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January 20, 2006

Beating a path to Savannah

Developers like Wayne Mason are buying up industrial sites
Bryan Long

Atlanta's industrial developers are placing big bets on Savannah's future, fueling a land grab among the port city's marshes.

One of the top Savannah players, and one of the earliest to invest in the emerging market, is developer Wayne Mason, who has partnered with Solution Property Group LLC to purchase about 600 acres to develop two business parks and an additional building outside the state-owned Port of Savannah. Solution Property and Mason also have another 500 acres under contract, according to sources familiar with the deal.

But Mason and his partners aren't alone.

Duke Realty Corp. said Jan. 12 it paid more than $194 million to acquire 18 buildings containing 5 million square feet from Savannah developer Wrenn Blalock. Indianapolis-based Duke's (NYSE: DRE) deal also includes an agreement to purchase future buildings Blalock develops on adjacent land, according to industry sources. "We're not only in Savannah, but we're looking at all the major port cities," said Sam O'Briant, senior vice president of Duke's Atlanta Industrial Group. "We believe the port business is a significantly growing segment of the bulk industrial business."

Other Atlanta developers making headway in Savannah -- with property under contract or recently acquired -- include Wilson Hull & Neal; McDonald Development Co.; Ackerman & Co.; and Commonwealth Commercial Properties. Savannah brokers also have heard from Industrial Developments International (IDI), AMB Property Corp. (NYSE: AMB), ProLogis (NYSE: PLD) and others.

Tony Kepano, principal with Trammell Crow Co., said Atlanta developers see two benefits of moving into Savannah. First, the port's traffic is expected to grow about 10 percent each year for more than a decade. Those deliveries will need to be processed and distributed. Second, Savannah tenants are likely to become Atlanta tenants. "It's the hub and spoke system," Kepano said. "Atlanta is the hub, an established regional distribution center sending products out across the South. The impact of Savannah's growth won't be limited to Savannah."

Eben Hardie III, a partner with Solution Property, said Atlanta developers first began making a run at Savannah in 2004. "Savannah was always perceived to be a third-tier market. And the growth of the port and the importance of shipping products, specifically from Asia, has moved Savannah up," Hardie said. Hardie and partner Mal Hill are widely regarded as the first Atlanta players to seize an opportunity in Savannah. With developable land outside the port extremely limited, Solution Property quickly acquired key locations close to the port as the crowd of land speculators grew larger. Hardie credits Mason's ability to understand a deal and sign a check in minutes as key to their success.

Solution Property has just completed a 491,000-square-foot speculative building in Crossroads Distribution Center. A second speculative building will begin construction in February.
And in the last few months, the number and type of people looking at land outside the port has increased. "There has been a steady stream of institutional investors that have come through our offices for presentations on Savannah because they are orienting themselves toward ports around the country," Hardie said.

Atlanta developers, and their piles of cash, are bringing to Savannah a new quality of industrial development. Savannah's current industrial buildings are largely class B and C. "The quality has been terrible," said Watt Neal, a partner with Wilson, Hull & Neal. "The market in Savannah has always been a little rougher. It's unfinished, rough steel buildings."

Neal, and other Atlanta developers, are betting higher-class properties will attract higher-credit tenants and raise the overall market. Wilson, Hull & Neal is completing a 54,000-square-foot speculative building and is weeks away from starting construction on a 59,000-square-foot speculative building (one constructed without a signed tenant).

Despite the growth of the port and the growing interest of developers, Savannah's industrial market still has an uncertain future. For starters, there's no reliable industrial market data for the area. Developers have relied on their own research -- often sending independent researchers to canvas the market by foot -- and gut instinct to make big-dollar decisions.
Another hurdle is that much of the land surrounding the port can't be developed because of covenants or environmental issues.

This has pushed some developers 10 to 15 miles from the port's entrance. In the business of logistics where every mile has higher transport costs, the distance can kill many deals.
But the largest hurdle for Savannah is traffic, according to Georgia Sen. Eric Johnson (R-Savannah). "That's really the only potential slowdown for growth at the port," Johnson said. "The question is really, 'Can you get it off the boat and out of the port fast enough?' "
Warehouses projected to open in 2007 for retailers Target and IKEA are expected to add more than 85,000 truck trips per year through the port's only gate.

"The port growth is accelerating faster than the community anticipated," said Johnson, the Georgia Senate's top ranking Republican.