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Real Estate Recycling’s Redevelopment of BAE Site « CGC Commercial
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Real Estate Recycling’s Redevelopment of BAE Site

by Chris Garcia, 2:52 PM on February 25th, 2012, No Comments

In the Friday, February 24th edition of the Business Journal, Sam Black reported on the potential redevelopment of the BAE site in Fridley http://www.bizjournals.com/twincities/print-edition/2012/02/24/real-estate-recycling-to-buy.html.  The site is 140 acres total with a 2.1M square foot (SF) building being occupied by BAE.  Currently the site has property taxes around $500,000 and roughly 350 employees.  With the redevelopment of the site, about 1.5M SF of new industrial will be built.  Real Estate Recycling (RER) estimates that once completed, the tax basis will be around $3M with up to 3,000 jobs.

From a real estate perspective, the location makes sense as it has highway access (I-694) and close proximity to Minneapolis and St Paul.  There are many other factors that will benefit this development, those include:

  • Low tax basis to start- Since there is TIF financing available and real estate is taxed in arrears, RER will be able to offer their buildings on a low cost basis which will make it competitive with existing properties.  There might be some cases where RER’s buildings will be cheaper in the first few years.
  • Ability to accommodate large users- Currently there is a shortage of large blocks of industrial space.  With a 140 acre site, RER will be able to build any size building.
  • State of the art industrial- Most of the high clear industrial buildings are built in 3rd and 4th tier suburbs like Shakopee, Rogers, and Brooklyn Park.  Fridley would provide high quality just minutes from Minneapolis.

Once the site is developed, it will have a high value.  RER is known for building institutional grade real estate and tends to attract high credit Tenants such as Caribou, Thyssen Elevator, and Wagner Spray.  Here is an estimate of how the economics of the site could look:

Potential Income

1,500,000 SF of property leased at $6.85 per square foot= $10,275,000 annual net rents

$102,750,000 rental rates of institutional grade real estate could have a low cap rate. We’ll use an 8= $128,000,000 of real estate value

That $128M of value is where RER is getting their estimated $3M of annual taxes per year.  Here is an estimate as to what it might cost to construct that amount of real estate:

Construction Estimates

1,500,000 SF with a shell rate of $35 PSF= $52,500,000

25% of the buildings will be office, which brings in a cost at $45 PSF= $16,875,000 office improvements

There is a 2.1M building that needs to get demolished at $1 PSF= $2,100,000

Legal fee, developers fee, surveying, engineering, leasing commissions, and marketing will cost another $10 PSF= $15,000,000

The asking price on the site is $20M, but RER will likely not pay that amount = $15,246,000 or $2.50 PSF for the land is a guess

The grand total from this estimate is $100M. The estimated value after the site is leased is around $130M.

The development seems to make economic sense. It also makes sense from a real estate fundamental stand point as the location has efficient highway access and proximity. Overall, the only question is if the market is ready for this size of development.

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