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Alex BabbittJasper Roll
Jack Dai
Cal Chem
Agenda
Introduction
Business Environme
ntReal Estate Cost
Savings
Recommendation
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
Review of Scope of Work - Current SituationFounded in 1956 in California
Providing passivation services among others
Pioneered the Citric Acid method
Rob and Scott Maitland
Headquartered in
California
Small crew based in
North Carolina
Stagnating revenues in the last years
Need to structure company activities
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
Key Question
Should Cal-Chem relocate their Headquarters to NC?
Operating Costs
Business Environment123
Real Estate
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
Microeconomic factorsBusiness
Environment
GDP Growth
Manufacturing Facilities
Manufacturing Employment
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
California has over 4 times as many manufacturers as North Carolina
U.S. Census Bureau
1 California 40,497
2 Texas 19,754
3 New York 17,094
4 Ohio 15,325
5 Illinois 14,630
6 Pennsylvania 14,607
7 Florida 12,788
8 Michigan 12,697
9 North Carolina 9,389
10 Wisconsin 9,115 2005
2006
2007
2008
2009
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
CalNC
# o
f m
an
ufa
ctu
rin
g
Facilit
y
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
2005
2006
2007
2008
2009
20,000
25,000
30,000
35,000
40,000
45,000
CalSE
# o
f M
an
ufa
ctu
rin
g
Facilit
yHowever the entire Southeastern U.S. is comparable to California
SE = NC, SC, VA, TN, FL
U.S. Census Bureau
2005 2006 2007 2008 20090
1,000
2,000
3,000
4,000
5,000
6,000
CalSE
# o
f fa
cilit
ies o
pen
ed
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
Comparison of Manufacturing Employees Statistics
http://www.bls.gov/
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
Real GDP Growth by Region 2011
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
Real GDP Growth by Region - continued
Bureau of Economic Analysis
18%
22%59%
U.S. GDP Breakdown
Far WestSoutheastOther
Scient
ific se
rvice
s
Health
care
e
food
serv
ices
00.10.20.30.40.50.6
Contribution to % change in real GDP
Far WestSoutheast
Key Question Business Environment
Operating Costs Real EstateIntroduction
Business Environmen
tReal Estate Cost
SavingsRecommendati
on
• “Pharmaceutical companies have been moving into North Carolina, but I do not know if they moved the production facilities with them…. FDA issue the permits, they may have more information”– Christopher Gauthier, executive director of North Carolina
Pharmaceutical Association
• “The Southeast has been steadily increasing its food processing capacity and we will probably not see an end to that soon”– Anna Ondick, Southern Association of Dairy Food Manufacturers
We attained industry specific data from several industry associations.
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
Real Estate
Real Estate
Current Property
Lease Options
Buy Options
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
California Real Estate Options
Current Property
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• 3.7 miles to El Monte Airport
• 28.9 miles to LAX
• 2.4 miles to I-10
• ~10 miles to I-5
Real Estate – Current property in CA
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Tax Assessment Property Value– $ 530,265
• Estimated Market Value– $800,000
• Property Size– 6900 sq. ft.
Real Estate – Current property in CA
http://lalife.comhttp://www.city-data.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Property 1– $ 818,000– 7,440 SF
• Property 2– $ 817,900– 6,888 SF
• Property 3– $ 870,000– 6,000 SF
• Property 4– $ 580,000– 5,625 SF
Comparable properties in South El Monte
http://www.loopnet.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
North Carolina Real Estate Option
Lease Options
Buy Options
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Hillsborough, NC– $450,000– 7,700 sf– $58.44 price/sf
• 28.1 miles from airport• 7.1 miles from I-85
122 U.S. 70 Hillsborough, NC 27278
http://www.trianglecpe.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Greensboro, NC– $600,000– 8,790 sf– $68.26 price/sf
• 12 miles from Airport• 1.2 miles from I-40
1201 Brandt Street, Greensboro, NC 27407
http://www.loopnet.com/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Raleigh, NC– $350,000– 4,358 sf– $80.31 price/sf
• 20.6 miles from airport• 1.8 miles from I-540
4900 Thornton Road Raleigh, NC 27616
http://www.trianglecpe.com/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex property• 2,500 sq. ft. • $7.00 /sf/year
– $ 17,500/year
• 7.8 miles from Airport• 1.8 miles from I-40
104 Meadowood Ave, Greensboro, NC
http://www.cityfeet.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex property• 6,000 sq. ft.• $10.00/sf/year
– $ 60,000/year
• 17 miles from Airport• 2 miles from I-540
