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From Site Selection magazine, March 2011

San Joaquin County,
California: Connected.

Connection is crucial for any business. Being in the right place at the right
time with access to employees, education resources and an integrated
transportation network moving people and product can save your company
dollars and make you more competitive. So where's the best place to locate?

San Joaquin County is ideally located to serve clients in the western region
of the U.S. With a large inland seaport, a freight-friendly airport and access
to a national trucking network and transcontinental rail lines, San Joaquin
county is centrally-located with global access, a talented workforce, nationally
recognized university and is connected to your market?

More Where This Came From: Click here for sidebars about Union Pacific’s Intermodal Terminal expansion in Lathrop, capital access in San Joaquin Co., the region’s high-speed rail future, and the quality of the Lodi wine grape.

alifornia sites mainly make today's site-location short lists if the companies looking for space simply must be in California. But many couldn't be happier with the hand they were dealt, especially if their cards include a San Joaquin County play, where city and county officials are moving mountains to make capital investors' bets pay off. Speaking of mountains, companies west of the Altamont Pass, separating San Joaquin County from the San Francisco Bay Area, will find a particularly warm welcome on the part of economic developers in the Central Valley, and San Joaquin in particular. Many Bay Area companies' workers are commuting on average an hour or more each way to Silicon Valley and environs. Moving those operations into nearby San Joaquin affords lower business and living costs and close proximity to the higher education and high-tech clusters they require.

"We were in Pleasanton and Livermore almost 20 years, and the work force we were attracting as we were growing was coming from here in the Central Valley," says John Petlansky, president and CEO of Pacific Medical, a leading provider of orthopedic and sports medical equipment that recently opened a new headquarters and manufacturing campus in Tracy. "Commuting to the East Bay was a big de-motivator for a lot of employees and for us." Add lower land and development costs, and the Tracy site is just what the doctor ordered, says Petlansky.

"It was our ability to combine facilities in one location, and the cost of the dirt was way different here in San Joaquin," he explains. "We could have done one building over there, and here we can do more." The headquarters building is 82,000 sq. ft., and a nearby manufacturing and distribution center occupies a 95,000-sq.-ft. building. "We have three parcels out here where we're getting ready to grow over the next five years."

Pacific Medical's work force includes engineers, administrative staff and production personnel who sew and assemble the equipment, all of whom are readily available in San Joaquin — or enjoy a less-congested reverse commute into Tracy. Meanwhile, the real estate cost savings and location in an enterprise zone make the company more competitive globally, says Petlansky.

"Almost all the manufacturers who make bracing products have had to be in China or Mexico," he notes. "We've gone from being the fifth-largest player to maybe third — and pretty soon number one — and we're doing it all here. We're pretty excited about that. We had some goods made in Asia, but now we're making those on this campus."

Swimming Against the Tide

And that is the heart of the matter — companies can compete globally in San Joaquin County. City officials in Tracy, Manteca, Stockton (the county seat and home to an increasingly valuable port and the county's airport), Lodi and Lathrop know they must work harder to attract industry to the county and to keep businesses from fleeing California's prickly business climate.

"We're aware of California's business climate," says Leon Churchill, Jr., city manager of Tracy. "It's among the worst states for business friendliness, and we're trying to be the most predictable area in what otherwise is an unpredictable environment. We understand we're swimming against the tide." Every community in the county can point to its proximity to the Bay Area to the west, Sacramento capital district to the north, dual freeway (I-5 and state highway 99) access to the Los Angeles area in the south and mountain amenities to the east as clear location assets. Which is why so many distribution centers and other logistics-intensive businesses call the county home. But like the agricultural base that has been San Joaquin's industrial backbone for generations, other sectors are finding fertile ground as communities devise ways to grow new industries.

"We see high-tech and alternative energy as showing great interest," says Churchill. "They look for the same things any other company looks for — the work force, a predictable and stable regulatory environment, and the cost of doing business is lower here than the Bay Area and other major metro areas — much lower, but you can get there in 45 minutes. We're very optimistic."

Tracy economic developers work closely with the Lawrence Livermore Lab to make research spin-off enterprises acutely aware of the benefits of locating their manufacturing operations there once they reach that stage in the business cycle. "The federal government spends a lot of money on defense-related research and other areas, and lots of ideas get developed that have commercial applications," says Churchill. "These people have to build what they invent somewhere, and a quarter of the Livermore Labs work force is right here. The talent is already here, and we have the land." Tracy has annexed property on the west side of town and in late October saw the groundbreaking for the 535-acre Gateway Business Park intended for Class A office space and health-science companies, among others. "Sutter Health plans to build a level-four facility with a trauma center, and cancer centers are looking at space there," says Churchill. "The west-end development will be the largest industrial development in the Central Valley, and one of the largest in California."

