July 22, 2015

Memphis Depot Redevelopment Transforms Former Army Facility

By Jane Aldinger
– Memphis Business Journal –

640 acres of land was practically handed to the city and county in 1997 when the federal government decided to close the Memphis Defense Depot.

But throughout its redevelopment, the Memphis Depot Business Park has reinvented itself to become a force of industrial strength in the heart of Memphis’ distribution district.

Jim Covington, president of the Memphis Depot Redevelopment Agency, came on board the redevelopment project the same year the federal government decided to shutter the Army distribution depot.

The base was constructed in 1942, and after 55 years of military use Covington and the agency were faced with a daunting redevelopment task.

“If you think about what do you do with a closed military base that’s chained up and nobody’s in there, it’s almost an overwhelming kind of thing to start trying to figure out,” Covington says. “As you work your way through it, you solve little problems and big problems and piece by piece, you take care of each little issue.”

The location of the 640-acre depot, located on Airways Boulevard adjacent to Memphis International Airport, made industrial development the most viable option.

The agency’s primary goal was to absorb the 4.5 million square feet of industrial space into the Memphis marketplace, and Covington says infrastructure and utility renovations were essential to leasing the space.

A 15-year plan was laid out for the agency to complete renovations and absorb the space, and the group is now ahead of the original goals. Eight years later, about 70% of the 4.5 million square feet is currently leased, and a remaining 1.3 million square feet of space is available.

“We’ve got about three Malls of Memphis filled up, and that’s a lot of space,” he says.

About $18 million has been spent on renovations. All the gas, water and electric lines have been replaced, and the roadways have been expanded to make room for modern trucks. Army personnel parked outside of the facility and were carted into the base so the total lack of employee parking had to be reconfigured.

Aside form traditional maintenance and building improvements, the renovations are 100% complete.

“There will always be something to do, but the major infrastructure and utility improvements are all workable and in place,” he says.

The park’s major tenants are Cargill in 769,958 square feet, ABC Logistics in 620,095 square feet, Memphis Compress 420,260 square feet, and UPS Supply Chain Solutions in 206,758 square feet.

The park’s complete tenant lineup includes: April House; BA Framer; Barnhart, Bean & Prince Contractors; International Sourcing Co; John Moore & Associates; Klinke Brothers Ice Cream; Lifetime Industries; Memphis Compress Co.; Memphis Police Department; NuParts Automotive Products; Proline Freight Systems; Southern Xpress; Cargill; Sigma Supply; Target Medical Co.; ABC Logistics; Buck Gardner Duck Calls; Leaderboard Golf; At Your Service; Heritage Electric; Linda McCormic Felts’ Lifetime Industries; UPS Supply Chain Solutions; and Innpack.

Cargill, the park’s largest tenant, moved in to the park about three years ago. Rick Kauerz, an agent with McKee & McFarland, worked with the cotton company and says the depot was attractive to them because the older buildings allowed the cotton distributor to safely store the commodity within code.

Cargill has expanded its presence at the depot since landing there initially, and Kauerz says the depot is a viable option for the right tenant.

“The buildings are not state of the art, but that doesn’t mean they don’t serve a function and a purpose,” he says. “For selective applications, if you can put a round peg in a round hole and it fits, then sure, they’re absolutely an option.”

Joel Fulmer, senior vice president of Boyle Investment Co., has worked as a consultant for the MDRA. Hired to conduct market studies and recommend competitive rates for the park, Fulmer says the extensive studies were conducted through questionnaire interviews and data.

Lease rates range from $1.60-$3 per square foot at the depot, and the discrepancy comes between the older and newer buildings. There are 20 buildings that were built during World War II, six built in the 1950s and three steel framed buildings constructed in the 1990s.

“We intentionally set these prices to be in the middle of the market, so as not to undercut anybody and not be priced so high that we can’t rent it,” Covington says.

The average asking lease rate in the Memphis Area industrial market was $2.56 per square foot in second quarter 2004, according to CB Richard Ellis MarketView reports. In the southeast submarket, that rate was a few notched higher at $2.72 per square foot.

“We were looking at what would be a representative rate for each of the different product classes within the depot,” Fulmer says. “(The questionnaire responses) are all correlated within that study, and they represent the existing asking prices. I don’t know how to do it more fairly than that.”

Covington says the government will eventually sell the property but not until it has reached its full potential of occupancy. The federal government still has the title on the depot property, but Fulmer says an agreement for transfer has been reached and all of the property will be conveyed over the next five years.

Dick Faulk, SIOR and principal with Crump Commercial LLC, says some of the developer controversy surrounding the depot is unjustified.

“I’m a fan of the depot because it shows redevelopment in the beltway that we don’t see that often,” he says. ‘I know there’s a lot of developers who have problems with it because they feel like it’s competition between (the private sector) and a municipality.”

Most developers now concentrate in the suburban markets, and Faulk contends the depot’s redevelopment is a positive infill site in an industrial submarket whose prime has passed.

Linda Reid, MDRA business development manager, says that the park is a federal property is a plus in leasing.

“Since it’s a federal property, it has been built very well,” she says.

Added amenities that have added to the depot’s success include the presence of the Memphis Police Department as a tenant and a nine-hole golf course.

“The main thing that has made that park attractive is not the rental rate but the security,” Fulmer says.

In 2004 the depot was recognized with the facility of the year award by NAID, an Association of Defense Communities, Covington says. NAID/ADC examines every closed military base in the world for the annual award, and the Memphis depot was recognized from a field of more than 100 bases as the best example of an implemented redevelopment plan.