2621 Rowland Road, Raleigh, NC
http://www.loopnet.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Industrial Property• 5,708 SF• $7.88 / sf / year
– $44,979
• 31.6 miles to RDU airport• 1.2 miles to I-40
3916 Forrest Avenue, Efland, Orange County, NC
http://www.showcase.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
Comparable lease prices in South El Monte, CA
No significant difference in the price / SF /year
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Sale of Property in CA– $ 800,000
• Annual Rent of Lease in Chapel Hill – $ 45,000
• Perpetuity of Rent in Chapel Hill– $ 450,000
Real Estate Savings
Possible gain over time of:$ 350,000
Sow Key Question Macro Micro Next
StepsIntroduction
Business Environmen
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SavingsRecommendati
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Cost Savings
LA vs Chapel Hill/Greensboro
Salaries Utilities
Corporate Tax Advantages
Property Tax Advantages
Taxes
LA vs Chapel Hill/Greensboro
Accumulated Cost Savings
Sow Key Question Macro Micro Next
StepsIntroduction
Business Environmen
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SavingsRecommendati
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Financial Model
Sow Key Question Macro Micro Next
StepsIntroduction
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SavingsRecommendati
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Cost Savings - Salaries
Los Angeles Chapel Hill Greensboro Raleigh$30,000
$35,000
$40,000
$45,000
Annual Salary / Industrial Maintenance Employee
Possible maximum annual savings with 20 estimated industrial maintance employees of:
$ 105,000Bureau of Labor Statistichttp://eslmi23.esc.state.nc.us/ew/EWResults.asp
Sow Key Question Macro Micro Next
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Cost Savings – Corporate Tax
California North Carolina
0%2%4%6%8%
10% 8.80%6.90%
Corporate Tax Rate
Assumption of a 20% Profit Margin and $2 million in revenues – possible annual savings on corporate
tax:$ 8,000
California North Carolina $-
$10,000
$20,000
$30,000
$40,000 $35,20
0 $27,600
Corporate Tax Paid on $ 400,000 Net Income
https://www.ftb.ca.gov/
Sow Key Question Macro Micro Next
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Cost Savings – Property Tax
Los Angeles County
Guildford County
Wake County Orange County0
2000
4000
6000
Annual Property Tax by County
Possible maximum annual savings with total property value
of $ 530,000/$ 450,000:$ 3,800
North Carolina Department of Revenuehttp://maps.assessor.lacounty.gov/mapping/viewer.asp
Based on a $ 450,000 property valueCurrent tax
Sow Key Question Macro Micro Next
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Cost Savings – Utilities
Los Angeles Chapel Hill Greensboro Raleigh0%
40%
80%
100%84% 82%
104%
Utility cost on average 18% cheaper in Greensboro than in Los Angeles
Assumption of utilities as 6% of $2 million in revenues – possible annual savings on utilities:
$ 22,000
US Census
104%
Sow Key Question Macro Micro Next
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SavingsRecommendati
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Cost Savings – Accumulated
California North Carolina$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Corporate TaxUtilitesSalary
Possible Cost Savings for moving to Chapel Hill:$ 145,000
Sow Key Question Macro Micro Next
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Possible Relocation Costs
Transaction fees for selling property
Relocation of key employees
Training for new employees
Relocating equipment
New corporation
Sow Key Question Macro Micro Next
StepsIntroduction
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tReal Estate Cost
SavingsRecommendati
on
Cal-Chem does not qualify for any local subsidies
Location Initial Capital
Investment
# of Jobs Created
Hourly Wage
Other requirem
ents
Wake County
$3 million 40 n/a n/a
Statesville, NC
$1.5 million
50 $15.73/hour
50% of Health
benefits
Garner, NC $10 million 50 n/a $1100 of tax base
per gallon of sewer allocated
Source: Interviews with Economic Development Offices. See Appendix
Sow Key Question Macro Micro Next
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SavingsRecommendati
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Recommendation
Comparable Business Environment
Comparable Real Estate
NC provide annual cost savings of $145,000
Sow Key Question Macro Micro Next
StepsIntroduction
Business Environmen
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SavingsRecommendati
on
RecommendationCal-Chem should relocate
toNorth Carolina
One-time Savings/Cost 750,000$
Perpetuities of the annual savingsSalaries 1,054,000$ Corporate Tax 76,000$ Property Tax 104,000$ Utilities 192,000$ Rent -674,686 $ Total 751,314$
Total including one-time Savings/Costs 1,501,314$
Questions?