Starting From Scratch

One Tracy company has a longstanding link to Livermore. Bill Fields, president of The SurTec System, says his green cleaning-supplies company first developed a green floor finish for the national lab in 1994 that the company still sells. In 2002, Fields consolidated facilities in Fresno, Hayward, Sacramento and the Los Angeles area into a new, 90,000-sq.-ft. facility in Tracy — after investigating several site options, including some in Nevada.

"Logistically, it made so much more sense to locate here," says Fields. "I can ship from here just about anywhere in the state overnight, so why have facilities in Los Angeles and Fresno? It was additional overhead that was not benefiting us. We're almost on the crossroads of the main arteries that go east, west, north and south. It's been phenomenal from that point of view." And building a new facility helped SurTec advance and expand its green-products program, which includes recycling all chemicals and components used in product development. "We had developed the concept of recycling in the Hayward facility, but here we could start with a blank canvas and design it so the efficiency was over the top."

Chemical companies are infrequent investors in the largely agricultural Central Valley, and Fields expected some pushback from permitting authorities. But the process was hardly onerous, he relates. "The building process was not bad at all. Compared to where we came from with stumbling block after stumbling block, I was expecting the same thing here. It was not a major issue at all." That's because city officials throughout the county understand the needs of business owners.

"I'm a business owner myself," says Stockton Mayor Ann Johnston. "Businesses need access to capital and a reduction in fees and permitting costs. In recent months, we have reduced developer fees by 50 percent in many cases, which is a huge impetus for commercial and residential developers. It's very important to jumpstart our construction market. Other fees, like habitat fees and some others we have in California, have been reduced 20 and 25 percent, because the cost of doing business has been reduced that much. Across the board, the county and many cities have reduced fees to lure businesses here."

Another primary requirement is a motivated labor force, and companies would be hard pressed to find a more motivated one than San Joaquin's, says Johnston. "We have a very willing and able labor force here, with partners like San Joaquin County WorkNet [the state's primary work-force development program] that trains and matches employees with employers, which is a huge advantage. Companies that have used that program have told me many times how impressed they are with the level and confidence and willingness of the trainees to work."

Johnston cites several other city and county assets — the Port of Stockton, the Stockton Metropolitan Airport, the Interstate highways and plenty of available land with infrastructure ready to go for commercial and industrial uses. "The key thing is the partnership between the city and the county," she relates. "The San Joaquin Partnership is not unique, but for our county it has made the difference. Their staff works with our staff and that of the county to solve problems. You need that glue to hold things together."

On the county level, too, the Board of Supervisors takes an active and engaged interest in helping companies get settled and operational, and not just agricultural and logistics companies. "Sometimes people think San Joaquin County is just an agriculture community. The ag industry has put us on the map, but there's so much more than that," says Carlos Villapudua, a San Joaquin County supervisor. "Culturally we have changed. As more businesses leave the state, we hear about all the reasons, the regulations and all. But in fact you have a board of supervisors here that are farmers and business owners who have gone though the red tape. The staff here works hard to walk you through that faster. We want to see more business here. The board wants to make sure businesses are welcome, feel comfortable, and we will take steps to help them through the process. It means jobs."

Villapudua makes the case that the Stockton Metropolitan Airport, too, is taking steps to increase its role as a driver of economic growth. These include the expansion of the terminal facility to accommodate more passengers, road improvements and implementation of a master plan that includes development of land on and adjacent to airport property. "Stockton seems to be one of the small airports that the FAA is starting to like," he relates. "There is not much housing around it, the runway can handle all aircraft, it's well connected to the freeways and funds are coming from the state because they see it as an investment for the state and for the county. The airport is key to bringing in business."

Airpark 599 is a ProLogis development taking shape adjacent to the airport that will be home to aviation-related and other businesses as part of a special-purpose plan for the airport vicinity. ProLogis also manages the 600-acre Patterson Pass master-planned development in Tracy, part of the industrial developer's millions-of-square-feet northern California portfolio.

Deals completed in 2010 at Patterson Pass include a 100,000-sq.-ft. distribution center for Comcast, which joins over 50 other companies in the 30-plus building development. About an hour north, ProLogis' Sacramento properties afford similar advantages to those of Patterson Pass in terms of being outside the Bay Area. So why pick the Tracy option?

Maximum Efficiency

"San Joaquin is a better logistics location — it's flat out better," asserts Ben Peterson, first vice president at ProLogis, who manages leasing and tenant relations in the region. "In my product type, bulk distribution, the big companies looking for a West Coast or northern California regional distribution center will look at Tracy and Sacramento and also at Fresno and Reno, too. One advantage of Tracy is that with the modernization of corporate America's supply chain networks, there is a lot more pressure on companies to set up their networks so their trucks are not on the freeways as long, they get their deliveries to their customers a little quicker, and they can do it cheaper. They want maximum efficiency." Other advantages include "a more reliable corridor to and from the Bay Area than I-80 from Sacramento, and it's a bit shorter." What's more, adds Peterson, "the big rail switching yards are here in San Joaquin, not Sacramento, and there is a much higher concentration of trucking operators because of the intermodal facilities.

