This week defense supplier Sparta Composite Products announced that they will be building a $13.2 million plant in Suffolk, Virginia.  In association with this new facility, Sparta will be creating approximately 200 new jobs over the next 5 years.  The new plant will be 67,000 SF and will be located in the Northgate Commerce Park.  The Company also has plans to build an additional 87,000 facility in 5 years.  Prologis will construct the building for Sparta on the land it recently purchased in Northgate.  Prologis had intended to develop speculative product at Northgate, but with its recent financial issues had decided to halt all new development nationwide.  

Last night the Suffolk City Council approved CenterPoint’s request for a rezoning at their site off of Holland Road.  The council voted 7-0 in favor of the rezoning but has still not resolved the issues of how a widening of Holland Road would be funded.  CenterPoint has committed to pay almost $4 million towards the project, which may be enough to get some of the preliminary design work completed and get the project “shovel ready”.  However, with over 400 statewide transportation projects “shovel ready” today, the Holland Road widening stands little chance of receiving bailout funds.  My best guess is that future projects will bear the burden of improving the infrastructure – reducing Suffolk’s competitive position as the port continues to grow.

The Link: LINK

The Story: An informal survey conducted by the Virginia-Pilot newspaper indicated that CenterPoint may already have enough City Council support for its industrial park along Holland Road.  While the project isn’t officially to be voted on until January 2, six of the eight council members had positive things to say about the project.

The Analysis: The big issue with this project has never been about the current or future zoning of the CenterPoint land.  It has been, and continues to be, about who is going to fund the necessary improvements to Holland Road.  There is also a lingering question of how much those improvements will cost.  CenterPoint claims +/- $53 million.  The States numbers come in closer to $94 million.  In either case, CenterPoint has proposed to pay just $3.96 million of the total.

I think it is important for Suffolk to seriously examine if this is the best use of taxpayer dollars.  Everyone agrees the project is a good one.  CenterPoint is a top notch developer and has done a great job of designing the project.  However, the taxpayer costs seem very high and the anticipated returns low.

The article indicates that Suffolk anticipates approximately $3 million in tax revenue from the project.  If we pick a road cost somewhere in the middle of CenterPoint’s numbers and the States (say $73.5 million), that works out to a return on cost of just over 4.3%.  Granted, that’s better than a Treasury bill right now and there would be other future improvements along Holland Road that would boost the tax rolls further.  As a reference, that would mean that the State would effectively invest $12 PSF into the CenterPoint project ($73.5 million less CP’s contribution divided by 5.8 mSF).  But, with cash as a finite resource, are there better options for Suffolk and the State to spend that money that would have a higher return?

What about funding the Nansemond Parkway widening?  Using rough numbers for the total build out of Northgate and the cost to widen Nansemond, that project would yield a return on cost of approximately 8.7%. (+/- 2.5 mSF of product, $0.51 PSF for taxes, $15 million for road improvements)  That’s just one project and I am sure there are many more out there that are just as viable.

Is it an status play to say you have a 5.8 million SF industrial park in your City, or is it a prudent use of taxpayer funds?