According to a recent article in The Arizona Republic, some municipalities don’t see the benefits of the Qualified School Construction Bonds (QSCB’s) and are forgoing their use.  The American Recovery and Reinvestment Act, otherwise known as the ”Stimulus Plan”, created the QSCB’s as a way to incentivize new school construction.  The bonds are unique in that they pay no interest to the bondholders.  Instead, the bondholders receive a federal tax credit.  A deep investor market for these bonds has not yet emerged and many issuers are having to pay additional interest to bondholders to incentivize them to purchase the bonds.

In addition, the QSCB’s come with several requirements which may make them costly to implement.  The first requirement, and most punitive, is the requirement to utilize Davis Bacon Wage Labor rates.  Depending on the locality, this requirement alone can increase construction costs significantly.  It is not inconceivable that any interest savings achieved by using the QSCB’s could be eaten away via higher construction costs.  Secondly, there are significant and severe reporting requirements that go along with several of the ARRA created bonds, not just QSCB’s.  We have heard of some municipalities that are having to dedicate a full time staff person to handle the reporting requirements.  In a fiscal environment where every costs is being scrutinized, adding a position may not be palatable.

Much like most things in life, there are always pro’s and con’s associated with any decision.  Municipalities are well advised to lean heavily on their financial advisors as they work through the various funding options for new projects.

The US Department of Education is changing its position on whether Stimulus Funds can, and should be used to fund new school construction.  In April, the DOE had indicated that new construction was an allowable use for the funds.  Last week, however, the DOE changed their position in an update to their previous guidance.  Now, the department is strongly discouraging the use of Stimulus Funds for new construction.  They have even gone as far as to indicate that anyone who does use the funds for new construction will be penalized in consideration for the “Race to the Top” money.  

Apparently, the funding of new school construction continues to be a hotly debated topic.  Keep in mind that $14-$16 billion of funds for new construction were stricken from the final Stimulus Bill.  There’s clearly a need, but no one is quite sure how to fund that need.

West Broad Village, the west ends new mixed use project has hit another snag.  This time it is over a misunderstanding in how much the water and sewer tap fees will be.  An article, which appeared in the Henrico Citizen outlined the saga between Unicorp, the developer, and the Henrico County Board of Supervisors.  According to the article, Unicorp’s position is that the mixed-use buildings should fall under the County’s “other buildings” classification for fee calculations.  The County, however, looked at each individual use within each building to calculate the fees.  While the difference may seem semantic, the resulting fee difference is not.

Unicorp calculated their total obligation to be $589,000.  The County calculates that same obligation to be $3,500,000.  The difference is huge and Unicorp claims it is enough to shut the project down.  They just don’t have the money in their budget to pay the higher fees.  While the discrepancy is making news now, Henrico County officials notified Unicorp and their engineer, Timmons Group, about the fee via three letters between March 26 and July 3, 2007.  Unicorp claims that they never received the notification because Timmons never notified them and the letters that the County sent to Unicorp were addressed to a marketing person, not a project manager.  

I suspect that Unicorp will have an uphill battle in getting the County to reduce the fees.  Henrico’s position is consistent with how other projects have been treated and they followed the proper protocol to notify the developer.  While I am sure it is a shock to Unicporp, county fees are a part of every development project and are one of those things you need to understand upfront and early.  It’s just one fo those “boxes” you have to check.

This latest issue surrounding West Broad Village just adds to the projects difficulties.  Obviously, the retail market (and the market in general) has completely gone out from under them, with retailers more likely to file for bankruptcy than sign a new leases.  In addition, late last year nine mechanics liens, totalling approximately $3.7 million were filed against the property for failure to pay contractors and brokers.  At the time, Unicorp cited difficulties in lining up their financing as the reason for the delays.  There has also been at least one failed acquisition of the property as Unicorp tried to unload its position in the property.  There are rumors that another group has the project under contract and is doing their due diligence.  It may have been through those due diligence efforts that the tap fee discrepancy was discovered.