"In Patterson Pass," he adds "you're an hour and a half closer to Los Angeles — you're on the good side of traffic, a straight shot down I-5 or 99. Also, a lot of the Sacramento area is land-constrained with a flood plain. Elevations are pretty low in what you would think of as developable areas, so it's largely built out. In our market, there is an enormous case for growth heading south between Sacramento, Stockton, Modesto and further into the Central Valley. It's where all the population is going to go in California, not north of Sacramento."

Health Science Projects Ahead

This demographics phenomenon cannot be understated, and a major ramification will be an increased need for health sciences providers in the Central Valley and San Joaquin County in particular. Several major medical projects are in the works that will transform the economic base of the county with the addition of thousands of new health science workers, from doctors and nurses to technicians and other support staff to ancillary companies providing products and services to the new and existing hospital infrastructure.

At press time, the Veterans Administration was finalizing a site decision on where to locate a $280-million nursing facility and hospital in San Joaquin County. Finalist sites are a location in French Camp, just south of Stockton near the San Joaquin General Hospital and a 102-acre development near St. Joseph's Medical Center in Stockton called University Park under development by The Grupe Company. Numerous imaging centers and other medical service providers are just steps away. The VA hospital project would occupy a 20-acre tract at University Park. California State University Stanislaus has a satellite campus at the site, and the Stockton Unified School District is developing a health sciences academy for students interested in a career in that field. Ideally, University Park would be a medical education campus offering medicine-specific education from grade school through university.

"According to analysis we have, by 2030 there will be 10 million more people in California, and the population over 65 will double," says Kevin Huber, CEO of The Grupe Company. "During that time, the demand for allied health care workers in the state will increase dramatically to the tune of about 1 million trained health care workers. The current education system in California can only train 625,000, so there will be a 375,000-person deficit of trained health care workers, and two thirds of that deficit is in the Central Valley. With the demand and the various partners, this project could be a model in the U.S. The closest parallel is the University of Minnesota at Rochester that has a partnership with the Mayo Clinic," notes Huber, who also serves as Chairman of the San Joaquin Partnership, the county's private-public economic development agency.

The site formerly was home to a state psychiatric hospital that opened in the 1920s and closed in 1996; much of the original architecture remains in place, giving the campus an "Ivy League feel," says Huber. Grupe has removed some facilities at the site and made numerous improvements, including a new lake for storm drainage.

"There's an opportunity here to have public and private partners in health care education that create the opportunities for kids to open doors to careers in health sciences," Huber continues. "We plan to create an operating foundation that would apply for government and other grants to hire career path counselors who can walk with a student from high school through an advanced degree. Opportunities would be introduced to them all the way through the education process, all on one campus. That's the most exciting thing we're working on right now."

Triple Play?

Meanwhile, another medical milestone project is getting under way in San Joaquin County that will further enhance the area's stature as a center of health sciences. California Prison Health Care Services (CPHCS) is embarking on a three-facility investment in Stockton that will require thousands of new health service providers. The projects include (1) the Receiver's California Health Care Facility with 1,722 beds, a new facility generally referred to as a prison hospital but is more accurately a skilled-nursing facility for chronic care and mental health patients; (2) the DeWitt Nelson Juvenile Justice Facility, with 1,133 beds, a retrofit of an operating facility; and (3) the Northern California Reentry Facility with 500 beds, involving the renovation of an unoccupied building. That's well over 3,000 beds worth of medical-services capacity, or roughly seven to eight times the capacity of one typical, new urban hospital. At least one estimate of the size of the facility puts its footprint in the ballpark of seven big-box retail stores in one.

This set of projects results from a federal court order to improve inmate health care stemming from a class-action lawsuit brought against the state's prison system.Construction activities will support nearly 5,500 jobs in the regional economy, including up to 1,700 construction workers per day on site. When completed, the facility will create more than 3,000 civil servant jobs and infuse an estimated $220 million annually into the San Joaquin County economy.

But how to staff it when it's complete, in addition to the other facilities?

"You need an army to staff this facility, and because it will house the system's sickest patients, it will need a higher ratio of nurses and doctors to patients than what we typically have," says Katrina Hagen CPHCS deputy director, workforce development. "We will need about 3,200 staff for all three facilities — custody staff, nurses, doctors, pharmacists, warehouse workers, janitors, dieticians, rehab specialists and so forth."

That's the crux of much of the controversy this set of projects has brought about in recent years — that medical specialists would be poached from area hospitals. "In fact, we will only be hiring 12 primary care physicians for the entire complex," says Hagen, "most all of them transferring from existing prisons. This will be a very desirable place to work for our employees, because it will be brand new with new equipment and a much more attractive work environment."

