|Going Up: Meet Rodney Blackwell, the Developer Behind the $40-Million Kone Project|
|Written by Jeff Ignatius|
|Wednesday, 17 December 2008 02:58|
"It wasn't me, I'm telling you," he said last month.
We are discussing Kone Centre, the planned 18- to 20-story building with approximately 130,000 square feet that will change Moline's skyline, ensures that 375 Kone employees will remain in the Quad Cities for 15 years, and completes - with an exclamation point - the major components of the Bass Street Landing initiative that was supposed to be finished in 2003.
Early last year, Kone announced that it was establishing a new North American headquarters in Lisle, Illinois, displacing Moline. Like many people, Blackwell felt that was the first step toward moving all Kone operations out of the Quad Cities, from the offices in Moline to the manufacturing in Coal Valley.
Jim Bowman, the executive director of Renew Moline, said the company had already moved its research and development to Dallas and had cut back manufacturing in the Quad Cities. "The last two or three announcements from Kone were negative," he said. "We felt it [the headquarters relocation] was just the beginning of the end."
Furthermore, the current Kone tower sits between the current I-74 bridge and its proposed replacement. That "was going to be a difficult time for the headquarters for the next 10 years," Blackwell said.
As for Bass Street Landing, it simply hasn't come together as quickly as projected or hoped. "Over the last 10 years ... there are a lot of [proposed] projects that have failed there," Blackwell said. "So I think the perception is that they're all going to fail. ... Everyone would propose a project, and then try and go find a tenant. That in itself is a little strange, I think."
So this a big deal - $40 million big. And it's also a big deal because the city financed Blackwell's purchase of the current Kone property - to the tune of more than $7 million - and because the project will get up to $10.1 million from Tax Increment Financing over 23 years. In addition to the building, Blackwell will build a parking deck with 250 to 300 spaces.
Blackwell said he plans to complete the office component - 100,000 square feet over 10 stories - by summer 2010. The residential component - with eight to 10 luxury condos, each occupying an entire floor - will still be under construction, he said.
Although Blackwell facilitated this, he deferred credit, and acted embarrassed about the attention.
"The City of Moline, and Renew [Moline], and Kone worked very hard," he said. "I was just part of the glue in that four-person team to figure that out."
Blackwell stressed that the Kone Centre - whose development agreement and Tax Increment Financing district the Moline City Council is expected to approve next month - would never have happened if Kone hadn't wanted to stay in the Quad Cities and if Renew hadn't worked diligently on the project. "They were the smart people in this," he said.
"The perception of everything ... is that I was the difference in this," he conceded. Yet he cast his role as right-person/right-time. "Somebody was going to talk to those guys," he said of Kone. He only deserves credit, he said, for "going over there and initiating something. ... One of the better things I do is put the right people together and figure it out."
Bowman said that Blackwell is being modest. "Rodney has an ability to first of all think way outside of the box," he said. "And he's got a very good grasp of real estate and how to make real estate work with the right type of financing. And he's got some big visions. Without him, we wouldn't have this, and frankly, we'd probably be looking at two things with Kone: either hope and pray that they stay where they're at ... or we'd be trying to put down a deal on the riverfront to try to move them."
"I don't want it be about me," Blackwell said about this article. "The Kone building is not about who owns the dumb thing. It's about the tenant and 15 years. ...
"This has been about the actual erection of a building. That has nothing to do with anything. It has all to do with the people going in it."
A Bit About Blackwell
As a developer, Blackwell keeps a low profile.
"Used to," he corrected.
When asked how much real estate he owns in the Quad Cities, Blackwell vacillated between trying to figure it out and not wanting to divulge it. He settled on secrecy.
"I do not know of anyone else that owns as much real estate in the downtowns in the Quad Cities as I do," he did admit. He also said he closed on $27 million in real estate in September.
Beyond that, he said, "I don't think you could figure it out." When working alone, he does business as Financial District Properties, but he also has business partners.
In downtown Davenport, he owns the Quad Cities offices of Lee Enterprises, Ryan Companies, RSM McGladrey, Kone, Wells Fargo bank, and Lane & Waterman. In downtown Moline, he owns the Fifth Avenue Building - home of the Brown Bottle restaurant, and former home to the FIVE restaurant in which Blackwell was an investor.
He also owns the Waterloo, Iowa, building of Fortune Brands, whose products include Jim Beam bourbon, Titleist golf balls, and Moen faucets. And he's part-owner of Carver Aero aviation company in Davenport. In addition, he purchased the Lee Enterprises plane. He's an investor in the West Gateway health-clinic project where downtown Moline meets the Floreciente neighborhood.