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Other real estate locations
• Industry projection• Current customers• California employment
Projection• NC employment proje
ction• Manufacturing Closing
s • Food and beverage m
anufacturers
Appendix• Salaries• Utilities• Taxes• Interviews
– Econ Development Office
– Commercial Real Estate
– Local County Offices– Trade Association– Sewage Office
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• LA Industrial Maintenance Worker– $42,320 / employee
• Chapel Hill Industrial Maintenance Worker– $37,050 / employee
• Greensboro Industrial Maintenance Worker– $39,260 / employee
Salaries
http://www.bls.gov/oes/current/oes499071.htm
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Interviews with OWASA and Duke Energy– No useful information– Said it depended on use and couldn’t
generalize– Depends on specific location within county
• On average utilities are cheaper in NC than LA– 16% cheaper in Chapel Hill– 18% cheaper in Greensboro
Utilities
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Property Taxes– Guildford County - .7804 / $100 of property
valuation– Iredell County - .4850 / $100 of property
valuation– Wake County - .5340 / $100 of property
valuation– Orange County - .8580 / $100 of property
valuation– Los Angeles County – 1.13% of total value
• Corporate Tax– CA - 8.8% vs. NC - 6.9%
Taxes
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Holly Springs Economic Development Office
• Incentives are looked at on a case by case basis– Typically $3 million capital investment
• Capital investment is anything that is taxable
– 40 new jobs• Incentives given in the form of grants
– If approved companies receive 20-80% of taxes back over 2-10 year period
Interview with Jenny Mizelle
Interview with Michael SmithStatesville Economic Development • Incentive requirements
– Need to offer over $15.73 /hour salary· – Provide 50% of health benefits to employees· – $1.5 million dollar investment in new taxable assets· – $3 million for the county·
• Incentive – Performance based, given back part of taxes over a 5
year period· • Other Advantages
– Located at the intersection of I-40 and I-77· – Proximity to Charlotte Douglas Airport and Piedmont Triad
Airport– Triad location of FedEx distribution hub– Property tax: .4850/100$ property value
Interview with Tony BeaselyGarner Economic Development• Incentive Requirements
• Incentive• Advantages
Interview with Commercial Associates Real Estate • Price
– Depends very much on location and layout of building (E.g. 1500 sq ft building in Raleigh 1350$/month)
• Buy or lease– Did not want to make any suggestion but said
it depends on our business model• In general
– Wanted me to come to her with specific locations from their website in mind
919 – 878 - 6504
Interview with North Wake Commercial Realty• Price
– Did not have any properties that would fit our purpose
• Buy or lease– Did not want to comment on that
• In general– After realizing that they do not have anything
suitable for us he was not very helpful
919 – 554 - 2855
Interview with L.A. Realty Partners• Price
– L.A. Realty Partners is offering office spaces/buildings and could therefore not give me a quote on a suitable property
• Buy or lease– She was leaning towards buying property
because of reasonably low prices at the moment as well as good conditions for line of credits
310 – 407 - 3400
Interview with California Commercial Real Estate Services• Price
– They do offer advice/consulting as well as other services but do not actually sell property
• Buy or lease– She said it very much depends on what the
business owner wants• In general
– She was helpful but not going into detail unless I would make an appointment with her
949 – 794 - 0000
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• There were no national organization that consolidated building permit data
• We interviewed the revenue department of the three largest counties in NC– Wake and Guilford counties do not differentiate
between commercial/industrial building permits– Mecklenburg county has a website that tracks
building permits issued• We could not get a good general picture of
North Carolina’s business environment through permits
We tried to get number of building permit issued from county offices
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• We contacted four local trade associations– North Carolina Beverage Association – Southeastern Food Processors Association– National Pharmaceutical Association, Cary chapter– North Carolina Pharmaceutical Association
• None of them tracked the number of manufacturers in state
• Christopher Gauthier, executive director of NCPA, told us FDA may keep track of these numbers. – He also observed there are pharmaceutical
companies moving in to NC, but he doesn’t know if they actually have factories in state.