Donald Wiley, President and CEO of St. Joseph's Medical Center in Stockton — the largest private employer in the county — expects the region will feel some pressure on nurse staffing levels and perhaps with pharmacists. But because the new center will not serve primarily as an acute-care hospital, the greater need will be for the psychiatric technicians. "The capitalization side of this new facility is a slam dunk, oddly enough, but the operating side — how to staff it — seems to be more for us to solve locally," says Wiley. "But there has been good collaboration between the state, the county, the city and the business community on those issues. These are good-paying jobs that will be somewhere in the state, and we'll take them here."

And that will could well fuel a medical services cluster, if the process is managed correctly, says Corwin Harper, senior vice president and area manager at Kaiser Permanente Central Valley Area, encompassing the Manteca, Modesto, Stockton and Tracy markets. "We want the existing hospital and medical services infrastructure to be stable and solid, because that is an attractor to the community. The next step is to find revenue or business opportunities built around medical. Would medical suppliers and others come here because of the medical infrastructure?" They will if the existing players in the medical sector unite around that cause, he suggests. But first, says Harper, "We need to carefully define what a cluster would mean in the medical context here and identify medical businesses we want to come here. If we get those businesses here, all the medical communities benefit from that. More broadly, the right medical business here will bring a higher prevailing wage, and everybody wins. We have to frame what that cluster would look like for us."

Meanwhile, the state facility will require about 440 psychiatric technicians, which will be a significant challenge to meet, given their narrowly defined role in prison and psychiatric facilities. Hagen's current workforce challenge is to increase the number of students studying in that field to supply imminent demand, and only one school in the area — San Joaquin Delta College in Stockton — has that 12-month training program. A $1.3-million contract was signed in December that will enable the college to expand its program from 15 students per year at present to 260 program graduates after three years.

Work Force Trouble Shooter

Securing the funding is a key step, so additional faculty can be hired by Delta College, and clinical lab space issues are being worked through to keep the program expansion on track. But this project illustrates the important role the college plays in meeting the labor needs of new and expanding industry in San Joaquin County. And that's where Dr. Hazel Hill, Dean of Workforce and Economic Development at San Joaquin Delta College, comes in. The prison system investment in the Stockton area is "great for our community," she says. "I have been very supportive of this hospital coming in, because it will bring more well-educated people here, and long term it will mean higher wages for the community."

Hill is working with large businesses in the county to develop programs that will build on workers' skill sets and benefit partner companies when their training is complete. "The areas to begin are our industrial programs — plant maintenance, electrical, welding, hydraulics or a combination of those. Because of all the facilities we have in the region, good plant managers are hard to come by, so that's where I'm placing a lot of emphasis."

Longer term, says Hill, higher education institutions in the county will need to supply more in the way of health care services backgrounds and the information technology and manufacturing skills required in that field. That will advance the goals of many in San Joaquin who see a natural fit between the burgeoning health services industry and the specialty medical device and IT services companies that will support it. "It's about putting the manufacturing, engineering and medicine sectors together, and opening our kids' minds to what's possible out there and where they can go with that. Students here can get jobs. It's just getting them going in the right direction."

Many in San Joaquin agree and are working on that very objective on the elementary and high school levels. Introducing students today to the industries and career paths what will soon define the area's economy will go a long way to supplying the labor force key industry sectors will require tomorrow. Just ask Dr. Mick Founts, Superintendent of Schools for the San Joaquin County Office of Education.

"Businesses are partnering with education here more and more," says Founts, pointing to a consortium of hospitals working with one school on a program called HEAL, for Health Education and Leadership; another district that recently opened a career and technical education center, focusing on wood and metal drafting using robotics in partnership with private industry; and a third working with real estate developer Cambay Group's River Islands at Lathrop development. Still another introduces students to the importance of agricultural science through programs held at a 200-acre ranch, where students experience the application of proper nutrition in livestock rearing, for example, and may be inspired to pursue veterinary science or a related field.

California's school districts clearly must prepare students for college, but not all high school students will opt for that, and a region's work force quality depends on the skills available to companies and enthusiasm for working in desirable industry sectors, regardless of college credentials. "Twenty-five percent of the jobs in California require a college degree," Founts explains. "Everything else requires some education, and maybe some of that should be more linked to practical application and getting kids excited about that. The partnerships with business can help get them excited about their learning."

Practice-Ready Graduates

Back on the college level, the University of the Pacific in Stockton is a key supplier of engineering students and other skilled workers to local employers. The university's new president, Dr. Pamela Eibeck, is determined to keep it that way and to play a bigger role in fostering the county's economic development prospects.

"We graduate people with a breadth of skills here," says Eibeck. "It's unusual for a school our size to have such a breadth of disciplines and not be a public university — we have engineers, business school grads, teachers, scientists, lots of health care workers, pharmacists, physical therapists, law students and dental school grads. We're mainly undergraduate, but we have a number of Master's degrees, and we are expanding our graduate offerings around areas working adults would be interested in. We have an MBA program here in Stockton, and we're looking at offering it elsewhere. We're looking at creating a new Bachelor's degree that is aligned with the needs of the health care industry.

