NY Developer Moves Into Industrial

John McCloud is editor of Industry Property Journal, from which this article is excerpted.

Rochester, NY—Acquest Development LLC beat out four competitors in a bid to acquire 2.2 million sf of warehouse space formerly occupied by locally based Eastman Kodak Co. The price of the transaction was not disclosed, but in one fell swoop, the deal turns the Buffalo-based developer into one of the market’s largest industrial players.

Located off the Interstate 390 Expressway in the Rochester suburb of Greece, the 330-acre property consists of a two million-sf building and a 200,000-sf building, both dating to 1968. The larger building has 152 truck bays. The structures comprise the major portion of the 390-acre Kodak Park South.

Kodak has most of the remaining 60 acres for sale in two parcels. These include an 188,000-sf industrial building priced at $3.7 million and a 624,000-sf manufacturing/office complex priced at $8.9 million. Kodak plans to hold on to a building that supplies power, heating and cooling to the rest of the project. It will sell the utilities to tenants of Acquest’s buildings at a lower cost than they could get from local power companies.

Acquest president William Huntress says the buildings are in remarkably good condition for their age. More importantly, he adds, the property is unusually free of contamination for a 40-year-old industrial site. “It’s rare to find a property this large in a location like this, let alone one that’s this clean,” he says.

The City of Greece and surrounding Genesee County are eager to see the site returned to economic use. Kodak was a bulwark of the community since the early part of the last century. But in recent years, it has suffered a significant loss of business due to the switch to digital photography. The company was late entering the digital arena, and while it has made significant advances in the past couple years, it has not regained its former industry-leading position. Its film business, which accounted for a large share of revenues, has plummeted.

Huntress tells IPJ he plans to talk with local officials about potential strategies to land new tenants. Both sides say they want the property to remain industrial, with government agencies especially eager to try to get new jobs for the skilled and semi-skilled employees who lost their jobs at Kodak. Care Stream, a Kodak subsidiary that focuses on the medical industry, already signed a long-term lease for 150,000 sf, and its parent company is leasing another 200,000 sf on a month-to-month basis. The site is in a foreign-trade zone, qualifying tenants for a variety of economic incentives and tax breaks.

Though Huntress says it’s too early to announce a specific re-use strategy, he expects to subdivide the property into 40,000-sf segments rather than attempt to find two or three large users. “Rochester generally does not appeal to large distribution users because Lake Erie cuts it off from the larger customer base in Ontario and Quebec. Even on a regional basis, it has to compete with Buffalo,” he says. He is considering turning the smaller building into commercial condominiums but says he needs to take a closer look at the market before committing.

The deal more than doubles the size of Acquest’s existing 1.3-million-sf portfolio. It also represents the firm’s largest major industrial property purchase. The company has adopted an aggressive diversification strategy that has seen it expand from government office buildings into R&D, life science, mixed-use and resort properties. It has expanded from its original Buffalo base to such far-flung locations as Colorado and Mexico. Huntress says his inclination is to focus on lower-tier markets like Buffalo and Rochester, which tend to be ignored by the large national players but offer great opportunity for developers and investors that are willing to put the time and effort into learning the intricacies of individual locations.

“These are not places where you can apply a national template,” he says. “These are places where local conditions prevail, and you have to figure out what’s going on in the specific market and look for local tenants.”

This is Acquest’s second purchase from Kodak. Last year it bought a Kodak office property on the north side of Rochester, which it is marketing as Lincoln Business Park. The Rochester office of CB Richard Ellis handled the Acquest sale and has the listings for the remaining Kodak properties.