MAY 2007

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Meet a Member

Leonard J. Anderson

Leonard J. Anderson

Title & Organization:
Director – Real Estate Services,
Kimberly- Clark Corporation, Atlanta, Ga.

Oversees a centralized real estate team responsible for real estate transactions for North America; approximately 33 million square feet (3 million sq. m.) of manufacturing, warehouse and office space in North America of which approximately 70 percent is owned and approximately 30 percent is leased; approximately 6,800 acres (2,752 hectares) of land in North America; on a global basis Kimberly- Clark employs more than 55,000 people, with operations in 37 countries.

What does your company manufacture?
Kimberly- Clark is a leading global health and hygiene products company.

To whom do you report?
I report to the Vice President – Tax.

How many years have you worked in the profession?
I have been responsible for the centralized real estate team for approximately two years. Prior to that, real estate transactions were handled on a decentralized basis. My background is financial analysis and strategic analysis.

Where and what did you study?
I have a BBA in Accounting from the University of Wisconsin- Whitewater and an MBA from the University of Wisconsin- Oshkosh. I also hold a CPA certificate in the State of Wisconsin.

Describe the most important transaction or project for which you were responsible.
For our team, a big focus has been establishing a computerized database of all of our North American real estate assets and developing consistent more efficient processes for purchase/sales transactions and lease transactions/administration.

What is the biggest professional challenge you face on a regular basis?
Establishing a centralized real estate team that moves from an initial focus of transactions to strategic thinking and execution.

How is the role of manager of real estate evolving?
Initially our focus has been establishing the new centralized team and processes.

Which technology do you consider to be essential in your professional life?
We are using a software package called Archibus for our real estate database and lease management. Procalc has also been valuable for evaluating lease options.

What is the value of IAMC membership to you?
The biggest benefit for our organization has been the opportunities for benchmarking best practices with the other active members.

IAMC Professional Forum
IAMC's Help Line
   A packed room at the perennially popular "Get Some Help" session on Amelia Island finished up a Tuesday packed with information and usable tools for IAMC Forum attendees. Teammates from one company were observed conferring on issues in the middle of the session, perhaps explaining why so many companies have multiple individuals belonging to IAMC: You can even get to know your own company's issues and colleagues better. The session's fifth iteration was moderated by Melissa Bauer from the Quad/Graphics real estate department. Below are selected questions and answers from the exchange.

   Are FORTUNE 500 firms bringing corporate real estate in- house or continuing to outsource?
   One end- user said his firm has a small department in house, does not outsource on a global or national basis, but continues to outsource some of the site selection work to the broker community. Another noted that industrial companies in particular tend to have small in- house shops, without a lot left to outsource. Another recently had his team cut in half, and so "we rely on service providers," he said. So does another industrial concern, citing the need to cover the globe. One major corporation has a "five years and out" policy for outsourced contractors, while another maintains "one year and out." Both, however, cite the challenge such a condition poses for training.

   What do you look for in your international service providers?
   "On- the- ground connections" are key, said one corporate practitioner. Another corporate team works via one- off agreements in the U.S., but for global work interviews and identifies preferred suppliers, with a U.S.- based single point of contact as liaison. Another key factor is whether the provider's databases are custom- built or off the shelf, said another corporate decision- maker, citing a database that a service provider had built for his organization specifically. However, a practitioner in the same industry niche said having a database built by an outside vendor was a decision that "would not be made today, because it locks you into it." He said there was considerable momentum at his company to "wipe that slate clean and start over." Among the systems used by several companies are ManagePath from Fischer Solutions and Archibus.

   What are the tangible benefits for LEED- certified warehouse and manufacturing facilities?
   There are more and more case studies now available citing hard numbers when it comes to dollars saved by LEED- certified buildings, even though initial outlays may be high, said several respondents. While the typical payback is 18- 24 months, some companies have seen it come more quickly. Choosing both the category and level of certification (basic, gold, silver, platinum) should be a carefully conducted process.

   Who makes the call on a final square footage requirement for a business unit, or is it a corporate standard?
   At some companies, it's strictly a business unit call. One is working on a company standard for office space right now, working with its facilities group from a starting point of 200 to 250 sq. ft. (18 to 23 sq. m.) per person. Another operates from a global policy of 175 sq. ft. (16 sq. m.) per person, and larger projects receive extra scrutiny from the board with regard to metrics, and how the company compares to its competitors in similar spaces. Still another says it's smart to identify ranges of sq. ft. for certain types of space rather than single target numbers. A fellow practitioner in the same field said corporate standards are just now being implemented, but based on function and grade level, using benchmarks gathered from architects and from informal networks like IAMC: "Cultural things affect what you can do comfortably," he said.

