Cardinal Health Detroit Project

Cardinal Health Detroit Project
New Market Tax Credit Package
Project Description
All material in this document
was prepared by Plante Moran &
formatted by AABDS
KIRCO has been selected by Cardinal Health to develop and lease to Cardinal a
273,758 square foot warehouse to be built in the City of Detroit on an approximately 24
acre site bounded by Marquette Street, 12th Street, Commonwealth Street and the
railroad right of way to the south. This project is a component of a major neighborhood
revitalization effort sponsored by Henry Ford Health Systems and to be anchored by a
new satellite campus of Henry Ford Hospital. The overall program by Henry Ford calls for $500 million of new medical and
educational facilities that promotes new residential and commercial development in the surrounding area that covers 300 acres.
The facility will be used to supply Henry Ford, DMC and other
Cardinal Health customers with various medical supplies. Cardinal
will sign a 15 year lease with the landlord. The project will retain
109 jobs that will be relocated from Oakland County, Michigan, and
will create 31 new jobs. The land being acquired will accommodate
a future potential expansion of the building of 133,560 square feet,
and could create an additional 72 new jobs.
The project is expected to break ground
in the summer of 2012, with completion
in the first quarter of 2013. Several
factors will dictate the commencement
of the project, and all of these factors are
in the approval process. These items
include land acquisition, rezoning,
brownfield plan approval, and TIF and
tax abatement approval from the City of
Detroit and the State. This project has a
very high priority within the City of
Detroit and the State of Michigan, and is
being fast tracked through the approval
process. All other aspects of the project,
including
the
leveraged
loan
commitment and lease agreement with
Cardinal Health and operating agreement
with Henry Ford Health Systems and
most of the land control are in place.
The project is essentially ready to
commence once these government
approvals are attained
.
We estimate that the total project costs
will be in the $27.2 million range. The
financial pro forma is detailed later in
this package. The remainder of the
funding will be funded with debt and
equity from Lexington Property Trust, a
public
REIT that specializes in single tenant
credit real estate. Lexington will be the
owner of the building and landlord in
this transaction, with KIRCO acting as
Lexington’s developer and contractor.
Community Impact
The Cardinal Health Project will bring
new development of a state of the art
distribution and light
assembly building to a
significantly blighted
area in the City of
Detroit.
The project
will house 140 jobs, all
of which will be new
jobs to the City of
Detroit. 109 of these
jobs will be moved here
from Oak-land County,
Michigan, and 31 will
be newly created jobs.
These jobs are expected
to be filled, in part, by
local
community
members.
Also,
significant construction
jobs will be created as a
result of this project and those jobs will
be subject to minority hiring and
prevailing wage requirements of the City
of Detroit as an inducement for the tax
abatement and TIF approvals from the
City. This project will be the kickoff to
a technology park to be built around the
campus of Henry Ford Health Systems.
It is expected that this will be the first of
many additional projects to come into
the City around the Henry Ford Health
Systems main medical campus. This
area has seen significant decay for many
years and has had little to no job growth
and no economic development.
The
existing site conditions include burned
out,
abandoned
houses,
old
manufacturing sites in need of extensive
environmental cleanup, and abandoned
and outdated streets and utilities. The
overall project financing feasibility
requires that the credits contemplated be
used in order for the project to move
forward.
This project will provide
significant brownfield remediation and
will upgrade many City utilities and
thoroughfares. The project will also
bring with it a long term commitment to
the City of Detroit from Cardinal Health,
a Fortune 500 company. This is seen as
a significant stake in the ground for
Cardinal in furthering their business
commitment to the State of Michigan, as
well as to the City of Detroit. This
project and these jobs will be a welcome
addition to an area as blighted as any in
the City of Detroit, and, for that matter,
anywhere in the Country.
“But For” Tests
The approval and use of New Market
Tax Credits is critical for the Cardinal
_______________________________________________________________________________________________
13342 Sherwood Drive, Huntington Woods, MI 48070 313 445-1843, bogdanaa@mmf1.com, 432 204-1431 fax
Health Detroit Project to move forward.
The following are some of the
requirements of the project that make tax
credits a must, if the project is to
proceed:
1) The existing site is in a state of
significant decay, and requires
substantial
demolition,
environmental
cleanup,
and
dramatic upgrades to the current
infrastructure. The costs of these
improvements are economically
infeasible but for the use of new
market tax credits.
2) The exiting location in the City of
Detroit,
in
an
extremely
impoverished area, is a requirement
of the clients of Cardinal Health,
namely Henry Ford Health
Systems.
While this is a
requirement to allow Cardinal to
service Henry Ford, the location
and additional costs of developing
this site are significantly higher
than a site not located in the City of
Detroit. The only way to make the
project cost competitive for
Cardinal is to include the new
market tax credit structure.
3) The existing site requires the
acquisition of nearly 80 individual
parcels and rezoning and cleanup
of those parcels.
This land
assemblage is costly and time
consuming
and
requires
significantly more cost and effort
in order to create a site large
enough to accommodate the
project. But for the use of the new
market tax credits, this site would
be too costly to allow this project
to move forward.
