Week of November 11, 2002
  Project Watch
Sears Tower
TALL BUILDING, LOWERED ASSESSMENT: The tallest U.S. building, the Sears Tower was recently appraised at $826 million, marking a sharp drop from last year's $911-million appraisal.
Continuing 9/11 Concerns Stall REIT's Scheduled Sears Tower Buy
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing

CHICAGO – In another sign of Sept. 11's continuing real estate impact, Trizec Properties is angling to renegotiate the terms of owning Chicago's Sears Tower. The New York City-based real estate investment trust may, in fact, decide to simply walk away from its fast-approaching ownership of the skyscraper, which is currently scheduled to kick in on Jan. 2, 2003.
        The second-largest publicly traded U.S. REIT in total owned and managed office space, Trizec already controls the leasing and management of America's tallest building, part of the complex deal that it signed in 1997. Trizec in that transaction invested US$70 million in the Sears Tower, in the process acquiring an option to buy the skyscraper. The buy option expires in January of 2003.
        The post-9/11 environment, however, has made moving further into full-blown ownership an entirely different matter, Trizec President and CEO Timothy Callahan explained.
        "While the market has clearly softened in general, the aftermath of 9/11 has caused us to view this asset in a different light," Callahan said.
Trizec President and CEO Timothy Callahan
"While the market has clearly softened in general, the aftermath of 9/11 has caused us to view this asset in a different light," Trizec President and CEO Timothy Callahan (pictured) said of the Sears Tower.

Appraisal, Rents Down, Some Tenants Defecting
That different light is particularly glaring when it comes to dollars and cents.
        Trizec in its third quarter wrote down $48.3 million of the $70 million it invested in the Sears Tower in the '97 deal. Prompting that write-down, Callahan explained, were persistent post-9/11 concerns over signature properties' diminished appeal and lower rents.
        The market seems to mirror those concerns. The 110-story Sears Tower was recently appraised at $826 million, a sharp drop from 2001's $911-million appraisal.
        Moreover, some high-profile tenants are defecting, countering earlier reports that Sept. 11's attacks were having no impact on Sears Tower's occupancy.
        The skyscraper's rental fees are also falling. Sears Tower rents have dropped by 25 percent, a 15 percent steeper drop than the overall reduction in the Second City's office market, Chicago analysts have reported.

Trizec Trying to Rework $779-Million Met Life Loan
With its buy option expiring in less than two months, Trizec is now racing with the clock in trying to rework a $779-million Metropolitan Life Insurance loan on the Sears Tower. Trizec would take over the loan on Jan. 2 as part of taking legal title to the building. The non-recourse Met Life loan has a 9.3-percent interest rate and comes due in 2005.
        Trizec, said Callahan, is negotiating with Met Life "to reassess that position based on the changes of the past year."
        Falling occupancy levels have been one of those changes. Sears Tower continues to register strong attraction, with 94 percent of its space leased. Total leasing, however, will drop to 91 percent during fourth-quarter 2002.
        Moreover, several high-profile tenant move-outs have further fueled Trizec's worries. Goldman Sachs, which occupies 238,000 sq. ft. (22,110 sq. m.), and Merrill Lynch, which occupies 100,000 sq. ft. (9,290 sq. m.), have already announced that they'll vacate all or some of their space when their leases expire.
        Other Sears Tower tenants with existing leases have already hit the door. Universal Access simply gave back 125,000 sq. ft. (11,613 sq. m.) of the 175,000 sq. ft. (16,258 sq. m.) that it was occupying, while General Re Insurance has put 50,000 sq. ft. (4,645 sq. m.) of its space up for sublease.
        Employee concerns over safety are prompting the move-outs, according to officials with the vacating companies.
        On the plus side, the Sears Tower doesn't have a bundle of soon-to-expire leases. Some 5 percent of existing leases will terminate next year, while another 5 percent will expire in 2004, according to Trizec officials.

Terrorism Insurance Gap Also Threatens Deal
On the other hand, Trizec certainly has to have concerns about what will happen after the Met Life loan comes due in 2005. With the continuing dearth of terrorism insurance, getting a new loan for the tallest U.S. building may prove a daunting task.
        Both houses of Congress have passed separate bills creating a federal insurance backstop in the event of attacks like those of 9/11/01 – which triggered $40 billion to $50 billion in insurance payouts. The two bills have now moved to a House-Senate conference committee. Significant differences, however, must still be resolved.
        The biggest of the differences pivots on punitive damages. The House bill prohibited punitive damages (excepting damages against terrorists). The Senate bill, though, left the door cracked, prohibiting only punitive damage payments from federal funds.
        A resolution of the two bills "will add significantly to help us and our carriers reach a successful result on insurance," Callahan said.
        The next session of Congress could be a surer bet to resolve the issue, with Republicans assuming control of both houses.
        Trizec's buy option on Sears Tower, however, will expire before that next congressional session convenes.
        And without a terrorism insurance fix – and without a reworked loan terms – Trizec could end up walking out on owning the landmark building it once avidly coveted.

