News Room
Tower turns old factories into distribution centers for profit
By Jim Stinson - Nashville Business Journal
November 16, 2007
Tower Investments LLC is targeting what it sees as a growing market - abandoned or aging factories ripe to be converter to distribution centers.
The investment and development firm, based in Woodland, Calif., with an office in Nashville, owns more than 9 million square feet of industrial property throughout the United States.
The properties are mainly in secondary and tertiary markets and generally range from 300,000 to 1 million square feet.
Tower officials say there is a national shift from manufacturing to distribution operations and identified a new use for older facilities in the current market.
"With the shift toward overseas manufacturing, large-scale industrial facilities are no longer in great demand in the United States, and many have gone into disrepair," says Matt Marks, a senior vice president with Tower. "At the same time, there is a rising need for warehouse and distribution space for smaller businesses that do not have the resources to build out their own facilities."
Marks says escalating construction costs make the converted use, without major new construction, more attractive and that there is less competition for such properties because private equity chases urban properties.
"We tend to be value buyers," says Marks. "We buy the right place, the right location access-wise, so the building is functional for the end user. You can typically find tenants."
The company owns three manufacturing/warehouse properties in Tennessee: one in Jackson and two in Paris. The Tennessee land has 1.27 million square feet of space.
Before buying a property, Tower conducts due diligence to determine how a building could be reused by a single or multiple tenants. The tactic has been used in Middle Tennessee, real estate officials say.
Jeb Atkinson, a broker with ProVenture Commercial Real Estate, says some old plant sites can be bought for as little as $2 per square foot.
But not all sites are ideal for distribution, as manufacturing sites have different criteria for location. Many plants are not even along interstate highways.
Distribution sites tend to be near plants, ports or airports, Atkinson says.
Tower officials say company principals tour an estimated 100 properties annually, with fewer than 10 percent ending in purchase.
"We have a large base of national clients who look to us when they need space in other parts of the country," says Marks.
A family-owned company founded in Woodland, Calif., by Stephen Marks Sr. in the 1980s, Tower has adopted a hands-on strategy that is guiding the industrial property decisions.
"It is difficult to underwrite a deal on a building that is vacant, and there is not a 'market absorption report' that one can rely on to determine when it will be leased," Marks says. "There are many good local real estate brokers who help with the process, and we rely on them a lot."
Tower also taps local sources to meet needs involved with closing each deal, including lending, construction and government relations.
"Local knowledge and relationships are keys to all real estate deals, especially redeveloping projects in other states," says Marks.
Tower prides itself in finding the right tenant for a facility that is vacant or outdated, and then tailoring it to meet their needs, Marks says, adding the redevelopment strategy is one of reuse, and is environmentally positive.
"In an age when the building trend is to tear down and start over, it is both economical and rewarding to invest in an existing property and keep it operational," Marks says.
Tower Investments has more than 100 real estate projects in 17 states. The company invests its own capital in residential, commercial, retail, industrial and agricultural real estate.