4) Sufficient project financing would
not be possible without the new
market tax incentives, due to the
fact the rental being received from
the tenant is not sufficient to
support a loan larger than the
anticipated leveraged loan.
Project Participants
Property Owners
Lexington Realty Trust is a real estate
investment trust that invests in, owns and
manages commercial properties net
leased to major corporations throughout
the United States. In addition, we
provide investment advisory and asset
management services to investors in the
net lease area. Under a net lease, all
property operating expenses, such as
insurance, real estate
taxes,
utilities,
maintenance
and
repairs are generally The census tract that the project is located in is
paid by our tenants. #26162522400. The census data derived from the CDFI
Accordingly,
our Fund maps are as follows:
cash flows during the • Percentage People in Poverty: 42.8%)
lease term are highly • Income as a % of Area Median Income: 38.8%
predictable.
We • Population 2000: 1,638
encourage investors • Census Tract Median Family Income: $22,055
to view Lexington as • Area Median Family Income: $59,205
an investment which • Unemployment Rate: 284% of the national average.
provides an attractive • 2011 Status of Area as of 2011: Severely Distressed.
risk-adjusted
total • NMTC Eligible – Yes
return, a significant • SBA Zone – Yes
portion of which is This project is a medically related project that will
likely to come from support an underserved medical tract.
quarterly dividends.
Lexington currently
relating to interest rates and the reals
pays a quarterly dividend of $0.125 per
estate cycle, and implementing strategies
share, which equals to an annualized
where our management skills and real
dividend of $0.50 per share. Our
estate expertise can add value. Our goal
portfolio is well-diversified by property
is to provide shareholders with
type geographic location, lease term and
consistent growth and returns throughout
tenant industry concentration
any business cycle.
Strategy
We implement our business strategies
with our primary goal in mind: to
provide our shareholders with an
attractive
and
secure
dividend.
Lexington generates rental revenue and
cash available for distribution by
acquiring, owning, investing in, and
managing properties in which a
corporate tenant has made a long-term
commitment through a net lease.
We grow our portfolio primarily by
executing two basic strategies: buying
properties and leasing them back to the
sellers under net leases, or by acquiring
properties already subject to net leases.
Through its acquisitions, Lexington
provides funds to corporations seeking to
raise capital through the sale of their real
estate holdings, and to developers who
are engaged in “build-to-suit” projects
for corporate users.
Portfolio diversification is central to our
investment strategy as we seek to create
and maintain an asset base that provides
steady growth while being insulated
against rising property operating
expenses, regional recessions, industry
specific downturns and fluctuations in
property values and market rent levels.
Regardless of capital market and
economic conditions, we stay focused on
enhancing operating results, improving
portfolio quality, mitigating risks
History
Lexington Realty Trust and its
predecessor companies have been in the
business of investing in single-tenant
net-lease properties since 1973. Our
predecessor companies sponsored taxoriented partnerships before we changed
our focus in 1986 to forming investment
programs that would provide for current
income.
Two of these programs, Lepercq
Corporate Income Fund L.P. and
Lepercq Corporate Income Fund II L.P.
were combined when Lexington
Corporate Properties Trust was formed
in October, 1993. Since our common
shares were listed on the New York
Stock
Exchange
our
market
capitalization
and
assets
under
management have grown more than
twenty times.
Today, we are a fully-integrated selfadministered real estate investment trust
with a multi-billion dollar nationwide
portfolio. For more than three decades
our company has been a market leader in
net lease investing. Our business
experience and knowledge – in the key
areas of acquisitions, capital markets,
finance, credit analysis, leasing, asset
management and dispositions – are the
foundation for our future success.
Project Participants
Property Developer/Contractor
KIRCO
With an award-winning heritage
extending back four decades, KIRCO
has built a legacy of real estate
excellence based on our ability to
provide clients with increased value
from their real estate holdings. KIRCO
has partnered with its clients to enhance
the value of their real estate assets while
building a reputation for quality, value
and excellence. We provide our clients
with real estate value by offering a broad
range of award-winning real estate
services, such as land acquisition and
planning, development and construction,
facility disposition or renovation, as well
as meticulous, proactive property and
asset management. As a real estate
owner, we impart a unique perspective in
helping our customers achieve their
goals. In each area, KIRCO offers
uncompromising
analysis,
applied
innovation and an unwavering attention
to detail. Throughout our operations, we
apply quality standards, carefully
cultivated processes and demonstrated
market insight. At KIRCO, we build
value every day.
Property Tenant
Cardinal Health, Inc. is a Fortune 500
company that improves the cost
effectiveness of healthcare. As the
business behind healthcare, Cardinal
Health helps pharmacies, hospitals and
ambulatory care sites focus on patient
care while reducing costs, improving
efficiency and quality, and increasing
profitability. Cardinal Health employs
more than 30,000 people worldwide.