"Secondly, we take pride in creating what we call practice-ready graduates," Eibeck continues. "We look for placement of students in internships and clinical or six-month job assignments [prior to graduation]."

A recent UOP initiative, Beyond Our Gates, is a series of forums on such topics as education, health care, diversity, economic development, arts and culture and energy to learn from experts in these fields how the university can play a more prominent role in raising San Joaquin County's stature in these areas. "Health science is a hugely growing business area where we seem to be building a cluster, and there are workforce needs around that," Eibeck illustrates.

One local company that employs UOP engineering graduates is Applied Aerospace Structures Corp., which has maintained its presence in Stockton for more than 50 years. The company primarily made rotor blades for helicopters in its early years but has since expanded to production of various lightweight structures made of advanced composites that are used on many aircraft, including the soon-to-retire Space Shuttle program. Company President John Rule doesn't mind being the only aerospace concern in the area, because he's not competing for labor with other companies. And San Joaquin affords another advantage.

"We don't have the Bay Area housing prices, so we can attract people out of college looking to own a home who can do that sooner here rather than later," says Rule, who employs about 320 at a location near the Stockton Metropolitan Airport, about 200 of whom are floor technicians, 50 are engineers and about 70 are in administrative roles.

"A few years ago, when everyone was employed, it was difficult getting anybody locally with the skills we needed," Rule relates. "Today we're very successful getting engineers. The University of the Pacific is a great resource. "We have a lot of grads from there. They are skilled, computer literate, and they learn like crazy. That's all we need — a college degree and we can take it from there. After a time, they are very capable of working with all our hardware. We have also found floor technicians very readily in the last couple of years — we've hired 65 people since January 2010, and most have been technicians. We've been very fortunate keeping pace with our growth."

Applied Aerospace Structures doesn't seek the spotlight, but its recent track record is notable, especially in an economic cycle that is less than conducive to growth. "We've added half our floor space in the last six years," notes Rule. "In 2008, we added 50,000 square feet, in 2004 about 60,000, and in 2001 we added 60,000. And we have plans to add another 60,000 in 2011. We were totally unaffected by the economic downturn in 2008. We've seen growth. We're looking at 20-percent growth next year, and we have the order backlog to pull it off. The process of adding buildings has been good. We've gotten two industrial revenue bonds from California at a low interest rate — each about $5 million — and we had tax credits for hiring people in this area. I don't think we paid any state tax, because it was all offset. The local area has been good for us."

That is a sentiment expressed by executives at companies in a variety of industries across San Joaquin County. Consider these comments from some key sector representatives:

Food Processing. "On a micro level here in Stockton, we've had a good experience," says Paul Goldberg, president of Boboli International, a maker of frozen desserts and breads with two operations in the Stockton area. "On a macro sense, California is a lot more difficult than other states. They continue to find ways to exact fees for services that really shouldn't be charged. It's a misunderstanding they have that these fees will move them forward, when in fact it's what will drive [businesses] out. When we were building our plant, the city did a great job mitigating those challenges, especially the San Joaquin Partnership. This is the biggest project I've been involved in, and when we got to a difficult hurdle, we called them, and they jumped right in and helped out. They are very pro-business."

Call Centers. "The local business climate is excellent for us," says Royce Johnson, CTAP program director at Communication Services for the Deaf, which operates a 70-employee call center in Stockton that helps disabled people throughout California obtain communications hardware and equipment they require. "Stockton has gone out of its way to make this a very business-friendly city. Facilities are very reasonable compared to the rest of California, and it's a lower cost of living. It's a good place for a business to locate, and it's worked out really well for us. We've been very impressed with people from the city. Stockton is eager to attract business. They're doing all the right things to make it easy to move here."

Plastics Manufacturing for Medical Research. A business venture first brought Ken Hovatter, president of Scientific Specialties, to Lodi to set up operations, a location he says he might not have chosen otherwise. "But over a few years it became very evident that the area — for California — is ideal for what we are doing. It had a reasonably available, unskilled to semi-skilled labor force, which is the heart of my company." The company employs 130 people and is planning a 68,000-sq.-ft. expansion. "California is a tough nut, there's no question. But Gov. Schwarzenegger did manage to get workers' comp reform through, which made a dramatic difference for us. And insurance costs have been reined in, so those pieces aren't working against you. Frankly, the county and City of Lodi have been very good for a California location in terms of their support and doing what's reasonably possible to stay out of your hair. They do what they can do."

