Busi 505 final presentation

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


Environment


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



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



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



Business Environmen

tReal Estate Cost

SavingsRecommendati

on

Comparison of Manufacturing Employees Statistics

http://www.bls.gov/



Business Environmen

tReal Estate Cost

SavingsRecommendati

on

Real GDP Growth by Region 2011



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

http://www.bea.gov/newsreleases/regional/gdp_state/2012/pdf/gsp0612.pdf



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.


Environment


Recommendation

Real Estate

Real Estate

Current Property

Lease Options

Buy Options


Environment


Recommendation

California Real Estate Options

Current Property


Environment


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


Environment


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

http://lalife.com/address/2102_Merced_Ave_South_El_Monte_CA_91733

http://lalife.com/address/2102_Merced_Ave_South_El_Monte_CA_91733

http://www.city-data.com/los-angeles-county/M/Merced-Avenue-38.html

http://www.city-data.com/los-angeles-county/M/Merced-Avenue-38.html


Environment


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

http://www.loopnet.com/



Environment


Recommendation

North Carolina Real Estate Option

Lease Options

Buy Options


Environment


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

http://www.trianglecpe.com/search.cfm?resizeResults=20



Environment


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/xNet/MainSite/Listing/Profile/Profile.aspx?LID=17855374&SRID=2991559381&StepID=101


Environment


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/




Environment


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

http://www.cityfeet.com/Commercial/ForLease/104-Meadowood-Street-Greensboro-NC-27409-14234301L14234301L0.aspx

http://www.cityfeet.com/Commercial/ForLease/104-Meadowood-Street-Greensboro-NC-27409-14234301L14234301L0.aspx


Environment


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/Listing/17905075/2621-Rowland-Road-Raleigh-NC/



Environment


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

http://www.showcase.com/?Q=D175DB8C834A731A964C168BD6248BF4CFE046F413FCFEF956CC48979706A10490FA23056E79C487416C2DCC9EC8B1E7A105CCA76CDABA620F1FD7030AEB158237EC502039921C89F6498596EE93AA18&H=true


Environment


Recommendation

Comparable lease prices in South El Monte, CA

No significant difference in the price / SF /year


Environment


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

tReal Estate Cost

SavingsRecommendati

on

Cost Savings

LA vs Chapel Hill/Greensboro

Salaries Utilities

Corporate Tax Advantages

Property Tax Advantages

Taxes

LA vs Chapel Hill/Greensboro

Accumulated Cost Savings


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

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Financial Model


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

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

http://www.bls.gov/

http://eslmi23.esc.state.nc.us/ew/EWResults.asp


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

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/

https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_Exemptions.shtml


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

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


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

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%


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

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


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

Possible Relocation Costs

Transaction fees for selling property

Relocation of key employees

Training for new employees

Relocating equipment

New corporation


StepsIntroduction

Business Environmen

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


StepsIntroduction

Business Environmen

tReal Estate Cost

SavingsRecommendati

on

Recommendation

Comparable Business Environment

Comparable Real Estate

NC provide annual cost savings of $145,000


StepsIntroduction

Business Environmen

tReal Estate Cost

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?


Environment


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


Environment


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


Environment


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


Environment


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


Environment


Recommendation


Environment


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


Environment


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


Environment


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


Environment


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/Listing/17904171/3820-Burlington-Rd-Greensboro-NC/



Environment


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


Environment


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


Environment


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


Environment


Recommendation

• Flex• 6000SF• $10 sf/year

2621 Rowland Road, Raleigh, NC



Environment


Recommendation

• Flex• 5000sf• 4,95 sf/year

3820 Burlington Rd., Greensboro, NC



Environment


Recommendation

• Flex• 6624sf• 7,89sf/year

2320 Presidential Drive, Durham, NC

http://www.loopnet.com/Listing/15553065/2320-Presidential-Drive-Durham-NC/


Environment


Recommendation

• Flex• 2400sf• 18,50sf/year

1215 Central Avenue, Charlotte, NC

http://www.loopnet.com/Listing/17709895/1215-Central-Avenue-Charlotte-NC/


Environment


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




Environment


Recommendation

• Flex• 2450sf• 6sf/year

132 Stetson Drive, Charlotte, NC

http://www.loopnet.com/Listing/17540249/132-Stetson-Drive-Charlotte-NC/


StepsIntroduction

Business Environmen

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SavingsRecommendati

on

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


Environment


Recommendation

Current customers


Environment


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


Environment


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%


Environment


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%


Environment


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


StepsIntroduction

Business Environmen

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SavingsRecommendati

on

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

# o

f fa

cilit

ies c

losed


StepsIntroduction

Business Environmen

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SavingsRecommendati

on


Environment


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