   What is your process for due diligence for M&As?
   "It's a process we invented as we went," said one corporate real estate director. "We get called in at the beginning, we ask for the portfolio information, the environmental information, and it's our plan to codify that. But many of us would say we're an afterthought." Another noted that real estate doesn't drive the acquisition typically: "You get what you get, and we deal with the aftermath." "Real estate will never lead," said another. "A lot of times it switches to a facilities or real estate- led operation because we're good at timelines and project management. We're usually the ones who have to do something first [showing up on sites] and we're the ones left at the end too [shutting down sites]."
   "All it takes is one bad acquisition with a real estate issue and they pay more attention," chimed in another corporate director. Among the details that need to be given attention is full study of titles and title transfers.

   When there is a conflict between corporate real estate strategies and business strategies, how do you work it out?
   "There are many occasions where it makes sense to hold on longer, but the deal wants to get done – if it's marginal, corporate will take over," said one corporate real estate manager. "We went to our treasury department, and they make the decision to lease or purchase, taking it out of the hands of the business unit," said another.

   Describe cultural challenges you encounter internationally, whether broker or landlord.
   "I believe the single point of contact who speaks the language of our choice is a great idea," said one corporate respondent. "But also, as people doing business overseas, we should make the effort to understand the language and culture in any community we do business in. Personally, if I'm sitting in Mexico, it's good to understand what's going on." "Pulling in a local attorney internationally is really critical," said another with a lot of global M&A experience. "You can start to navigate the situation with a service provider, but he may not know the implications of the law." "When you pick a service provider, it's important that they be bicultural and bilingual," said a prominent service provider firm. "They're right, it's their culture," responded a corporate real estate director. "We team with our regional finance director or regional attorney to have the team member in the culture. It goes a long way."

   How do you dispose of surplus assets where the property is specialized, or in depressed areas?
   "The hardest thing we have to deal with is making the CFO understand that those specialized improvements not only don't have value, they may have negative value," said one service provider. "It's a tough sell – 'Please throw good money after bad' – and they'll resist that every time." While some would prefer to donate the property, one corporate manager advises making sure you talk to your tax people first. "We have properties that are heavily contaminated, and in horrible markets," said another. "Define all the constraints, and once they understand, there is a level of trust. We'll take down a building so it no longer has negative value." "We do a walk- through of the business, and we want to take out some specialized equipment in order to make it more marketable," said another corporate attendee. "We've negotiated a deal within the company that those surplus properties are transferred to us – the business is taken out of the equation. They get net book value at the time of sale." Another path is through more active involvement of the economic developers, sometimes including them in such walk- throughs. "The economic development community can be a huge help in marketing and repositioning these assets," said a leading industry consultant. "There may be public funding available, or a different infrastructure may be needed. Those strategies you don't see employed that often, but they work." "It's an asset for us to market," added an economic developer, "in communities where you don't have a lot of spec space to market."

   Have you done a sale/leaseback and regretted it?
   "There were four done five or six years ago, and we regret every one of them," said one corporate manager. "They have low occupancy, and our business is changing too fast." "We did some, and the facility sits there empty," said another. "I get calls from people who do sale/leasebacks," said a third. "My attitude is I have a lot more flexibility for exit if I own it. They're going to want at least 10 years. But there's a value proposition there."

   Are supply chain issues becoming more a part of real estate?
   "We're becoming quarterback of the team on this," said one corporate real estate director. "We're seeing logistics and real estate work in tandem now, and they used to be separate," added a service provider. "That will become more and more a part of our responsibilities."

   When building a new site, what are some considerations for a successful exit strategy?
   "Don't build it to 18 feet clear, build it to 32," said one corporate attendee. "The real estate piece of a brand new capital- intensive manufacturing facility is very small," said another. "Overly engineered buildings are my biggest problem," said a service provider. "The resale market loves a rectangle," said another. "After ignoring exit strategies for many years, and paying big bucks to get out of sites, we now ask what it's going to take to get out," said a real estate manager for a major multinational. "We spend big bucks to get out."