Pet Food Manufacturing and Distribution. Diamond Pet Foods opened a Lathrop facility in 1999 and will open another San Joaquin facility in Ripon within the next year. The company markets pet food under its own Diamond label and contract manufactures for several private-label brands. "We looked at properties and sites on the entire West Coast and decided on Ripon," says Mark Schell, vice president, manufacturing. "There wasn't a lot of difference in facilities in Arizona and southern California and San Joaquin. There were areas that we could have made work, and all things being equal, we looked at staying in the San Joaquin area, because there would be synergies with having the two California operations that close. One of the main reasons we decided to stay was the work force in the area. The people we have in Lathrop are excellent — they're highly trained and motivated. We can find the people we're looking for in San Joaquin, and that was a big factor for us."

Innovation East of the Altamont

Two longstanding, family-owned agri-businesses in San Joaquin County are proving that not all of California's innovation goes on in San Diego biotech labs and Silicon Valley R&D centers. Indeed, Bay Area entrepreneurs on their way through Tracy and Lathrop en route to a weekend in the Sierra Nevadas would drive right past two companies that are quietly transforming industrial practices in ways that will likely be the norm before long.

Tracy-based Musco Family Olive Company is one of two remaining table olive processing companies in the U.S., in part because olive processing is so environmentally challenging, given the large volumes of salt, water and chemicals involved. But Musco has been at it for a dozen years now and has sustainability down to a science.

"Since 2000, we've put a huge effort into cutting back on the usage and purchase of chemicals, looking everywhere to see what can be done without impacting quality," says Benjamin Hall, director of environmental services and programs.

Hall is overseeing production of a wastewater treatment system on the Tracy property that will further eliminate salt, turn the olive pits into biomass and generate electricity for its processing operation. We now have the first phase of construction here on a [plant] that takes the olive pits and our highest-salt concentration of waste water and runs it through our renewable energy waste water system (RENEWS). It will cut our salt discharges by another 25 percent, and it will also provide another source of clean water, when we condense the steam back down. It's basically salt-free."

The power generated by RENEWS will be enough to supply about 75 percent of the total electrical use of the Musco facility, says Hall. The city of Tracy is trying out a pilot version of RENEWS for use in its city waste-water system, and if it works for them as it is for Musco, he notes, "it will be a big boost for the city when new industry comes in, especially a water-intensive industry like food processing. It's not a profit center, but it cuts your cost of water treatment down to nothing, and it opens a whole new avenue for the city to welcome new businesses, because it can now handle that water, generate electricity from it and end up with clean water. It's no longer a constraint when they're trying to bring new businesses into the area. We're excited to be a part of that."

Manteca, in the geographic center of the Stockton-Modesto I-5 corridor, has a related interest in attracting water-intensive projects. The South San Joaquin Irrigation District (SSJID) serves Manteca, Ripon and Escalon with abundant supplies of water, and is considering entering the power business to supply lower-cost power to industrial users than they might get from PG&E, the main power provider, according to city officials. Investors might even subscribe to both providers for power redundancy reasons. "Biotech and plastics companies and others like to know they can get uninterrupted power and that they have a choice," says Kevin Birkholz, economic development specialist at the City of Manteca.

"If we had a request from a food processing company because we have water, we can consider it more than a lot of the other cities, because we have a lot of land we can do wet application on," adds Steven Pinkerton, Manteca city manager. "The effluent from a food-processing plant typically overwhelms a sewage treatment plant with the solids and the salts. Companies can't use the San Joaquin River for that, but we have land we can spread it out on. And we have a state-of-the-art sewer plant with about 40-percent excess capacity right now." The city owns about 160 acres of land adjacent to the sewage treatment facility that Manteca's redevelopment agency is eager to bring the right projects to.

Two new developments in Manteca, CenterPoint and Austin Road, will make even more sites available. CenterPoint Intermodal Center is a 168-acre development with 4 million square feet of space planned adjacent to the Union Pacific Intermodal Terminal (see sidebar). Austin Road Business Park and Residential Community is a mixed-use, 1,036-acre development planned for a site on CA-99 southeast of Manteca. About half that development will be industrial space. "The next 10 to 20 years of supply we're putting online right now," says Pinkerton. "All the rail travel for freight is coming right through here. We're still just over the hill from the biggest innovators in the country in Silicon Valley. We still have a much deeper labor force than most places because of all the institutions of higher learning in the Bay Area. Proximity to one of the biggest economic engines in the world is something you don't have in Reno or Plano."

Neighboring Lathrop's City Manager, Cary Keaten, says transportation- and logistics-related development will continue to be an economic engine for his city, with the Union Pacific expansion only adding momentum. Lathrop, too, has building and site inventory, much of it fronting the I-5 freeway. As for the increased activity at Union Pacific's terminal, "We will also benefit from that," says Keaten. "A mile or two to the south are all of our logistics facilities, and a half-mile to the west are more opportunities for industrial, cross-docking and logistics development. The intermodal facility expansion will benefit Lathrop.

"With the exception of Tracy, we're the closest city in south San Joaquin County to the Bay Area," adds Keaten. That should be of interest to companies keeping an eye on two Lathrop developments getting under way — the 385-acre Lathrop Gateway Business Park and the 5,000-acre River Islands at Lathrop mixed-use development. The latter, a U.K.-based Cambay Group project, hopes to attract corporate office, R&D, back-office and other commercial investment on 400 acres. The rest of the property is envisioned for residential, school, retail and leisure uses.