He likes tall buildings - tall by Quad Cities standards, anyway - as well as older properties. "I enjoy buying these buildings and working them," he said. "There's a lot of issues that happen with buildings that are 40, 50, 60, 80 years old," especially HVAC dysfunction. He said he buys them "mildly not working" and fixes them.
A 1989 graduate of Augustana College (in painting), Blackwell said he put himself through school selling cars. He explained one component of his auto endeavors was to sell to people in Saudi Arabia Chevy Caprices ("It's their Ferrari") with four-gauge dashes. "We had a registration for everybody in North America who had them," he said. The buyers "didn't care about the miles."
While that concept isn't analogous to real estate, there's a similar philosophy at work, in that there are often opportunities that aren't obvious or easy.
The Business Model
Ryan Companies built the Mississippi Plaza building - at the northwest corner of Second and Harrison streets in downtown Davenport, and now home to Ryan, RSM McGladrey, Lee Enterprises, and Blackwell's office - in 2004 and sold it Blackwell the next year. That's typical for the company, Blackwell said. "Their model is not to sit on them," he said. "Their model is to sell them."
Blackwell also bought the Wells Fargo building - known to many as the Davenport Bank building - in 2005.
Companies - particularly these days, with credit and liquidity at a premium - are trying to unload their properties, and Blackwell is one of the people buying them.
"There's a lot of opportunity out there," Blackwell said. "The new corporate environment is saying, ‘I want cash. Get me out of low-performing assets,' which are real estate." While many companies want a return on an investment of 18 to 20 percent, he said, real estate might only return 10 percent.
The idea, Blackwell said, is to "sell these big buildings we have, lease them back for a quantified time. If we need them when we're done, we'll cut a deal then."
And that's also true for companies that want a new facility. "If we go into a new facility, we want to focus on business," he said. "And that's really the corporate structure right now. ... It's much better on the balance sheet."
Blackwell also believes that it's critical to secure tenants early in the process of building. "I know if I'm going to build an office building, go get a signed lease," he said. "Don't say, ‘I'm going to build,' and then be working on a lease. ... You really don't have anything 'til you have someone who's willing to be there."
It's hard to miss that many of Blackwell's tenants are high-profile companies. That's not an accident.
In some cases, the stability and health of the tenants facilitated the financing, Blackwell said. If a building purchaser has a long-term lease with an established tenant, that reduces the risk associated with a loan; as long as the tenant pays the rent, the borrower shouldn't have difficulty paying off the loan.
All these elements are at work in the Kone deal: an internationally recognized tenant that eases fears about a risky project, a long-term lease, and a company that no longer wants to be in the real-estate business.
But that doesn't mean it came together easily.
"I Thought It Wasn't Going to Go Anywhere"
Bowman said that Blackwell approached him in early 2006 about building a mid-rise building at Bass Street Landing.
"I stumbled upon the Bass Street Landing project," Blackwell said. "I was already working kinda in Moline to do a building."
Blackwell, Bowman, and city officials first proposed a Bass Street Landing site to Kone in early 2007, Bowman said. "They were not committal, lukewarm, and I thought it wasn't going to go anywhere," he added. "I really didn't think we had anything."
This was, he said, after the Lisle announcement, and while Kone said it didn't want to move its Quad Cities workforce, it was still exploring its options.
"With the bridge coming in, that caused us to take a look at what made sense," said Kurt Stepaniak, senior vice president and chief counsel for Kone. "Once you ask that question, then you start looking not only in the Quad Cities, but you look elsewhere to see what other opportunities are out there and what makes the most business sense. ...
"We looked at other locations as part of our competitive analysis," he said. "They were real options. We have an obligation to the shareholders and to the employees to make prudent business decision for the company. And certainly part of that included a robust analysis of costs and other factors to determine whether staying in the Quad Cities was the best approach."
Bowman said that at a second meeting - he believes it was in June 2007 - Kone expressed interest in Blackwell's plan.
While Stepaniak said in an interview that he didn't personally have difficulty retaining or attracting employees because of the uncertainty about the company's future, Bowman said it was an issue.
"Kurt knew that there was a credibility issue he had to overcome," he said. "They were clearly having issues with their employees."
Bowman said there was a handshake deal at that second meeting. He recalled that Stepaniak said: "This really will help us send a clear message: We're not leaving."
"Their genuine intent was to stay," Blackwell said. "That helped."
