With ready-to-go commercial real estate in short supply, public money goes to develop land

Economic development groups and local and state governments are offering up money to prep commercial real estate.

Hormann Flexon makes high-speed roll-up doors for commercial buildings. The company, located west of Pittsburgh, has doubled in size over the past three years and recently moved into a new building. Company President, Mark Haley, attributed the growth to shrinking lead times; Hormann Flexon delivers a custom door in two to three weeks, significantly faster than their competitors, he said. The whole factory is being continually tuned to increase efficiency.

“Everything we do we’re trying to save 30 seconds on every operation. If we can save 30 seconds times that by the number of times we need to do it in a day times that by a year, it means we get much more efficient,” Haley said. 

So when the company started looking for new real estate, Haley knew timing would be crucial. They wanted a pad-ready site — one where contamination is cleaned up, utilities and roads in place, and soil compacted and leveled — so there would be no surprises when they started building, and no unexpected downtime. “It takes a lot of the risk out of the whole process, and risk being time and money,” he said.

Turns out, that’s hard to find in the Pittsburgh region, and throughout the state.

Cities like Pittsburgh see that as an impediment to growth, so economic development groups and local and state governments are offering up money to prep commercial real estate.  

Too risky

Dennis Yablonsky, CEO of the Allegheny Conference, a community and economic development group, said the city frequently loses competitive projects due to a lack of ready real estate. Of the projects the organization courted between 2002 and 2014, it lost 197, or about a third of the total. Yablonsky said company leadership cited the lack of sites most frequently as the reason for the losses.

He said it’s hard to find flat tracts in hilly Western Pennsylvania big enough for the manufacturing companies the region wants to attract. There are many old industrial brownfield sites, he added, but they’re not pad-ready. So when a piece of land is identified, who’s going to pay for prepping it, if companies don’t want to shoulder the risk?  

“The preparation typically has to occur — and this is important — before you have a committed tenant. And therein lies the financial challenge,” Yablonsky said.   

Banks find such a proposition too risky, he said. The Allegheny Conference just announced that it, along with Power of 32, helped raise nearly $49 million in private funds to loan to developers. But their efforts are actually modeled on a state program, the Business in Our Sites program, which doles out public dollars for prepping parcels.

Public funds to create jobs 

“The idea is to create jobs,” said Dan Reitz, Executive Director of the Washington County Council on Economic Development. They’re developing Starpointe Business Park, the industrial park where Hormann Flexon sits. Reitz wants to see 5,000 well-paying jobs when the project is complete. They’ve used mostly public money for the project so far, including federal, local, and state funds; the Department of Community and Economic Development lists $8.6 million in grants and loans that have been awarded for Starpointe.

“We’re spending $131,000 an acre to deal with the soils, move the dirt, put in the infrastructure, the streets, the electricity, the gas, all that stuff, and we’re currently selling lots at $75,000 an acre,” Reitz said. He hopes to break even by the end of the project, but says those numbers would be hard to swallow for a company.

The state’s Business in Our Sites funds – which so far have totaled $300 million in grants and loans – are dedicated solely to site development. Governor Tom Wolf’s proposed budget includes another $250 million for Business in Our Sites. According to the Pennsylvania DCED projects funded by the initiative have created more than 18,000 jobs in the past decade.

Other incentives programs can be used for the same purpose, and that adds millions of dollars to the mix, though it’s hard to calculate an accurate total. The Auditor General has criticized some of those programs for not verifying whether jobs are actually created, and showed that millions in grant money created zero jobs in some instances.   

As for Hormann Flexon, Haley said the pad-ready site they eventually found — it took them a year — helped make the move easier. “We actually never lost an order or shut down for one day during this process,” he said.