?
Those questions are timely to Yellow Springs, as Village Council will soon decide whether to provide $700,000 to fund the infrastructure for the Center for Business and Education, or CBE, as requested by Community Resources.
At its Dec. 2 meeting, Village Council will vote on two pieces of legislation that would explore funding mechanisms available for the CBE project.
This week two representatives from large Dayton-area commercial realty companies spoke to the News on business park development questions.
While once developers bought up land to build on, that model isn’t popular in today’s more financially conservative landscape, according to Dave Dickerson of Miller Valentine, one of Dayton’s largest commercial real estate general contractors.
“In today’s world, a lot of developers do not like to hold land,” he said.
Increasingly, municipalities do become involved in owning land or building infrastructure, Dickerson said, giving Huber Heights, Clayton and Union as examples.
“Many towns have got into the development business to generate more jobs,” he said, stressing that building a commerce park is a “long-term strategy” for economic development.
“Whenever you build a business park, you can’t think short term,” he said.
And while there is undeniably risk involved, “That’s development — it’s a risky business,” he said.
After the infrastructure is finished, a developer most often brings users for the park, he said, stating that it’s rare for a municipality to fund buildings.
Most of the buildings being constructed today are owner-occupied, in which a well-established business pays for its own building, according to Mark Dlott of the Dayton-area commercial realtor Cassidy Turley.
“The banks are glad to loan money for these,” Dlott said.
However, some buildings are constructed through an agreement between the developer and potential user in which the user signs on to a long-term lease, after which the developer obtains loans for the construction.
According to Dlott, the “new normal” for commercial developers following the recession is that, before banks will make loans to fund a building project, the developer needs commitments that “credit-worthy” businesses will occupy 50 percent of a new building.
“For the last six or seven years, this has been a prerequisite for developers,” he said.
Dickerson of Miller Valentine agreed with that assessment.
“Most developers over the last five years and probably going forward would not have the funding to do spec buildings,” he said. “The bank will require pre-leasing.”
To approve a loan, most banks require long-term lease commitments of five to 10 years from a developers’ potential building occupants, and the banks consider the financial stability of the potential occupants, according to Dickerson.
Both Dlott and Dickerson emphasized that the cuts in the defense budget and sequestration had a chilling effect on commercial development in the Miami Valley.
“It’s no secret that the defense budget has been in decline rather than on an incline, as it had been,” Dlott said.
Dlott, who has reviewed the fiscal impact analysis for the CBE, said that because the project seems aimed at housing young or start-up businesses, it seems less likely that a developer would attract funding from banks.
“The very definition of a start-up is not credit worthy,” Dlott said.
In terms of banks loosening up their restrictive loan practices, Dlott said he has seen “very little so far.”
But Dickerson has a more optimistic view, stating that “lending has improved.”
And while Dlott expressed concerns about the viability of the CBE project, Dickerson sees more potential.
He’s hopeful that the unmanned aerial vehicle, or UAV, industry in the Miami Valley, which is being heavily promoted by the Dayton Development Corporation, will be a potential bright spot for local economic development. And, having worked with the former Creative Memories building in recent years, he believes that a commerce park in Yellow Springs could ultimately be successful.
“I know the village has some unique amenities that can attract companies,” he said.
John Kopilchack of Synergy Building Systems, which has been in communication with Community Resources over the CBE, stated last week that his company also has varied options regarding constructing buildings for CBE users.
While the News had previously quoted Kopilchack saying that CBE occupants would have to fund their own buildings, that statement did not accurately reflect his intent, Kopilchack said to several CR members. In an email statement he wrote, “Our intention, as it always is, is to meet the needs of any potential user of the CBE, whether that be to lease or to own.”
Kopilchack and another Synergy representative did not return calls and emails from the News seeking clarification on the company’s intentions.
Not yet a development partner
While Synergy is sometimes referred to as Community Resource’s development partner on the CBE, the relationship between the two entities is a more informal one, Community Resources Vice-Chair Jerry Sutton said this week.
“It’s like a handshake,” he said.
What Community Resources has in writing from Synergy is an agreement to act in a consulting role, according to Sutton, and to be available to answer questions if they arise. However, the company is not a development partner for the CBE.
“We have not got that far,” Sutton said.
It would be premature to have a development partnership with Synergy or any other company, Sutton said, because so far there is nothing to develop.
“If they bring us a prospect, then we’ll talk about, how does this work?” Sutton said, stating that CR, the developer, the Village and the CBE occupant would all be a part of that discussion.
Synergy Building Systems, which is linked to the commercial realtor Mills Development, is the largest developer of office buildings in the Beavercreek area. In recent years the company constructed a series of buildings adjacent to 675, including Pentagon Pointe, Pentagon Tower and Pentagon Park, and on its Website states that it has developed 1.6 million square feet of Class A office, medical and defense-related space.
Community Resources began talks with Synergy several years ago, after the commercial realtor Miller Valentine represented the CBE property for several years but didn’t find any potential occupants— mainly because the CBE was not yet ready, Sutton said. At about the same time Sutton, who was on the board of the Wright State University Foundation, met the owner of Synergy, Bob Mills, who was doing work for Wright State, and CR and Synergy began communicating on the project.
However, Sutton emphasized that CR does not have an exclusive agreement with any company to be the CBE development partner. If Miller Valentine or another company brings a potential occupant and is interested in development, CR would work with them.
“It depends on who comes forward,” Sutton said.