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Idled Auto Plants Present Challenges -Opportunities for Developers and End-Users

Although the re-use of decommissioned automotive facilities presents many challenges, there are some examples of companies successfully utilizing these idled plants.

Feb/Mar 10
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Companies looking to buy an existing building, particularly for manufacturing purposes, could scarcely conceive of a better scenario than one in which a well-equipped factory - complete with functional utility lines and even rail access - is available from an owner who desperately wants to sell. Therefore, you'd think manufacturers would be flocking to take possession of plants idled by struggling, cash-starved automotive assemblers and OEMs, who are so desperate to unload the buildings that they will probably let them go for pennies on the dollar - if only to avoid paying the continued property taxes and maintenance costs of facilities they will almost certainly never use again.

But there's a problem with idled automotive plants: They are too perfect. Perfect, that is, insofar as they are perfectly customized to the use for which their original owners designed them. They are massive. They have astonishingly high ceilings. They are intricately engineered for the production of very specific and complicated products - making them exceedingly difficult to retrofit.

They also occupy enormous tracts of land, which require constant upkeep and generate crushing property tax liabilities that local communities and school districts count on to fund their ongoing operations. So even though you can pick them up dirt cheap, would anyone actually want to buy one of these hulking edifices, let alone reuse them?

Raze and Redevelop
Sacramento-based Panattoni Development recently purchased Ford Motor Company's idled St. Louis Assembly Plant. And while some parties came forward during the bidding process with proposals to retrofit and re-use the plant, Panattoni never believed any option other than raze-and-redevelop was feasible.

"It's surprising that people would have considered (re-using) this building," said Mark Branstetter, a partner in the St. Louis office of Panattoni. "It's designed for a very specific use. It was a 3.3-million-square-foot structure situated on about 160 acres, and when we bought it, it was still full of equipment. The building dimensions and the ceiling heights are not adaptable."

The primary attraction of the building for Panattoni was the location of the land near major highways. Even so, the developer believes it got good value out of the building, but only after removing the intact assembly line and selling it for scrap or recycling, then razing the rest.

Once that was done, Panattoni was able to begin planning new buildings on the site that could take advantage of already-present utility lines. It could design a series of new industrial facilities that could be more easily adapted to the layout of the land and the needs of the local market. However, even that strategy, Branstetter said, would have been unfeasible without the utilities and proximity to the highways and the airport.

"Ford built upon that spot in 1946," Branstetter explained. "At that point in time, it was a farm field, and St. Louis grew around it. It became an urban infill site with full infrastructure surrounding it in what was a really good submarket. That has to be the basis for any kind of adaptive reuse. If this plant were set 50 miles outside the periphery of a major metropolitan area, there likely would be no adaptive reuse, even for the site."

Adaptive Reuse
In spite of the inherent difficulties, it is not unheard of for parties to buy abandoned automotive sites and reuse the buildings. In Coopersville, Mich., a 300,000-square-foot facility idled several years ago by Delphi was purchased out of bankruptcy court early in 2009 by Arizona Maricopa Associates LLC for $4 million. Arizona Maricopa-owned Continental Dairy is renovating the building to use in the production of powdered milk, and is investing $100 million in the project. The current schedule calls for the facility to begin operating in 2011.

A far bigger impact faced the city of Wixom, Mich. - closer to Detroit - where, in 2007, Ford shut down its massive Wixom Assembly Plant. Wixom Assembly occupied 320 acres and used 4.7 million square feet worth of industrial building space. It was Ford's second-largest plant in the United States, and its closure touched off an all-out effort by state and local officials, as well as those at Ford Land - which is tasked with disposing of idled facilities - to find an organization that would be willing to reuse the site.

The answer came from a joint venture with Texas-based Clairvoyant Energy, which plans to invest $720 million to make the site "the Silicon Valley of renewable energy," according to Clairvoyant CEO David Hardee. Once redeveloped, Clairvoyant and partner firms Xtreme Energy and Oerlikon Solar will make solar panels and large storage batteries for power grids on the site. The entire project is expected to create 4,000 jobs. Of course, it required significant state and local tax incentives to get the deal done, and to free up enough capital for Clairvoyant to make the necessary modifications to the  assembly plant buildings.

A Continuing Challenge
You might think the adaptive re-use of an old automotive facility would be comparatively easy when the building is re-used by another auto manufacturer. But even then, it's not that easy, as the experience of California-based Fisker Automotive illustrates. Fisker has committed to purchase and retool a Wilmington, Del., plant recently closed by General Motors. It will use the facility to build 100,000 units of a plug-in hybrid vehicle.

But a Fisker company spokesman said the deal would not have been feasible without a $528 million loan from the U.S. Department of Energy, of which the company plans to allocate $175 million to retool the facility. Calling the task a big challenge, the spokesman said the plant was very specifically designed to produce a certain kind of vehicle - and the plug-in hybrid to be produced by Fisker is an entirely different sort of industrial output.

Indeed, General Motors must be pleased with the outcome in Wilmington, because it has been far from successful in offloading all of its idled plants. GM recently announced that four plants spun off to Delphi when the latter became an independent company are now being returned to GM ownership. Even in the midst of a massive effort to scale back its capacity, GM will try to find a way to get value out of the facilities. Experience shows that although it is extremely difficult for another organization to use them, it can be done.

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