ABOUT THE SERIES
The Journal-News is reprising its special series “Following the Money,” which examines how government spending impacts business and job growth.
Last year’s inaugural series included six stories and was recognized by the Ohio Associated Press Media Editors. It placed second for Best Enterprise Reporting in 2014 by Ohio newspapers with daily circulation of 25,000 to 74,999.
New stories on this topic will publish every Thursday and Sunday in September. Find all articles online at: www.journal-news.com/projects/following-the-money/
SEPT. 13: CORE Fund properties still a hard sell to private investors
SEPT. 10: Townships balance need for new business with wants of residents
SEPT. 6: Changes at this government agency may impact your job search
SEPT. 3: New government created in Butler County just for Liberty Center
THREE WAYS THIS MATTERS TO YOU
1. DOES YOUR GOVERNMENT OWN PROPERTY? Local governments including cities and port authorities sometimes own land and buildings used by private business, to help keep company costs low for new construction or expansion. This is one of several types of financial incentives that can be used to sweeten the deal for a company when the local government is competing with other states and countries for new jobs.
2. FLEXIBLE WORKFORCE: Leasing can be a preferred option for companies that want to keep their options open for relocation, downsizing or upsizing and don't want to make a long-term commitment that can't fully anticipate their needs years down the road.
3. HUNGRY INVESTORS: If companies don't own their properties, owners include local governments, developers and real estate investors. The economic development director for Middletown has seen an increase in out of state investment in property in the city, and one of the vice presidents at commercial real estate firm Schueler Group says some investors seeking higher returns than what savings accounts can offer have turned to real estate.
THREE WAYS THIS MATTERS TO YOU
1. DOES YOUR GOVERNMENT OWN PROPERTY? Local governments including cities and port authorities sometimes own land and buildings used by private business, to help keep company costs low for new construction or expansion. This is one of several types of financial incentives that can be used to sweeten the deal for a company when the local government is competing with other states and countries for new jobs.
2. FLEXIBLE WORKFORCE: Leasing can be a preferred option for companies that want to keep their options open for relocation, downsizing or upsizing and don't want to make a long-term commitment that can't fully anticipate their needs years down the road.
3. HUNGRY INVESTORS: If companies don't own their properties, owners include local governments, developers and real estate investors. The economic development director for Middletown has seen an increase in out of state investment in property in the city, and one of the vice presidents at commercial real estate firm Schueler Group says some investors seeking higher returns than what savings accounts can offer have turned to real estate.
Jet engine maker GE Aviation does it. Auto supplier UGN Inc. does it. AK Steel does it too. All of these companies lease some of the buildings they operate in instead of owning them, and in some cases, that means taxpayers have an interest in the properties.
Recent local examples show commercial real estate in the region is attracting interest from hungry out-of-town investors looking for a return, and local governments are taking ownership stakes in buildings if it can help lure a job-creating business to their community.
“Some companies decide we’re not in the real estate business and we don’t want to be,” said Joe Kramer, executive vice president for Henkle Schueler Real Estate Services, a division of Warren County development and construction company Schueler Group.
When UGN, which makes acoustic insulation, carpet and underfloor parts for automakers, marked this month the opening of its new $50 million, 232,000-square-foot Monroe factory, representatives were on hand from IDI Gazeley, the project's developer, and the Warren County Port Authority to celebrate.
IDI Gazeley is marketing and building out the business park known as Park North at Monroe, located east of the Ohio 63 and Interstate 75 interchange where UGN opened. The port authority owns title to the finished building and other buildings at the site and collects rent from the developer, which still controls all building maintenance and leases with tenants.
“The amount of capital required to own real estate, you’re adding that on your books, it’s a drag on your financial statements,” said Doug Armbruster, senior vice president and regional director for IDI Gazeley, about why companies lease.
“REAL ESTATE IS NOT BULLET PROOF”
The recent Great Recession disputed the notion that buying is always better than renting, and gave commercial real estate owners the same headaches as homeowners when properties lost value, Kramer, of Schueler Group said.
“Real estate is not bullet proof,” Kramer said. “The recession showed it doesn’t always go in the same direction. It doesn’t always appreciate.”
Leasing can provide companies flexibility, he said. If a business needs to move or if sales sour and the business closes or downsizes, they’re not stuck with a property to sell.
New growing companies might not have the cash for a mortgage downpayment and would rather spend the money investing in equipment or talent to meet business needs, he said.
Depending on the industry sector, businesses leasing property is common, said David Coomer, a principal for regional accounting firm Clark Schaefer Hackett. And some companies would rather keep fixed rent costs, instead of adding more debt on their record books, Coomer said.
“I think you see it much more in the professional services field where people don’t want to get tied down to one facility and you have the ability to downsize so you don’t get stuck with a big building,” Coomer said. “Most of the manufacturing clients I have do own their own facilities.”
Earlier this year, the pair of West Chester Twp. office buildings occupied by GE Aviation and its joint venture CFM International sold for $66 million to California-based real estate investment trust Griffin Capital. The company's website lists the 22-acre property as an investment offering.
Even though GE Aviation leases in West Chester, it owns other property for business operations such as its headquarters and manufacturing in Evendale, according to Hamilton County property records.
Historically low interest rates earned on savings deposits following the economic downturn have prompted investors to seek higher returns in the stock market as well as real estate, Kramer said.
“There’s a pretty strong demand right now in real estate investment properties. There’s a lot of cash sitting on the sidelines that doesn’t quite know what to do with itself,” he said.
“To the degree owners are backing away from real estate there’s a waiting list of investors,” he said.
Another post-recession factor at play is the ability of companies to obtain financing for new construction and real estate purchases, said Middletown Economic Development Director Denise Hamet.
“There are a variety of ownership structures. One trend that I see is outside money flowing into Ohio from out-of-state and out-of-the-country,” Hamet said.
AN ECONOMIC DEVELOPMENT TOOL
Economic development efforts are also leveraging properties for tax incentives to attract and retain job-creating businesses.
Under Ohio law, port authorities can own, finance, construct and lease real estate including land, building and equipment, according to the Ohio Council of Port Authorities.
If a port authority buys or owns a property for an expanding business, construction materials purchased in the state are tax-exempt.
The Warren County Port Authority has used this approach on about 10 buildings it currently owns some kind of interest in and on deals in the works, said Martin Russell, the port’s executive director.
“We (desire to) positively impact companies that are wanting to expand or relocate in the county,” Russell said. “Different companies have different cultures as far as what ownership structure they want to have in their assets.”
For example, AK Steel's new $36 million Research and Innovation Center under construction now in Middletown near the intersection of Ohio 122 and Interstate 75 has two related lease agreements.
The city of Middletown borrowed about $2.1 million to buy 16 acres the research center sits on and the city authorized the Warren port authority to have an interest in the land. Under a second agreement, the port authority owns the building and leases the property to Fortress Credit Corp. during construction and operations. Fortress will have its own lease agreement with AK Steel, Russell has explained.
“We explored the best options to meet the needs of our business, and a long-term lease with an option to purchase was selected as the best fit for AK Steel,” said Lisa Jester, spokeswoman for AK Steel.
UGN officials declined to comment on how leasing benefited their business.
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