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Alex BabbittJasper Roll
Jack Dai
Cal Chem
Agenda
Introduction
Business Environment
Real Estate Cost Savings
Recommendation
IntroductionBusiness
EnvironmentReal Estate Cost Savings Recommendation
Review of Scope of Work - Current Situation
Founded in 1965 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
EnvironmentReal Estate Cost Savings Recommendation
Key Question
Should Cal-Chem relocate their Headquarters to NC?
Operating Costs
Business Environment
Real Estate
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Microeconomic factors
Business Environment
GDP Growth
Manufacturing Facilities
Manufacturing Employment
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
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
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2005 2006 2007 2008 2009
# o
f m
an
ufa
ctu
rin
g F
aci
lity
Cal
NC
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
20,000
25,000
30,000
35,000
40,000
45,000
2005 2006 2007 2008 2009
# o
f M
an
ufa
ctu
rin
g F
aci
lity
Cal
SE
However the entire Southeastern U.S. is comparable to California
SE = NC, SC, VA, TN, FL
U.S. Census Bureau
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009
# o
f fa
cilit
ies
op
en
ed
Cal
SE
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Comparison of Manufacturing Employees Statistics
http://www.bls.gov/
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Real GDP Growth by Region 2011
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Real GDP Growth by Region - continued
Bureau of Economic Analysis
18%
22%59%
U.S. GDP Breakdown
Far West
Southeast
Other
0
0.1
0.2
0.3
0.4
0.5
0.6
Scientificservices
Healthcaree food services
Contribution to % change in real GDP
Far West
Southeast
Key QuestionBusiness
EnvironmentOperating
CostsReal EstateIntroduction
Business Environment
Real Estate Cost Savings Recommendation
• “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
EnvironmentReal Estate Cost Savings Recommendation
Real Estate
Real Estate
Current Property
Lease Options
Buy Options
IntroductionBusiness
EnvironmentReal Estate Cost Savings Recommendation
California Real Estate Options
Current Property
IntroductionBusiness
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal Estate Cost Savings Recommendation
North Carolina Real Estate Option
Lease Options
Buy Options
IntroductionBusiness
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal Estate Cost Savings Recommendation
Comparable lease prices in South El Monte, CA
No significant differencein the price / SF /year
IntroductionBusiness
EnvironmentReal 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
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings
LA vs Chapel Hill/Greensboro
Salaries Utilities
Corporate Tax Advantages
Property Tax Advantages
Taxes
LA vs Chapel Hill/Greensboro
Accumulated Cost Savings
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Financial Model
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings - Salaries
$32,000$34,000$36,000$38,000$40,000$42,000$44,000$46,000
Los Angeles Chapel Hill Greensboro Raleigh
Annual Salary / Industrial Maintenance Employee
Possible maximum annual savings with 20 estimated industrialmaintance employees of:
$ 105,000Bureau of Labor Statistic http://eslmi23.esc.state.nc.us/ew/EWResults.asp
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings – Corporate Tax
8.80%
6.90%
0%
2%
4%
6%
8%
10%
California North Carolina
Corporate Tax Rate
Assumption of a 20% Profit Margin and $2 million in revenues –possible annual savings on corporate tax:
$ 8,000
$35,200$27,600
$-
$10,000
$20,000
$30,000
$40,000
California North Carolina
Corporate Tax Paid on $ 400,000 Net Income
https://www.ftb.ca.gov/
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings – Property Tax
0
2000
4000
6000
8000
Los AngelesCounty
Guildford County Wake County Orange County
Annual Property Tax by County
Possible maximum annual savings with total property valueof $ 530,000/$ 450,000:
$ 3,800North Carolina Department of Revenuehttp://maps.assessor.lacounty.gov/mapping/viewer.asp
Based on a $ 450,000 property valueCurrent tax
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings – Utilities
100%84% 82%
0%
50%
100%
Los Angeles Chapel Hill Greensboro Raleigh
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%
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cost Savings – Accumulated
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
California North Carolina
Corporate Tax
Utilites
Salary
Possible Cost Savings for moving to Chapel Hill:$ 145,000
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Possible Relocation Costs
Transaction fees for selling property
Relocation of key employees
Training for new employees
Relocating equipment
New corporation
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Cal-Chem does not qualify for any local subsidies
Location Initial Capital Investment
# of Jobs Created
Hourly Wage
Other requirements
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
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Recommendation
Comparable Business Environment
Comparable Real Estate
NC provide annual cost savings of $145,000
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
Recommendation
Cal-Chem should relocate toNorth Carolina
One-time Savings/Cost 750,000$
Perpetuities of the annual savings
Salaries 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
EnvironmentReal Estate Cost Savings Recommendation
• Other real estate locations• Industry projection• Current customers• California employment
Projection• NC employment projection• Manufacturing Closings • Food and beverage
manufacturers
Appendix• Salaries• Utilities• Taxes• Interviews
– Econ Development Office– Commercial Real Estate– Local County Offices– Trade Association– Sewage Office
IntroductionBusiness
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal Estate Cost Savings Recommendation
IntroductionBusiness
EnvironmentReal 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 Beasely
Garner 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal Estate Cost Savings Recommendation
• Flex• 2450sf• 6sf/year
132 Stetson Drive, Charlotte, NC
http://www.loopnet.com/Listing/17540249/132-Stetson-Drive-Charlotte-NC/
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
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 forBusiness“ 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
EnvironmentReal Estate Cost Savings Recommendation
Current customers
IntroductionBusiness
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
EnvironmentReal 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
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
California has closed more facilities than the South
U.S. Census Bureau
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009
# o
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ies
clo
sed
Cal
SE
SowKey
QuestionMacro Micro Next StepsIntroduction
Business Environment
Real Estate Cost Savings Recommendation
IntroductionBusiness
EnvironmentReal 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/