Cardinal Health got its start in 1971
when founder Robert D. Walter opened a
distribution center in Columbus, Ohio. In
less than decade, the then-named
Cardinal Foods became a prominent
regional food distributor until branching
into pharmaceutical distribution in 1979.
That was the year the company
purchased a Zanesville, Ohio drug
distributor and became known as
Cardinal Distribution.
In 1983, Cardinal Health went public
and, over the next decade, expanded its
fast-growing pharmaceutical distribution
business with the acquisition of more
than a dozen U.S. drug distributors. By
1987, a year before selling its food
distribution segment, Cardinal Health’s
pharmaceutical distribution business had
become nearly twice the size of its food
distribution business.
Over the next few years, Cardinal Health
grew rapidly, and revenues exceeded $1
billion in 1991. By 1994, Cardinal
Health had established itself as a leader
in the drug distribution business with a
nationwide
presence
and annual
revenues of approximately $6 billion.
Since then, Cardinal Health has evolved
further,
serving
health
care
manufacturers and patient care providers
around the world. The company’s
acquisitions included Pyxis Corporation
in automated supply and pharmaceutical
dispensing; Owen Healthcare in hospital
pharmacy
management;
Medicine
Shoppe International in pharmacy
franchising; R.P. Scherer Corporation
and Automated Liquid Packaging in
drug delivery formulation and contract
manufacturing; PCI Services, Inc., in
pharmaceutical packaging; Allegiance
Corporation in medical-surgical product
manufacturing and distribution; Bergen
Brunswig
in
medical-surgical
distribution to hospitals and care
continuum; and Bindley Western in
pharmaceutical distribution.
Today, Cardinal Health provides an
integrated offering on innovative
products & services to help hospitals,
pharmacies and other healthcare
providers meet the growing challenges
of a dynamic industry. Cardinal Health is
a multinational health care industry
services provider that applies vast
resources, knowledge and expertise to
help healthcare manufacturers and
patient care providers meet their most
pressing challenge, while providing
better, safer delivery of care.
Pharmaceutical Segment
Our
Pharmaceutical
segment
consolidates
pharmaceuticals
from
hundreds of manufacturers into sitespecific deliveries to retail pharmacies,
hospitals, mail-order facilities, physician
offices, surgery centers and long-term
and other alter alternate care facilities.
Through this segment, Cardinal Health
offers the most secure, efficient and
economical source of pharmaceuticals,
specialty plasma products and valueadded services to healthcare providers
pharmaceutical manufacturers. Cardinal
Health also operates world’s largest
network of nuclear pharmacies and is
expanding its positron emission town
tomography (PET) agent manufacturing
capabilities to support new drug
development and the future of
personalized medicine. In addition, about
200 hospitals across the U.S. outsource
the management of their inpatient
pharmacy to Cardinal Health because of
our proven expertise and track record of
improving efficiency and safety within
inpatient pharmacies.
Medical Segment
In addition to delivering medicalsurgical products to ambulatory care
centers, physician offices, clinical
laboratories and hospitals across the U.S.
and Canada, the Cardinal Health Medical
segment also manufactures high-volume
replenishable products such as gloves,
gowns, surgical drapes, scrubs and fluid
management products. In addition, the
Medical segment includes the Cardinal
Health surgical and procedural kitting
operations that assemble all necessary
single-use surgical products and apparel
for specific procedures into one kit
allowing clinicians to focus on the
patient. The value-added services offered
by the Medical segment also reflect the
consultative approach that Cardinal
Health takes with healthcare providers to
improve efficiency and safety across
their operations.
Adoption of the AdvaMed Code of
Ethics
The Medical segment has adopted the
AdvaMed Code of Ethics which clarifies
and distinguishes between appropriate
activity
between
health
care
professionals and representatives of
AdvaMed member companies.
Sources & Uses
Material Prepared by Plante Moran
Contact Gordon Goldie, Partner
248 375-7430
Cardinal Health Distribution Facility
Lexington Property Trust
Project Sources & Uses
I. Acquisition Cost/Value
Land
Building and Depreciable Assets
Acquisition Cost+Value
II. Construction Hard Costs
Construction
Construction Hard Costs
100% $ 1,D00 000
0%
$ 1,000,000
$ 20,983,911
$21,983,981
Total Acquisition and Hard Costs 21.963.981
lb. Soft Costs
Developrrent Fees
Architectural
Construction Period Interest and CDE
fees
NMTC CDE Fees
1, 615,891
437,450
952,330
4.00%
Title Insurance
1,040,000
24,617
Legal and Miscellaneous
429,550
Finance Fees
$166,422
Leasing Corramissions
318,666
LXP Costs
124,0110
Soft Cost Contingency
150,0130
Total Soft Costs
$5,256,934
Total Project Costs
$27,240,915
IV. Financing Sources - Equity and Debt
QEI
Leveraged Loan
$18,496,400 $18,496,400
New Markets Tar Credit equity
Developer Equity
7,503,600
4.56%
7.503.600
1,240,915
Deferred development fee
Total Financing Sources
$27,240,915 $26,000,000