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Thursday, February 27, 2020
   
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Commercial Real Estate

FEATURE: City Looks to Annex Major Tract on Westside to Build 10 mil in New Warehouses

By Lou Phelps, SBJ

February 24, 2020 – The proposed three-party development agreement for the City of Savannah to annex more than 1,000 acres on Veteran’s Parkway will be back on the agenda for this coming Thursday’s Savannah City Council meeting.

In an effort being led by the Savannah Economic Development Authority (SEDA), the Rockingham Farms project provides for development and financing of the public infrastructure needed to allow for the development of new warehouse space needed by the Port of Savannah.  Georgia Ports officials have stated that they need 20 million square feet of new warehouses within five years to meet the projected growth.

The two parcels involved in the annexation total 1,026.69 acres, with the goal to potentially build as much as 10 million sq ft. of warehouse space.  

If approved, the city will realize new tax revenue from the new warehouses at Rockingham Farms which will pay for the bond to both build a new public interchange at Veterans Parkway, and construct new public water and sewer improvements to make the development ‘shovel ready.’  

While the $38 million bond would become an obligation of the City of Savannah, the bond’s repayment from the incremental new tax revenue would not impact any other taxpayers nor compete against other City services, according to city officials.  And, on balance, they project the development will generate up to $10 million for the City’s Housing Trust Fund, and create from 1,500 to 2,000 new jobs.

The 1,036.69-acre tract of land adjoins Veterans Parkway and is adjacent to Hunter Army Airfield, located in the unincorporated area of Chatham County. It is the single largest developable tract left in the county.

“Despite its potential, the property remains undeveloped largely due to lack of access from Veterans Parkway and lack of water and sewer service,” officials explained at the Council’s Feb. 13 meeting.  Action on the annexation and needed changes to county zoning ordinances was delayed until the Feb. 27 meeting.

Potentially, 10 million square feet of warehouse space can be built on the site, capacity which officials state is needed to serve the growing Port of Savannah.

There are four agenda items relative to the Rockingham Farms project:  zoning approval, zoning classification, annexation and the development agreement. The terms of the agreement provide for the City of Savannah to annex Rockingham Farms and confirm its zoning for manufacturing (the zoning does not allow housing since the property remains within the flightline of Hunter Army Airfield). Second, the agreement calls for the construction of an interchange to access the large tract.  It is a three-party development agreement between the City of Savannah, the Savannah Economic Development Authority and the property owner, Rockingham Farms LLC.  By the Development Agreement, SEDA would take title and collect a Payment in Lieu of Taxes (PILOT) on all new property taxes generated by the warehouses (the base tax amount of $38,000 would continue to be funded to Chatham County and School Board). The incremental new tax revenue would be used to fund annual debt service payments on a bond that the City of Savannah would issue for the infrastructure—an interchange and water and sewer extension, which would cost $38 million (estimated until after opening of competitive bids on bond).

Financial Analysis

The PILOT calculations indicate that initially new taxes generated by each new warehouse would go to retiring the infrastructure bond, but in future would generate tax revenue for the County, School Board and City.  Annual revenue in no more than 20 years is project to be more than $3 million to the City’s General Fund, alone.

A key question for the City is now quickly the property value of the new warehouses will generate enough tax revenue to fund fully the annual debt service payments on the cost of the bond for infrastructure. According to the Assessor’s Office, a 1 million SF warehouse would be valued at $55 million (2019) and generate about $990,000 in new property tax revenue (City, County, School Board). Interest-only debt service on the bond would be approximately $817,000 a year for the first three years, with debt service payments thereafter from $3.1 million to $2.3 million for 17 years. 

In looking at this financial risk, city officials stated that 1 million sq. ft. of developed warehouses would need to be added to the property tax digest to generate enough property taxes to fund the annual payments on the bond’s debt service.

The property owners who are part of the agreement state that a nationally-known warehouse developer has committed three warehouses in three years, generating enough revenue to pay for the bond.

The City’s risk for the funding obligation would be reduced in the Development Agreement by making interest only payments for the first three years while the new warehouses are built and taxed at full value.

The property owners have also agreed to sign a Personal Guarantee for up to 5 years to fund the difference between the annual debt service payments on the bond and the incremental new taxes generated by the warehouses, reducing the city’s potential financial risk. 

Local Jobs and Salary Scales

Based on employment at other warehouses, a 1 million SF warehouse would generate 150 to 200 jobs. In general, the new jobs would be fork lift operators that in this market generally earn $15 to $18 an hour to start, or $31,200 to $37,440 annually for a 40-hour work week. Savannah Tech offers a certification course that can be completed on a Saturday in 8 hours to train inexperienced forklift operators, officials have explained.

While the City Council remains focused on the development of workforce housing, this use cannot be developed on this site because of zoning related to the property’s location within the Hunter Army Airfield flight zone. However, during the time of the bond payments, the property owners have agreed to fund $500,000 annually to the City’s Housing Trust Fund. This contribution would fund up to $10 million during a 20-year bond period (up to $5 million for a 10-year period).

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