But the deal was far from done. And a major problem was that Kone - as a company known for building elevators - wanted a tall building. "You have a company that wants to go vertical for obvious reasons. ... There were some height considerations," Blackwell said. "These high rises are expensive. That's the reason they don't build them: It's expensive."
Kone also wanted to be free of its existing property - 160,000 square feet of building space and seven acres of land.
"They no longer wanted to own real estate - like many corporations," Bowman said. "It just ties up valuable resources. Rather, they would want a turnkey operation and lease. But they'd want someone to buy all their property."
Blackwell agreed to buy the property from Kone and lease it back to the company until it moved in to Kone Centre. In the meantime, he could re-develop whatever property the company wasn't using.
Part of the Kone property will be used for the planned $10-million live/work Moline Enterprise Lofts project with nearly 70 living units. And Bowman said the current Kone building should be relatively easy - and profitable - to lease at $3 a square foot.
Initially, Bowman said, Kone was to pay a lease rate for its current facility equal to the interest payments on the land-purchase debt until it moved into Kone Centre. But Kone "came back with a lease payment lower than we had negotiated ... ," Bowman said. "So Rodney would be upside-down. They held firm on that."
So the city borrowed $7.5 million and re-loaned it to Blackwell to purchase the property. Because of the city's lower cost of borrowing, Kone's payment covered the interest. "We convinced the city this is the only way the deal can be made," Bowman said.
The next hurdle was a $7-million state incentive for keeping the Kone jobs in Illinois. To get those tax credits through the Illinois EDGE (Economic Development for a Growing Economy) program, Kone had to meet one of five criteria related to the creation or retention of jobs in Illinois - for example, that it had "multi-state location options and could reasonably and efficiently locate outside of the state."
"Kone had been looking at other options to possibly relocate," Bowman said, adding that the company could have taken a "sweetheart deal" in Georgia. "They were hedging their bets. They were seeing what options they had. Part of it was to demonstrate to the community that there were other options - and to the state. That's part of the game that's played in economic development - and it is a game."
That incentive alone wasn't enough to bridge the difference between the project cost and the rent Kone was willing to pay. As a result, the city agreed to create a new 23-year Tax Increment Financing (TIF) district (to replace a portion of an existing district) that will use up to $10.1 million of increased property-tax revenue to cover project costs outside of construction, including land acquisition, interest, and architectural and engineering work.
"The principal issue that we've had to grapple with is: It had to make sense from a cost perspective," Stepaniak said, noting both its old property and the "running rate" of the lease. "And certainly the biggest challenge that we faced was to get the opportunity positioned so that from a cost standpoint it made business sense to move forward."
The question, of course, is whether this is an appropriate use of city and state incentives.
Blackwell said he understood the concern but added that he crunched the numbers along with his accountants, the city's TIF advisor, the city's financial advisor, the city's bond counsel, city staff, and two national banks.
"All those people had to sit in a round room and figure out what was needed," Blackwell said. "I don't think any government right now is bathing in extra dough. It's a very controversial issue. The TIF means that the schools get nothing; the schools always have a shortfall. So it's a very difficult situation going in, knowing that you're getting ready to say, ‘Well, you're not going to get that $10 million, or the half-million dollars a year in taxes. We're going to give it away.'
"Every aspect of it was looked at it," he continued. "That's what should make people the most comfortable - the people that were representing everyone at the table."
Moline has a rule limiting incentives to 15 percent of project costs - which on its face the Kone Centre deal violates.
"In today's dollars, it's only about 14.1 percent," Blackwell claimed. "If you quantify everything back to today, it's below the 15-percent threshold."
"It's a bit of a numbers game," Bowman said when asked whether inflation was supposed to be considered in the calculations.
One mitigating factor, Blackwell said, is that Kone will be paying a high rent.
"They will be the highest-paying corporate tenant that I would know of" in the Quad Cities, he said. "They're paying above market to keep their company here. ... They're paying that crazy rate that nobody can pay. And we had to do all these other things just to make that work."
Another reason the project is worth the money, Blackwell said, is Kone's 15-year commitment, "which is in the corporate world unheard of. Deere's three- to five-year leases. You may get a 10-year lease."
Bowman said he thought Kone would be paying "slightly below market rate" for the space but likely higher than any other corporate tenant in the Quad Cities. "It's a big number," he said, although he wouldn't say how much.
Furthmore, Bowman said, Blackwell's potential return on this project is relatively small. "Even with TIF, he's making a modest return," Bowman said. "A lot of developers would walk away from this project."
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