Corporate tenants locating in The Business Center at River Islands will choose from sites along miles of waterfront property. And the water brings another advantage, as well: Power from the Lathrop Irrigation District is priced well below the local average. Another cost benefit is the incentives tenants will realize from the San Joaquin Enterprise Zone and the River Islands master plan.

Incorporated only since 1989, Lathrop is run by a very development-friendly city council, says Keaten. The population has tripled since incorporation, and the council is managing that growth carefully with the goal of making the city a balance of residential, commercial and recreational. Like other communities in the county, Lathrop is making it as easy as possible for companies to locate in its business parks, so that commuting from the area is by choice, not necessity.

A Natural Fit

Meanwhile, California Natural Products (CNP), a former farming concern in Lathrop, has already mastered the science of packaging fresh soups, rice milk, energy drinks, wine and other non-dairy foods so they don't require refrigeration in a retail outlet or in home storage. CNP, which has grown from a 5,000-sq.-ft. melon-packing operation decades ago to a 400,000-plus-sq.-ft. manufacturing plant, makes ingredients or low-acid asceptic (contamination-proof) food products for more than 200 companies — Starbucks' Chai teas is one product line, for example. Now it's mastering the science of warehouse space maximization with an automated system under development near its food-processing plant that has piqued the interest of distribution center managers who have seen it.

CNP operates a nearby warehouse, but company President Pat Mitchell says it cost about $2 million a year to move product from the plant to the storage facility. CNP's Power Automation Systems division is building a new warehouse with a conveyor system directly from the food plant and the latest in its proprietary technology. The company has installed its systems internationally.

Family property notwithstanding, CNP's Lathrop location is ideal in terms of logistics — it's a short drive to the two north-south arteries, I-5 and CA-99, as well as the east-west freeways into the Bay Area. "And northern California is the most heavily developed natural foods market in America," notes Clark Driftmeir, vice president, marketing & sales. "We're right in the middle of a very well established food manufacturing industry that dates back to the canneries of the early 1890s, with a large pool of highly skilled workers." For many of its products, the raw materials — tomatoes, almonds and numerous others — couldn't be closer, saving processing steps that can diminish quality and add time and expense to production.

Fluid Dynamics

The Port of Stockton has long served as a key inland port for bulk materials, but in recent years and months, it is taking on new levels of significance as a Central Valley logistics hub. The port — with its Redevelopment, Enterprise and Free Trade Zone status — already has robust rail infrastructure, close proximity to central San Joaquin's freeway network and a new, $5-million, 60kV substation. The water is getting the attention now.

In April 2010, the U.S. Transportation Department's Maritime Administration (MARAD) announced a short sea transportation initiative to identify rivers and coastal routes that could carry cargo efficiently, bypassing congested roads around busy ports and reducing greenhouse gases. Regional transportation officials were permitted to apply to have specific transportation corridors — and even individual projects — designated by the Department of Transportation as a marine highway if they meet certain criteria. Once designated, these projects will receive preferential treatment for any future federal assistance from the department or MARAD.

In August, Transportation Secretary Ray LaHood announced his selection of marine highway corridors and an initial eight projects and six initiatives along the corridors that will be eligible for federal assistance under the program.

One of the Marine Highway Corridors selected is the M-580, which is designed to shift freight transportation from trucks on I-580 to barges on the San Joaquin and Sacramento Rivers and related waterways. It would connect to another marine corridor, the M-5, at Oakland.

I-580 is one of the most congested highways in the nation, and has been identified by the U.S. Dept. of Transportation as having significant annual truck hours of delay. Approximately 25 percent of the Port of Oakland's volume travels to and from the San Joaquin Valley of California, an area already recognized for some of the country's worst air pollution. By 2020, the Port of Oakland's volume is expected to increase by 65 percent, further exacerbating the Valley's congestion and air quality issues. An increased movement of freight by water could help to relieve this situation. In 2007, nearly 3.4 million tons of waterborne cargo, mainly bulk goods, moved through the Port of Stockton via the Stockton Deepwater Ship Channel and San Joaquin River, underscoring the potential capacity of this waterway system. One example of the potential for waterborne freight movements along this corridor is a proposed marine highway service between the Ports of Oakland, Stockton, and West Sacramento. Fully implemented, it could eliminate 180,000 truck trips from I-580, I-80 and I-205 annually, saving approximately 7 million gallons of fuel and reducing air emissions in the process.