We hoped local trade association kept track of the number of local manufacturers
Interview with Heidi Lamay – Orange Water and Sewer Authority• Different rates for commercial and
residential– Hard to say which one is higher due to different
structure of the rates• There is no definite regulation on the price
of utilities– Different rates in not only part of the State but
also in parts of the Counties
919 – 537 - 4293
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex property• 5, 000 sq. ft.• $4.95 /sf/year
– $ 24,750/year
• 15 miles from Airport• 3.7 miles from I-40
3820 Burlington Rd., Greensboro, NC
http://www.loopnet.com
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex property• 2000 sf • $6.90/sf/yr• 8.9 miles from Airport• 2.4 miles from I-85
6120 Brookshire Boulevard, Charlotte
http://www.showcase.com/#&&/wEXAQURV29ya2Zsb3dIaXN0b3J5SUQFJGU5ZTRiOWYxLWQ0OTUtNDI0Yy1hMGI4LThjYzVmNzQzMzc0ZH9DKarHwVJxXsaS06W2WVKVrlUW
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex Property• 1800 sf• $7.25/sf/yr• 12.3 miles from Airport• 5.7 miles from I-85
8431 Old Statesville Road, Charlotte
http://www.showcase.com/#&&/wEXAQURV29ya2Zsb3dIaXN0b3J5SUQFJDE1OTU4ZjJhLTNkYjgtNDdjZS04OGY0LWFhZTJlZDE5ZWI2YjrtwNrxPwJdxeeWvrL2c1RPNAEZ
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• 2016 sf • $10.71/sf/yr• 5.1 miles from Airport• 4.0 miles from U.S 264
2405 Charles Boulevard, Greenville
http://www.cityfeet.com/cont/north-carolina-commercial-real-estate
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex• 6000SF• $10 sf/year
2621 Rowland Road, Raleigh, NC
http://www.loopnet.com/Listing/17905075/2621-Rowland-Road-Raleigh-NC/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex• 5000sf• 4,95 sf/year
3820 Burlington Rd., Greensboro, NC
http://www.loopnet.com/Listing/17904171/3820-Burlington-Rd-Greensboro-NC/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex• 6624sf• 7,89sf/year
2320 Presidential Drive, Durham, NC
http://www.loopnet.com/Listing/15553065/2320-Presidential-Drive-Durham-NC/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex• 2400sf• 18,50sf/year
1215 Central Avenue, Charlotte, NC
http://www.loopnet.com/Listing/17709895/1215-Central-Avenue-Charlotte-NC/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• $450,000• 7,700 sf• $58.44 price/sf• Hillsborough, NC
• $600,000• 8,790 sf• $68.26 price/sf• Greensboro, NC
• $350,000• 4,358 sf• $80.31 price/sf• Raleigh, NC
Potential Buy Options
http://www.loopnet.com/
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• Flex• 2450sf• 6sf/year
132 Stetson Drive, Charlotte, NC
http://www.loopnet.com/Listing/17540249/132-Stetson-Drive-Charlotte-NC/
Sow Key Question Macro Micro Next
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Supporting research
http://www.ift.org/food-technology/daily-news/2011/march/30/us-food-beverage-market-to-continue-slow-rebound.aspxhttp://www.ey.com/GL/en/Newsroom/News-releases/Beyond-borders_global-biotechnology-report-2011http://www.zacks.com/commentary/17173/pharmaceutical-industry-outlook-march-2011http://www.dailymail.co.uk/news/article-2092744/Annual-GDP-growth-U-S-worst-recession--things-looking-stronger-quarter.html
As of 2011 Forbes ranks North Carolina #3 in their „Best States for Business“ Ranking while California is ranked 39th
Industry Growth Year
Pharmaceuticals
7-8 % 2011
Biotech 10 % 2011
Food & Beverage
1-1.5 % 2011
U.S. GDP Growth
1.7 % 2011
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
Current customers
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
California Manufacturing Employment
Market2006
# of Employees2009
# of Employees % of US Market % Change
Southern California 904 764.7 6.50% -15.41%
LA 5 County Area 800.1 669.3 5.70% -16.35%
Northern California 591.1 511.2 4.30% -13.52%
LA County 463.1 389.3 3.30% -15.94%
# of employees listed in thousands
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
California Manufacturing Employment Projections
(average annual growth) 2010-15 2015-20 2010-20
Manufacturing - Nondurable Goods 0.2% -1.6% -0.7%
Manufacturing - Durable Goods 2% -0.4% 0.8%
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
NC Manufacturing Employment Projections
Area Current
2018 % Change
NC 515,730 449,170 -12.9%
Durham/Chapel Hill
33,130 33,230 0.3%
Wake County 30,280 28,010 -7.5%
Iredell County 50,560 45,440 -10.1%
Guilford County 36,130 29,540 -18.2%
IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• The US census keeps track of number of manufacturing facilities in each state every year
• California closes 2% more facilities than NC while having more than 4 times the number of facilities
• California closes 4 times more facilities than NC
The closest data we found was from the US Census
Source: U.S. Census Bureau
NC CA diff
2009 10.0% 11.7% 1.7%
2008 8.1% 9.8% 1.8%
2007 8.3% 9.9% 1.6%
2006 8.4% 9.7% 1.3%
2005 7.9% 10.6% 2.7%
NC CA
2009 937 4,725
2008 770 4,040
2007 792 4,090
2006 809 4,019
2005 775 4,534
Sow Key Question Macro Micro Next
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California has closed more facilities than the South
U.S. Census Bureau
2005 2006 2007 2008 20090
1,000
2,000
3,000
4,000
5,000
6,000
CalSE
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Sow Key Question Macro Micro Next
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IntroductionBusiness
Environment
Real Estate Cost Savings
Recommendation
• $450,000• 7,700 sf• $58.44 price/sf• Hillsborough, NC
• $600,000• 8,790 sf• $68.26 price/sf• Greensboro, NC
• $350,000• 4,358 sf• $80.31 price/sf• Raleigh, NC
Potential Buy Options
http://www.loopnet.com/