Chesterfield County in the Richmond MSA may be home to a new $100 million Olympic training facility.  Steve Burton, Chairman and CEO of SportsQuest, could begin construction of the facility as early as February 2009.  The project will be located in the Waterford Business Center located near the intersection of Route 288 and Powhite Parkway.

The 50 acre campus is designed in three phases.  At full build out, the training facility will have an ice skating rink, aquatics center, sports medicine clinic, fitness center, family entertainment center, 200-room hotel and retail plaza.

The project is awaiting approval from the Chesterfield Planning Commission.  Although the site is sufficiently zoned, the Commission still must approve the site plan.  Additionally, Burton is still working through some of the financing negotiations and it is unclear whether Chesterfield will contribute taxpayer dollars to the project.

Over the past couple of weeks, many of the Worlds largest shipping companies have announced that they are mothballing some of their ships and reducing their capacity.  To date, 165 vessels representing 430,000 TEUs have been idled and there are likely 35-40 more that will be announced shortly.  This represents approximately 3.5% of the world container ship fleet.

There are a couple of interesting trends wrapped up in this.  If you examine the sizes of the idled ships, only 25 of them are over 5,000 TEUs.  Of those 25, only 6 are between 7,500 and 10,000 TEUs.  Put another way, 85% of the ships that have been taken out of service are smaller ships and only 3.5% are the largest ships.  I do expect some additional large ships to be idled over the coming months, but they still will represent a disproportionately small percentage.  It seems clear that, where given a choice, shipping liners would rather operate the larger, more efficient ships.

This should come as no surprise – large ships are more efficient.  Shipping is a low margin business.  Therefor, any efficiencies that can be gained should be gained.  I think it’s safe to infer from this that once the widened Panama canal is opened, shipping liners will want to employ the largest vessels possible.  Panama let it slip at a recent conference that the widened canal will now allow ships up to 13,000 TEUs, not the 8,000 TEUs that had previously been expected.  This means the largest container ships in the world will be able to be included on an all-water East Coast/Gulf Coast rotation.

Now the problem becomes where can those ships call that can handle their physical size and the amount off cargo they will offload.  Virginia and Halifax can handle them, but who else is ready?

On December 22nd, the Navy signed a multi-year contract to construct eight new Virginia-class submarines valued at over $14 billion.  The boats will be built under a unique teaming arrangement between General Dynamics Electric Boat and Northrup Grumman Shipbuilding.  Under the agreement, each yard builds certain portions of each vessel and each yard alternates delivering the completed submarines.

$700 million (1/2 of $14 billion) spread over the 5 year length of the contract should be a welcome injection to the Hampton Roads economy and keep Virginia’s employed.

The Associated Press reported that Union and State officials have reopened the negotiations to keep Maersk at the Port of Charleston.  Last week Maersk, who represents +/- 25% of the Port of Charleston’s business, announced they would be leaving the port at the end of 2010.  The state port authority had submitted a proposal to Maersk to retain them, and Maersk agreed to those terms.  However, there was a requirement that the ILA union renegotiate the terms of their contract with Maersk.  The ILA refused, and Maersk announced they were leaving.

Now, after realizing what they lost, the ILA is joining forces with the state to attempt to retain the shipping line.  With volumes down and the economy in a major slump, I suspect Maersk has the upper hand in these negotiations.  To lose 25% of their business would be a major blow to the Port of Charleston.  Plus, there would be a huge blemish on their reputation within the shipping community.  Just look what happened when the West Coast ports couldn’t deliver good union relations.  If Charleston is seen as unfriendly to shippers, their place as a major port of call is in serious jeopardy.

The next few weeks will be very interesting.

It should come as no surprise, but I am a HUGE proponent of the East Coast ports.  I have long held that they are closer to the population, and with the widening of the Panama Canal are extremely well positioned for future growth.

Well, in a recent white paper, Drewry Supply Chain Advisors lays out some fundamental reasons why East Coast (EC) and Gulf Coast (GC) ports will continue to steal business away from the West Coast ports.  Even if volumes remain the same, the EC and GC ports will continue to grow.  And this is not a short term phenomena.  Drewry sees these changes as “structural and long term”.

“Even if growth continues as strongly as it has in recent years, any new trade will probably pass the West Coast by.”

The East Coast ports continue to be extremely well positioned to handle the future growth the the new Panama Canal will enable.  Come to think of it, maybe the Panama Canal authority should be on my Christmas list as well…

The Wall Street Journal is reporting that a consortium of 20+ real estate trade associations is petitioning Congress, the FED, and the Treasury for a piece of the $200 billion lending facility established for consumer debt (credit cards, auto loans, etc.).  Their argument is that with over $530 billion of loans coming due in the next three years, they will need significant aid in refinancing.  Their argument continues that if the capital markets are not liquid enough to refinance, they will have to default.  Consequently, the banking system will have to process these assets, something they are not set up to do on this scale.  The encouraging part is that they aren’t asking for a freebie.  Instead, they are asking for the government to play bank and provide low cost loans to the developers needing to refinance.  That sounds admirable, but there is potentially a hidden cost (and handout) in there.