The engineering firm of Moffat & Nichol said it could be 15 years before it made sense to construct the new port in Jasper County, SC.   In their recent report, the company cited slowing demand and increasing capacities at existing facilities as reasons for the delays.  In addition, M&N estimated that the permitting phase could take in excess of 12 years.

The Jasper Port, which would be operated by a joint Georgia and South Carolina port authority is in a unique position.  Lawmakers want the port up and operational as soon as possible.  They believe that it will be a huge economic driver for the region.  With the slowing in consumer spending and the resultant reduction in TEU volume, the individual states are concerned about cannibalizing business from Charleston and Savannah ports (both of which are increasing capacities).  Although, with a 12 year permitting process, demand will have certainly picked up by 2020.

The Link: LINK

The Story: Logistics Management ran a very interesting article on the online retailer Zappos.Com and how they overcame their order fulfillment issues by using robots.  As the company grew beyond being just an online shoe retailer, it struggled with how to be efficient in fulfilling orders when the items were not the consistent size of a shoe box.  The solution they came up with was a robotic system made by Kiva Systems Inc.  In this system, the robots roam the DC and bring bins of items back to the pickers.  A laser then highlights which specific item is to be picked and a monitor shows the quantity.  The robots do not use wires, rails, or laser for guidance.  Instead, Zappos put bar coded stickers on the floor and the robots read those.  Also, the system stores the larger bins throughout the DC based upon the order characteristics of the items in the bin.  A particular bin does not have a “home” in the DC.  If it’s items are hot this week, the robots don’t take it very far from the picking stations.  If it’s items are frequently ordered with another item, those two bins are stored next to each other.  In all, it seems like a very efficient system and if Zappos decides to leave the building, it can easily be taken with them.

The Analysis: The story brings up a number of interesting issues as it relates to the future of warehouse design.  According to Zappos, one issue with the Kiva system is that it does not go vertical.  All of the bins reside on the warehouse slab.  For years, clear height has been a driving force in the warehouse industry.  Anything under 24′ is considered class “B”, less functional space.  32′ clear is the de facto norm for new construction and 40′ and 50′ are not unheard of.  However, with one of these systems, even an 18′ clear building can be brought into the 21st century.  It would be interesting to run the analysis to see if the cost savings of leasing an older facility and the increase in worker productivity would offset the cost of the Kiva system.  Zappos claims the system is so efficient that it can have an order ready for shipping 12 minutes after the user hits the “submit order” button.

This army of robotic workers can also operate in total darkness.  Zappos only has to light the picking area.  This has the obvious effect of reducing the electrical usage, but also works to reduce the buildings heat load.  Do I smell a LEED point in there somewhere?

If you knew you were constructing a building for an automated user, what other design specs would you change?  It’s only a matter of time before more and more DC’s become completely automated.

The Link: LINK

The Story: The Port of Oakland is soliciting proposals from interested private groups to provide “the master operation and maintenance, and long-term design, construction and finance of facilities of approximately 168 acres to support and enhance maritime activity”.

The Analysis: The opportunity in question is the redevelopment of a former Navy facility on land which is currently owned by the Port of Oakland.  As I understand it, the Port would like a private group to come in and sign a 30-year master lease on the parcel, to begin January 1, 2010.  The private group would then design, construct, finance and operate the facility.  At the end of the 30 year lease, the property and it’s improvements would revert back to the Port of Oakland.

The Public Private Partnership (PPP) idea is an interesting one and has been used very successfully internationally.  Several domestic ports are currently considering the structure to finance new capital programs.  However, the program is still young in the United States and there are issues that need to be worked out.  One issue that stood out to me with the Oakland proposal was the short duration (30 years).  I would want a longer horizon to amortize down my improvements.  This will be a significant capital outlay and a strong selling point for Oakland.  30-years seems a little too short.