Any improvements MARAD funding brings to the San Joaquin Port and Deepwater Ship Channel only sweetens the pot that Michael Girdner, director of Manteca-based trading company M&L Commodities Inc., found at a Port of Stockton site where he is helping the facility diversify its forte beyond construction materials. Girdner has contracted with Castle & Cooke Cold Storage to build a refrigerated "hotel for food" business for produce and packaged foods coming into and going out of the San Joaquin area. His story captures the essence of the opportunities created when a region's key strength — agriculture, intermodal logistics and access to Asia — align and are supplemented by new funding for port and waterway improvements and a prime time in which to expand operations.

"When I first saw this location at the Port of Stockton, it took about five seconds to decide to locate here," says Girdner. What first struck him when touring the port was its lack of congestion and plentiful space for construction. "To have this asset right in the middle of the biggest, most productive agricultural valley in maybe the world was incredible. This was a lay-down yard for steel in 2004. Today, we have 130,000 square feet constructed in phase one, and we plan multiple phases. We could do up to seven of this size, but we're planning four in our first tier."

San Joaquin's expanding rail infrastructure — the major railroads are moving their hubs from the Bay Area to the Central Valley, including Union Pacific's new intermodal facility in Manteca — and the I-580 Maritime Corridor place the port in the heart of the region's booming container-shipping industry.

The Marine Corridor development will be a major boost to local exporters, says Steve Escobar, port real estate & properties development manager. Barge containers are not weight-limited as truck containers are, he explains, so the containers can be used more effectively. "Not a week goes by when I'm not asked by port tenants and those looking at the port about what MARAD will mean, and how they can take advantage of it," he says.

The port is unique in that both Union Pacific and BNSF Railway Company operate trains on the facility's 50 miles of track, says Escobar, which is fortunate, because eight out of 10 tenants want rail capability. New-tenant activity will pick up in late 2011 and into 2012, he adds, as the economy improves and the barge activity gets under way. In the meantime, a new biomass plant is taking shape on Port property at the site of a former coal-fired power plant. DTE Energy is retrofitting the former FPL plant and will create 50 to 70 jobs when it opens in 2013.

"Stockton was an interesting prospect for us," says John Reis, manager, commercial operations at DTE Energy Services. "Coal technology in California has a very limited shelf life, and we saw this plant, with only a few years left on its contract to sell energy to the utility, as a real opportunity. The new contract we negotiated on that plant should make it viable through 2038.

"Extending the life of an asset is always a good thing, and it will create about 50 jobs at the plant and up to 200 construction and other jobs," says Reis, "but we liked the site in Stockton because of its access to road, rail and the port itself. We'll use the road system initially to supply fuel for the plant, but its location gives us a lot of options, like barging or railing in fuel supplies, including wood from tree trimming activity in the Bay Area and agricultural operations in the Central Valley."

Not far from the West Complex at the Port of Stockton is a site where Encinitas-based Community Fuels has been producing high-end biodiesel fuel for commercial users for the past two years. "We like the port and we like being in San Joaquin County for several reasons," says Lisa Mortenson, CEO. "It's well located for us to serve multiple areas. Our product goes to many states and international markets, and we're able to fairly cost-effectively access Western states and the Western Pacific markets from that location." Logistics, therefore, is a primary location asset for Community Fuels.

Stockton's labor force was another location draw, says Mortenson. "Based on the statistical data available for the San Joaquin area and surrounding cities, we are above the 75th percentile in terms of wages and benefits in the manufacturing sector, so these are highly sought-after jobs. Our plant is a very sophisticated, precise operation, and we have wonderfully skilled employees. One of the great things about the area we're in is you do have industrial businesses, meaning there is an industrially trained labor pool to pull from."

What do non-San Joaquin-based site experts think of the area? "I look at sites from a supply-chain perspective and wonder what would draw people to a given market. What are the underlying elements in the area that would allow people to put distribution centers close to production locations? In the case of San Joaquin, it's the agricultural business," says Tim Feemster, senior vice president and director of global logistics at Grubb & Ellis, who is based in Dallas. "With I-5 and 99, they have access to Seattle and to southern California as a potential single point of distribution for the West Coast."

The transloading opportunities between modes of transportation are enormous, says Feemster, "and they're far enough away from the Bay Area metroplex to have lower cost facilities and labor there." On average, more than 50 percent of the cost of a company's supply chain is transportation, 17 percent is labor, and only 4 or 5 percent is rent, adds Feemster. "The cost drivers are so compelling sometimes that you have to bite the bullet in terms of business climate or other factors." That's where the local economic developers come in. "They need to have a different approach than what prospects are hearing about from the state. In my experience in San Joaquin, they embrace industrial development, and people don't feel the negative factors as much. They do a very good job of continuing to connect with their local companies and being an advocate for them."

This Investment Profile was prepared under the auspices of the San Joaquin Partnership. For more information on investing in San Joaquin County, California, visit or call (800) 570-5627.

Story in Pictures

Stockton’s waterfront features the Port of Stockton — California’s most inland port and a key regional logistics asset — and the Stockton Marina and Joan Darrah Promenade.
Photo: Greater Stockton Chamber of Commerce
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