McDonough, Georgia's square
CENTER OF GROWTH: McDonough's square (pictured) has seen rapid changes in recent years. Henry County (of which McDonough is the county seat) ranked as the fourth fastest-growing U.S. county between 1990 and 2000, according to U.S Census Bureau data.
Aero Plastics' 250-Employee Operation
Sets Down in South Atlanta Metro
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing

MCDONOUGH, Ga. &151; Aero Plastics went all around the Atlanta metro before picking a site in McDonough, Ga., for its new 250-employee manufacturing/distribution operation.
        The location decision ends a year-long U.S. Southeast search for the Leominster, Mass.-based manufacturer of house wares, including closet organizers, food containers, storage totes and trash cans. A number of other undisclosed Southeast locations were considered for the project, according to company officials.
        Aero will lease an existing 455,000-sq.-ft. (42,270-sq.-m.) facility in McDonough, which is located south of downtown Atlanta. Aero picked an area that boasts a rapidly growing population base. Henry County, in fact, ranked as the fourth fastest-growing U.S. county between 1990 and 2000, according to U.S Census Bureau data. The county's population rose from 58,741 people in the 1990 census to 119,341 people in the 2000 census – a 103 percent increase.

Air, Surface Infrastructure Help Seal Deal
Atlanta's Hartsfield International Airport, which regularly ranks as the first- or second-busiest airport in the world, was one location factor for Aero.
        The company's site search team "did a 360-degree circle around Atlanta," said Aero Plastics President Jeff Goldberg. The company wanted to locate its operation relatively close to the airport in order to easily move management in and out of the city, he explained. McDonough is located 27 miles (44 kilometers) southeast of Hartsfield International.
        Aero will only relocate a few employees from the Boston metro to its new Georgia operation, Goldberg said. The remainder of the work force will be local hires.
        The McDonough site also offers strong surface-transport links. North-south I-75 runs through Henry County. In addition, I-75 connects via I-285 to east-west I-20, eliminating travel through downtown Atlanta.

Expansion Incentives and Zoning Variances
Incentives also helped the Georgia site nail down the expansion.
        Beginning with its second year of operations in Henry County, Aero will qualify for $1,250-per-job tax credits for a five-year span.
        Georgia's Quick Start training program was also another major incentive consideration, Aero officials said. The program provides customized training, usually on site, for new and expanding companies.
        In addition, Henry County provided a zoning variance that was a must in landing the project. County code currently limits structures to a height no greater than 35 feet (10.7 meters). But 65-foot (19.9-meter) silos are a key element in Aero's manufacturing process for plastics, one of the Henry County Development Authority's target industries.
        The Henry County Board of Commissioners approved the code variance, which was the final step remaining before Aero made its decision public.
        Aero will build six to eight 65-foot silos at its McDonough operation, according to Goldberg. The company's chosen site will also accommodate future growth. The 25-acre (10.1-hectare) tract is large enough that the company could double the size of its operation in the next three to five years, Goldberg said.

Genesys Consolidates Call Centers
in Minneapolis-St. Paul, Washington, D.C.
by JACK LYNE, Site Selection Executive Editor of Interactive Publishing

MONTPELLIER, France and DenverChanhassen, Minn., and Reston, Va., are the winners in Genesys Conferencing's call center consolidation. Located in the Minneapolis-St. Paul and Washington, D.C., metros, those two Genesys call centers will remain open, absorbing the volume from the four other centers that are being closed in the consolidation.
        Many companies are consolidating operations, spurred by a stubbornly sluggish economy to seek increased cost efficiencies. But the World Wide Web was another major consolidation catalyst for Genesys – which, appropriately, provides interactive multimedia services that include Web meetings, videoconferencing and conference calling.
        "This call center closing is the result of the significantly greater-than-anticipated conversion of our customers to our automated services and a further step in our continuing efforts to drive efficiencies at the company," said Genesys Chairman and Chief Executive Officer Francois Legros.

Genesys' downloadable user guide
Web help features like the downloadable user guide pictured above have cut Genesys' operator-assisted calls by 32 percent this year.

Web Help Use Up 120%,
Operator-Assisted Calls Down 32%
Customers' increased use of the company's online help services has been dramatic.
        Since 2001, Genesys Conferencing's operator-assisted calls have dropped by 32 percent. Over the same period, however, customer use of the company's automated Web services has increased by 120 percent, said Genesys officials.
        Those divergent trends prompted the company early this month to announce the closing of its Honolulu call center.
        Closing the 130-employee Hawaii center will save some $3 million a year, company officials said. Genesys picked the Honolulu center to close because, as the company's smallest call center, it was the easiest to shut down, corporate officials said.
        One-time closing costs, including severance packages, will total $1.9 million. The company, however, will retain a non-call-center presence in Honolulu, with a 15-employee staff in functions including collections, information technology, project management and sales.

Outcome: Higher Productivity,
Fewer Employees, CEO Says
Genesys had earlier announced the closing and consolidation of its call centers in Bedford, Mass.; Denver (the city that serves as the company's U.S. headquarters); and Montgomery, Ala.
        The consolidation, according to Legros, has moved the company closer to what many companies view as an optimum outcome in today's economic environment: a smaller company that's doing even more business.
        "As an example of our improving productivity metrics," Legros said, "Genesys will provide its customers in fiscal 2002 with about 1.2 billion conferencing minutes with about 1,200 employees.
        By comparison, in May of 2001, immediately after acquiring Vialog and Astound, Genesys was providing 600 million minutes with about 1,700 employees, he said.


©2002 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.