IAMC People and Projects
It's a Wonderful Project
   In late February, USG Corp.'s United States Gypsum Co. subsidiary announced it would invest $220 million in a new SHEETROCK® brand gypsum panel manufacturing plant in Stockton, Calif. Another subsidiary, L&W Supply, entered into an agreement to acquire California Wholesale Material Supply, Inc. (CALPLY) for $280 million. Both measures are designed to better serve the company's growing business in the western U.S.
   "When it is completed in 2010, the new Stockton plant will replace two high- cost manufacturing lines in California that were closed previously," said William C. Foote, chairman and CEO of USG Corp.
USG's facility at the Port of Stockton
IAMC member organization the San Joaquin Partnership helped USG Corp. decide to locate at the fast- growing Port of Stockton. Kimberly Mah, port properties manager, says rent credits for the rail, power and water supply improvements USG is making could be as high as $5.3 million. USG also benefits from being in a state enterprise zone.
"Most importantly, the new Stockton plant will support the growth of USG's customers in one of the largest markets in the U.S., where wallboard demand over the last decade has been growing considerably faster than the rest of the country."
   James S. Metcalf, president and chief operating officer of USG Corp., said the rate of growth has been twice as fast as the U.S. rate over the past 10 years.
   The facility will be built on a 90- acre (36- hectare) site at the Port of Stockton, and employ about 170 people. While environmental review is still pending, the company touts the project's environmental attributes, including the use of 100- percent recycled paper for the surfaces of the finished wallboard products, 100- percent recycling of production waste, a closed- loop liquid effluent system and the infill reuse of a decommissioned site. Metcalf also noted the benign environmental effects of gypsum, which has been historically used in California as an agricultural soil nutrient as well as a substitute for snowflakes on movie sets, including the classic It's a Wonderful Life.
   "The City of Stockton, the Port's management and California Business Investment Services worked effectively together with the San Joaquin Partnership to offer a very competitive incentive package that made this capital investment possible," said Metcalf.
   In remarks published on Gov. Arnold Schwarzenegger's Web site, Gov. Schwarzenegger said Nevada and Oregon were in the running for the plant, but California won in part because of the efforts of Secretary Vicky Bradshaw at the California Labor and Workforce Development Agency. Metcalf described the effort of IAMC member Michael Locke, president and CEO of the San Joaquin Partnership, as "phenomenal."
   "The bottom line is USG Corporation has to be in California," said Metcalf, who called the site "ideal for a few reasons. It's located near to the major markets – the Bay Area, Sacramento, and the Central Valley. Also, it has a phenomenal work force that is absolutely second to none, and the infrastructure to support this facility."
   One day before the announcement, Stockton Mayor Edward Chavez, in his state of the city address, noted the efforts of the San Joaquin Partnership in helping make the USG deal happen, and he also noted what the Port of Stockton is doing for its region.
   "In 2006, the Port had a record- setting year in ship calls, private sector investment, infrastructure development, and job growth," said Chavez, noting distribution center investments from Lowe's Building Supply and Ferguson Plumbing Supply, and the forthcoming $100- million ethanol plant from Pacific Ethanol. "It is estimated that nearly 400 jobs were created in 2006, generating more than $17 million in new income and benefits," he said.
   "Lowe's is a great customer of ours," says USG spokesperson Bob Williams. "We were joking about the fact that we could roll the product out the back door of our facility directly into their warehouse."
   In addition to benefits accruing to the project by virtue of its location in a state enterprise zone as well as a foreign trade zone, Kimberly Mah, port properties manager, says rent credits for the rail, power supply and water supply improvements USG is making could be as high as $5.3 million. Some of those improvements will eventually benefit other tenants. She says the port has seen increased interest since the near- completion of the Daggett Road Bridge, which opens up another access point to the island. Out of the 4.6 million sq. ft. (427,340 sq. m.) of available warehousing, the port was 52 percent leased as of early April.
   The USG project, however, is occupying a parcel on the 1,400- acre (567- hectare) Rough and Ready Island, 40 percent of which was developed by the U.S. Navy. Of the 60 percent still available for development, says Mah, 30 to 40 percent is under development or in lease negotiations.

