As published in Toledo Business Journal - February 1, 2016
The strong performance and growth of the manufacturing sector since the 2008/2009 recession has resulted in a significant absorption of quality industrial buildings in the Midwest and other parts of the country.
There are areas of northwest Ohio and southeast Michigan where available quality industrial buildings are in limited supply.
At the same time, decision-makers at manufacturing companies around the country that are looking to expand existing operations or site new facilities have extremely tight timeframes that must be met to support an expansion project. Many companies want an existing building that they can quickly obtain and occupy or modify to support their needs.
In the past, professional real estate developers undertook speculative projects and put new facilities in place when there was a tight supply or excess demand for such space. However, since the 2008/2009 recession, financial institutions have significantly limited their financing of commercial real estate projects for speculative development. Funding is often available for owner-occupied projects and for projects where a firm prospective tenant with strong credit quality has committed to a contractual lease agreement.
In Wyandot County, which includes Carey and other communities, the availability of quality industrial properties that could be used to attract major manufacturers has been extremely limited. Community leaders have had few existing building options that could be used to compete for new manufacturers to bring good paying jobs to the area.
Tim Vaughn, CEO of Vaughn Industries, headquartered in Carey, and an active community leader, understood this situation well. His company is a large specialty contractor with close to 600 employees. The company works for industrial and commercial customers providing services that include electrical, mechanical (HVAC and pipefitting), plumbing, and high voltage substation and high voltage transmission and distribution construction.
Vaughn spent a significant amount of time assessing options to address this critical roadblock to development. Early in the process, he turned to economic development (ED) officials at the Wyandot County Office of Economic Development (WCOED) and the Regional Growth Partnership (RGP).
Vaughn began to explore the option of his business undertaking a speculative development project. He worked with economic development officials who guided him in determining the size of a potential spec building and also assisted in reducing the investment needed for construction. By deciding to put a building shell in place and delay such elements as electrical service, finished concrete floors, and other items, the project could be put in place in less time and with less initial funding needed. In addition, this would provide any prospective tenant with the option and flexibility to customize many areas of the building where they may have specific needs.
The project development process started approximately three years ago. As a result, a new 100,000 square foot spec manufacturing facility located in Carey is being completed by Vaughn Equity Services. In addition, Vaughn Equity Services also had new infrastructure constructed in the surrounding area and has created what is now Arrowhead Commerce Park. Roughly 20-plus additional acres in the new industrial park are available for future development.
Alvada Construction Co. located in Alvada, Ohio is the general contractor on the project.
“It was really a team effort that involved the Wyandot County Office of Economic Development, Vaughn Industries, Village of Carey, the Regional Growth Partnership/JobsOhio, and others in order to bring good paying jobs to Carey and Wyandot County,” explained Vaughn during an interview with Toledo Business Journal. “This project has been a win-win situation for Carey and Wyandot County and our business included,” Vaughn emphasized.
Most significantly, a lease agreement for the spec building was recently entered into with Hanon Systems, a global provider of automotive thermal solutions. The lease includes the building and approximately six acres of land. An estimated six months will be needed to complete the remaining areas of the spec building to Hanon Systems’ specifications. The facility, which is expected to begin production in mid-2017, will initially injection mold and assemble HVAC modules on a range of future model year vehicles for global automakers. Hanon Systems expects to invest over $19 million in machinery and equipment that will be installed in the new facility.
“We are pleased to expand our presence in the US to capitalize on business growth in this region and we look forward to contributing to the local economy in Carey,” said In-Young Lee, president/CEO of Hanon Systems in a statement released by the company.
“As a true global supplier, Hanon Systems is well-positioned to support global vehicle platforms from virtually anywhere in the world and this new facility will help deliver value-added capability at a strategic location that is close to our customers,” explained Lee.
Hanon Systems recently changed its name from Halla Visteon Climate Control in July 2015, and the new Carey facility will be the first plant to launch under the new name. This will be the first US plant the company has opened since 2003, and will mark its 40th global manufacturing site.
Efforts among local leadership and Hanon Systems to locate in Carey lasted just over a year from when the company first visited the new speculative building. There was direct involvement in the project from the Wyandot County Office of Economic Development, Vaughn Industries, Village of Carey, and the northwest Ohio regional JobsOhio partner, the Regional Growth Partnership (RGP).
“Initially local development officials were able to provide Hanon Systems with timely information requested regarding local utilities, zoning, expansion opportunities, and workforce information,” stated Gregory Moon, executive director, Wyandot Office of Economic Development. “There were multiple pieces involved in making this project a reality including the work of many local entities to successfully expedite an annexation of the proposed project location.”
There was significant competition for the project involving communities in Indiana, Michigan, and Ohio. JobsOhio, the Regional Growth Partnership, and Wyandot and Carey development entities made a coordinated effort to offer Hanon Systems a competitive package that would put the Carey, Ohio location above the other contenders, according to Moon.
“The Regional Growth Partnership acknowledges the efforts of Vaughn Industries in making this project a reality,” stated Gary Thompson, executive vice president, Regional Growth Partnership. “In developing a spec building, the company took a financial risk in its commitment to further develop and grow the region. The RGP consulted with Vaughn in determining the right building specs. The success of this project helps reinforce the interest and value of the spec building market, which offers greater opportunities in attracting new investment and jobs.”
“In addition, the RGP worked closely with Wyandot County in the local incentive process. JobsOhio also provided valued assistance through a grant and Jobs Creation Tax Credit.”
Significant effort was put into structuring the right incentives needed to win this large project. The company was offered a local Enterprise Zone agreement that exempted 100% of increased real property taxes at the site for 15 years; the maximum agreement allowable under State law. On the State level, JobsOhio secured an Ohio Job Creation Tax Credit equal to 55% of the company’s Ohio employee income tax withholdings for nine years, and an Economic Development Grant of $310,000.
“All of these items combined with heightened collaboration of the facility owner, Vaughn Equity Services / Vaughn Industries, were responsible for Hanon Systems choosing to locate in Carey,” stated Moon.
At full production, the company will employ roughly 140 full-time salary and hourly employees, which will account for $5.2 million in new annual payroll.
“Ultimately, without leadership at Vaughn Industries taking the risk to construct the speculative building and perform the area build-out in Carey, the project would not have come to fruition. Foresight to create a viable product for an industrial user in Wyandot County, and the extra assistance provided by leadership at Vaughn Industries was the definitive reason Hanon Systems is launching its new US operation in the Village of Carey,” Moon concluded.