Let’s work through the math here.  The $530 billion of loans coming due were most likely underwritten at a loan-to-value of between 70% and 75%.  So, the presumption is that at the time of lending, the loans were secured by approximately $731 billion of assets.  In the next three years, when those loans come due, the owners will need to refinance and the deals will need to be re-underwritten.  As we are all aware, asset values have already fallen significantly and underwriting standards have tightened.  For this analysis, let’s assume that the values have fallen 20% and that 60% LTV is now common.

So, when it comes time to refinance, traditional lenders will be willing to loan only $350 billion to pay off the $530 billion in loans.  Who is going to come up with the $180 billion difference?  That would be cold hard cash that the building owners have to come up with – even if the government is the lender.  Now my assumption is that, under a bailout deal, the trade organizations would ask that the government issue new loans at the previous principal amount – a one for one issuance with no regard to current market value.  That would put the government making 90% LTV loans, assuming asset values don’t decline further.  Also keep in mind that this assumes all other things being equal.  We haven’t addressed a decline in occupancy, rental rates, absorption etc.  The 20% decline has been mostly in an increase in cap rates.

I don’t know about you, but that’s not how I want my tax dollars being used.  You?

(In the interest of full disclosure I should point out that I am a member of a number of the trade associations that have made this request.)

Link to Article

The $100 million Rolls-Royce jet engine facility in Prince George County Virginia was awarded the 2008 Economic Development Deal of the Year Award by Business Facilities magazine.

From Business Facilities:
“Our judging panel was particularly impressed with the creativity displayed by Virginia in crafting an incentive package for Rolls-Royce. Included in the package are $35 million in performance grants; $56.8 million in cash payments that are partly dependent on employment and investment targets over the next 16 years; $6 million from the Governor’s Opportunity Fund to meet future infrastructure needs; a $5 million grant for the development of spin-off companies; a five-year tax break on machinery taxes, tool taxes, and the company’s business license; a 50% discount for connecting utilities; and the waiving of rezoning costs also are part of the deal.”

Once again, Virginia proves that it is the #1 State to do Business.  Rolls-Royce considered over 30 international locations for this project and Virginia won with the best combination of incentives, labor force, and access to higher education.  Over the next 10 years, the project will contribute almost $2 billion to the state economy and create 3,000 jobs.  The Rolls-Royce facility not only substantiates Virginia as a global high end manufacturing location, but also validates the Greater Richmond Area as the hub of Virginia.

Last week, Maersk shipping lines announced that they will be leaving the Port of Charleston by the end of 2010.  It’s not that Maersk didn’t want to be in Charleston.  On the contrary, they worked to find solutions where they could stay.  However, in the end, it was a matter of operating costs.  Maersk, operating its own dedicated terminal, must use union labor.  The company has asked for permission to relocate its operations to the common yard.  Unfortunately, the ILA did not provide the necessary consent.  Maybe they thought Maersk was bluffing.  Maybe they just didn’t think it through.  However, now Maersk is leaving and come 2010, those ILA jobs will be lost.

On the plus side, Maersk will relocate the services that previously called upon Charleston.  It’s a good bet that a fair amount of that traffic will go to Virginia, where Maersk recently built a $500 million automated terminal.

A recent Shpping Digest article outlined some of the difficulties Charleston is having designing in a rail yard to their new North Charleston Terminal.  The issue revolves around the need to realign an access road on the terminal to allow electric lift equipment to shuttle containers to a new private intermodal yard.  By redesigning the road, they reopen the permitting and planning process.  The potential for delays could be very costly to the state.  In addition, CSX is a partner in the venture that would be building the intermodal yard and would be the only operator using it – no Norfolk Southern.  Any move to go above and beyond to accommodate the new rail yard would be frowned upon by NS and could be politically costly.

However, Charleston needs to address their rail issues.  Norfolk has on dock rail and is expanding the number of tracks available.  Savannah has near dock rail and is also expanding to accommodate both CSX and NS.  Charleston could be putting itself at a significant competitive disadvantage if it doesn’t figure this out quickly.  Shippers are making decisions today that will effect where they will locate in 2013 when the North Charleston terminal is completed.

GlobeSt.Com today had an interested article on China’s role in the demand for industrial space in the US.  The gist of the article is that China’s economy and production is slowing to the point where it might have an effect on the US industrial market.  The author points out that many of the industrial REITs have made big bets in port markets and those bets may not do as well as previously expected.  One of the important things to note is that we are talking about a shift from 35% growth to 23% growth.  By any measure, that is still tremendous growth and a trend worth paying attention to.

However, the growth is projected to slow and the author is correct that this slow down may have an effect on demand.  However, it just goes to further emphasize the importance of picking the right locations.  When the demand does decrease, it will certainly not decrease proportionally across all port markets.  Some will be much harder hit than others.  As an example, just look at Maersk’s recent decision to leave Charleston in 2010.  Bad news for Charleston, but great news for other markets which will benefit from Maersk redirecting that traffic.  Norfolk and Savannah should both profit from the decision.

Again, making wise investment decisions is the key here.  Any box in any port industrial market won’t get the job done anymore.