Rail Leaders Make It Happen
   Norfolk Southern Corp. announced in late March that it had participated in the location of 70 new industrial facilities and provided support for the expansion of 45 additional industrial facilities along its rail lines in 2006.
   The projects occurred in 19 different states, and included fellow IAMC member PepsiCo's Gatorade plant at Progress Park in Wythe County, Va.; a new lumber distribution center for Menards Inc. in Holiday City, Ohio; and a new manufacturing complex for Prairie Packaging in Huntersville, N.C. Those three projects alone will generate 798 jobs over the next several years, part of an estimated 3,578 jobs that the total number of projects will create.
   "During the past 10 years," read a release from the railroad, "Norfolk Southern's Industrial Development Department has participated in the location or expansion of 1,108 facilities, representing an investment of more than $25 billion and creating nearly 63,000 customer jobs in the territory served by the railroad."
   Fellow IAMC member railroad company CSX set its own standard in March, becoming the first railroad to join the U.S. Environmental Protection Agency's Climate Leaders program, pledging to annually inventory and publicly report its greenhouse gas (GHG) emissions and establish a voluntary goal for reducing them. The announcement came more than two weeks before the U.S. Supreme Court's decision declaring it appropriate for the EPA to regulate greenhouse gas emissions.
Mockup of the Port of Prince Rupert container port
Progress so far at Port of Prince Rupert
The Port of Prince Rupert is moving forward with development of a container port (above) that will eventually handle 2 million TEUs annually. IAMC member firm CN is developing a transload operation in Prince George, some 8 hours to the west, which a CN official described as "ideally located to tap backhaul export opportunities, filling empty containers moving to Asia via Prince Rupert with lumber, panels, wood pulp and paper, as well as ores, plastics and some metals products."
Photos courtesy of Norfolk Southern Corp. and Port of Prince Rupert
It came two weeks after the EPA released guidance for drastically reducing such emissions from railroad locomotives and ship engines. In the past five years, CSXT has invested more than $1 billion to upgrade its fleet with more efficient, low- emission locomotives.
   "We've made significant improvements in our environmental performance even as the nation's reliance on freight rail transportation has increased," said CSX Corp. Chairman, President and CEO Michael J. Ward.
   "I commend CSXT for taking leadership within the rail industry on the very important issue of climate change," said Rep. Corrine Brown (D- FL), chairwoman of the House Subcommittee on Railroads, Pipelines, and Hazardous Materials. "As Congress looks for solutions to climate change, increasing freight rail shipments is critical to reducing greenhouse gas and other emissions from the transportation sector."
   Increasing freight rail shipments are just what another IAMC member company from the rail company has in mind: CN announced on March 30 it will invest C$20 million (US$17.3 million) in a transload operation and intermodal rail terminal in Prince George, B.C., for the export of containerized products to and from Asian markets through the new Port of Prince Rupert, B.C., rail/maritime intermodal facility, some 500 miles (804 km.) to the west. The transload facility, with an 84,000 sq.- ft. (7,800- sq.- m.) warehouse and 10 acres (4 hectares) of outside storage, is expected to open in fall 2007, at the same time that the new Prince Rupert container terminal's phase one ramps up with an annual capacity of 500,000 TEUs. Phase 2, expected to be complete in 2010, will take Prince Rupert's capacity to 2 million TEUs.
   "The Prince George facility is ideally located to tap backhaul export opportunities, filling empty containers moving to Asia via Prince Rupert with lumber, panels, wood pulp and paper, as well as ores, plastics and some metals products," said Peter Marshall, CN senior vice- president, Western Region. "It will help CN maximize revenue potential generated from the new terminal at Prince Rupert, and create new economic and employment opportunities in northern B.C."

Energy Stars in Our Midst
   Among the 85 organizations recognized by the U.S. Department of Energy (DOE) and the U.S. Environmental Protection Agency (EPA) in late March for their energy efficiency and reduced emissions efforts were a number of IAMC member organizations.
   USAA, 3M, GE and TXU won the Energy Star Sustained Excellence Award for Energy Management. "In 2006 alone, 3M implemented more than 200 energy projects worldwide, yielding improvements in energy efficiency of 9 percent and saving more than $10 million," read the EPA citation. USAA's efforts across its 22- million- sq.- ft. (2- million- sq.- m.) portfolio "resulted in reducing energy consumption by more than 6 percent across the portfolio in 2006, for a total savings of nearly 23 percent over the past 6 years."
   PepsiCo, Merck & Co. and Jones Lang LaSalle were named ENERGY STAR Partners of the Year for Energy Management.
Merck's solar energy system with more than 1500 roof panels
Merck's solar energy system at its Rahway/Linden campus in New Jersey was dedicated in June 2006, and is among the state's largest roof- mounted solar installations, with more than 1,500 panels. One of the buildings also houses a hydrogen fuel cell.
Photo courtesy of Merck & Co.
In 2006, Jones Lang LaSalle was responsible for $33 million in energy cost savings. Merck's Global Energy team at the outset of 2006 was charged, along with the rest of the company's employees, with reducing overall energy use by 25 percent by 2008. "Since then, Merck's Global Energy Team has embarked on aggressive initiatives to increase accountability for energy use, inform and engage employees, and upgrade facilities. These efforts have paid off, with a 9.4 percent decrease in energy intensity in 2006 alone."
   Through its corporate- wide energy program and initiatives, PepsiCo reduced energy intensity by 6 percent in 2006, avoiding an estimated $14 million in energy and utility costs. The EPA citation noted that the company's energy savings "represent the equivalent sales of 33 million bottles of Gatorade, 14 million boxes of cereal, or 25 million bags of Lay's potato chips."
   Georgia Power was honored for Excellence in Energy Star Promotion, and National Grid for Excellence in Home Improvement.
   EPA introduced the Energy Star program in 1992 as a voluntary market- based partnership to reduce greenhouse gas emissions through increased energy efficiency. To date, more than 2 billion Energy Star qualified products have been sold, and more than 725,000 new homes and 3,200 office buildings, schools, hospitals, and public buildings have earned the Energy Star label.

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