There has been much confusion in recent days regarding the former GM facility, the Industrial Realty Group, Elio Motors, and the Parish of Caddo. As the Chairman of the Economic Development Committee of the Caddo Parish Commission, I would like to provide some clarity on this matter.
I was not a member of the Caddo Commission when the GM facility was acquired by the Parish in the Fourth Quarter of 2013, and I was not a part of the negotiations that took place leading up to this transaction. Thus, I have little insight into the details of how the GM transaction transpired; however, since taking office in January of 2016, I have studied the lease agreement that the Parish has in place, and I believe that, given the options available to the Parish at the time, the Parish struck a good deal in securing a long-term lease with the Industrial Realty Group.
When you strip away all of the rhetoric, the facts of the GM deal can be summarized as follows:
- In late 2013, the Industrial Development Board (IDB) of the Caddo Parish Commission paid $7.5 million to acquire the former GM facility from RACER Trust – the entity created out of the GM bankruptcy and charged with disposing of the company’s abandoned real estate. In this transaction, the Parish acquired all 530 acres of land associated with the former GM facility, all buildings on the property, and the mineral rights.
- The overriding objective of the Parish and the Caddo Parish Commission was to preserve the GM facility so that it could be utilized to bring jobs back to our community, while simultaneously minimizing the financial risk associated with acquiring and managing the GM facility. Had the Parish not stepped in to acquire the property, it is very likely that the facility would have been torn down by RACER Trust.
- The Parish does not have, nor has it ever had, a lease with Elio Motors. The Parish has a long-term lease with Industrial Realty Group, LLC (IRG), a nationwide real estate firm with over 150 properties, totaling 100 million square feet of rentable space across 28 states. Under the terms of the lease, IRG agreed to pay all maintenance and upkeep for the plant, pay a market-based rent that escalates over time, and proactively seek qualified candidates to fill the nearly 4 million square foot GM facility. Currently, this arrangement saves the Parish over $1 million per year in maintenance costs, while generating $726,000 per year in net income for the Parish through rental payments from IRG. The current rental rate approaches a 10% annual return on the Parish’s original $7.5 million investment—a very good financial return on the Parish’s investment.
- While the aforementioned lease agreement has many benefits to the Parish, it also has some drawbacks. Since IRG holds a long-term lease on the facility, IRG has the final call on who it may or may not want to sublease to. Some might ask how the Parish could allow itself to surrender control over who occupies this key facility, but it is important to remember that the three primary goals of the Parish were to 1) preserve the facility; 2)recruit employers; and 3) protect the taxpayer dollars employed in the transaction. The IRG lease meets all three of these requirements.
- While IRG is seeking a tenant(s) for the GM facility, it has elected to sub-lease a portion of the facility to a start-up auto manufacturing company called Elio Motors. Elio has been struggling to raise sufficient funds to kick off manufacturing operations in Shreveport, and it remains to be seen if Elio will be successful in its efforts. However, the principal owner of IRG is also a significant shareholder in Elio, and IRG appears to be holding a portion of the GM facility open for Elio in the hopes that the company will soon be up and running. It is important to remember that IRG is paying for the right to decide who it wants to sub-lease to, and if a better tenant for the GM facility were to surface, IRG could choose to relocate Elio to another facility, thus freeing up the entire GM facility for a large manufacturer.
- As stated previously, the Parish acquired the land, buildings and mineral rights in the 2013 purchase of the plant. However, the Parish did not acquire any of the movable equipment inside of the buildings. Pursuant to an earlier contract between RACER Trust and Elio Motors, Elio Motors acquired all of the movable equipment inside the facility from RACER Trust in a transaction that was nearly simultaneous with the Parish’s transaction. Elio has maintained ownership of the equipment that it hopes to use in its manufacturing operations, and has been selling off the equipment that it does not need.
- Over the past 3 years, several rumors have circulated about companies interested in moving into the GM facility, and when these rumors did not come to fruition, IRG and/or Elio have often been blamed. However, we should remember that leasing nearly 4 million square feet is a difficult task, site location is a very competitive business, and any company looking to lease this much space is looking across the globe for an opportunity and playing one site off of another.
- Let’s not forget that Caddo Parish has had at least one small victory in this war of global competition. Korean car manufacturer GLOVIS America, makers of Hyundai and Kia, did move into a portion of the GM facility in January of 2017 and currently employs approximately 200 individuals. GLOVIS hopes to eventually grow the local employment to 300 jobs paying an annual salary of $31,760 per year plus benefits. These employees will upgrade and finish out Hyundai and Kia cars prior to being distributed to dealerships around the country for final sale.
In summary, the long-term lease agreement with IRG has been maligned for not having filled the former GM facility with a large, global manufacturer. However, tenants of this nature are few and far between, and securing such a tenant takes time. Finding a global client also requires global relationships, and few in the Caddo Parish organization have these types of relationships. Thus, in my opinion, joining forces with a group such as IRG greatly enhance the possibility of finding a strong client for the facility.
The three primary goals of the Caddo Parish Commission regarding the former GM facility remain the same – to preserve the facility, secure quality jobs, and protect the investment of taxpayer dollars in the facility. While the current long-term lease agreement with IRG is not perfect, it goes a long way towards fulfilling the primary goals outlined above.
Article Originally Posted on ShreveportTimes.com – May 22, 2017