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City risks $3M to end UPS lease, hopes new group will bring jobs

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By Lucas Sullivan, Staff Writer Updated 9:21 AM Wednesday, April 27, 2011

DAYTON — The city plans to allow United Parcel Service out of its remaining lease agreement for its shuttered air freight facility at the Dayton International Airport, a gamble that potentially could cost the city roughly $3 million in hopes of bringing jobs to the area.

Commissioners today are expected to release UPS from its lease contract, which required the company to pay the city $640,000 annually through 2020 to lease the building on airport property. The city plans to transfer the lease payments to the Industrial Realty Group (IRG), based in California until 2016. IRG recently bought the former General Motors Moraine plant.

The city is hoping that IRG will bring in enough jobs to offset the loss in guaranteed lease payments from UPS.

As part of the deal, UPS plans to pay IRG $5.75 million to take over the property, with about $1.3 million of that placed in escrow. IRG then must pay the city $3.2 million in $640,000 annual payments through 2016.

IRG is required to put most of the remaining $1.25 million back into the building, according to terms of the deal.

The lease agreement will be reopened in 2017 and renegotiated at fair market value for an agreement to last through 2021. IRG can not walk away from the lease agreement, city officials said, but could ask for a significant decrease in lease payments based on the land’s depreciation.

IRG wants the deal completed as soon as possible because they claim to have two interested tenants, airport officials said.

IRG plans to bring up to 1,400 jobs to the airport site

IRG said it plans to bring 900 to 1,400 jobs to the facility, but those are rough estimates, said Dayton City Manager Tim Riordan. IRG wants to use part of the building that is accessible by trucks for distribution.

Mark Herres, who has previously owned and operated home building and landscaping businesses, is protesting the deal and wants commissioners to delay approval.

Herres claims he was pushed out of a deal with UPS by the city to build a solar-powered energy center that could provide renewable power to the airport and surrounding communities.

Herres began talking with UPS in 2007, when he met with company and Dayton officials to discuss plans to make the 926,000 square-foot facility an energy hub.

Documents obtained by the Dayton Daily News through a public records request show the city and UPS both were intrigued by Herres’ plan, but weren’t comfortable with his ability to execute.

UPS officials asked Herres for a business plan multiple times in 2010, but claim he never provided one.

In a letter sent by UPS to Herres dated April 30, 2010, Keith Steinbrecher, the company’s real estate coordinator, wrote: “You have not presented us a professional business plan that contains the requisite details that would enable us to present the project to our board of directors as well as have the city of Dayton’s endorsement ... As a result, we must respectively decline to discuss any project further until such a business plan is produced.”

Herres claims he’s never received the letter and took multiple tours of the building with UPS officials after Steinbrecher’s letter.

Steinbrecher referred questions to a company spokesperson who said UPS officials gave numerous tours of the facilities to almost anyone who showed interest.

At no time did Herres have a contract or memorandum of understanding to lease the building, UPS officials said.

Herres still had not produced a valid business plan, according to Riordan and a UPS spokesman on Tuesday.

Riordan reiterated it was UPS who chose IRG over Herres and the city is only involved because it owns the land.

Commissioners lean towards approval

Mayor Gary Leitzell said he has not decided if he will approve the deal and said “there is always the possibility that the items could be pulled from the calendar.” A majority of commissioners said they are in favor of approving the deal and have studied the contract for more than a month.

When asked if he had doubts the city was making the right choice by endorsing IRG, Riordan said, “It was no contest for me. We have a large proven developer with personal guarantees that has a track record dealing with this.”

UPS closed its Dayton facility in June 2006, eliminating 1,400 jobs, to focus on operations at its Louisville, Ky., air freight hub. Company officials vowed to help Dayton find a tenant to occupy the building, but the facility still remains closed.

When in operation the complex generated $5.7 million in annual revenue for the airport, most of that in landing fees. Its employees also paid an estimated $1 million annually in city income taxes.

Dollars associated with the IRG deal are dedicated to the city’s enterprise fund and cannot be used in the general fund, which pays for the salaries of cops, firefighters, street maintenance and administrators.

Contact this reporter at  (937) 225-2494 or lsullivan @DaytonDailyNews.com.

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