Less than a year after opening a shiny new headquarters facility in Maryland Heights, World Wide Technology is again planning massive expansion, this time in the Metro East.
The technology systems integrator and solutions provider has signed a lease to occupy more than 2 million square feet of industrial space — spread evenly across two buildings — in the Gateway Commerce Center in Edwardsville. Earth City-based TriStar Properties is the developer of the project, which is expected to cost more than $115 million and begin construction before the end of the month.
World Wide Technology already has roughly 1,500 employees working in two industrial facilities totaling 1.6 million square feet in the nearby Lakeview Commerce Center. The company will vacate those buildings, owned separately by Duke Realty and Panattoni Development Co., when TriStar finishes construction of the new buildings in April 2019.
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In the new buildings, World Wide Technology will invest more than $100 million over the 10-year term of the lease and add approximately 500 new jobs to the mix over the next few years, said Tom Strunk, the company’s chief financial officer.
Similar to what World Wide Technology already has in Lakeview, the Gateway buildings will house the company’s Integration Technology Center — where employees tinker with and build applications for customers — and serve as its North American distribution hub.
“We originally thought we’d have enough capacity when we built out our existing facilities, but we’ve just grown out of that capacity and actually have had to start using other facilities on a temporary basis,” said CEO Jim Kavanaugh. “We’re also looking at this as an opportunity to add additional capabilities that we just can’t do in our current buildings.”
The lease is widely considered to be one of — if not the — biggest industrial transaction in ӣƵ history. Katie Haywood and Ryan Keiser of CBRE helped broker the deal on behalf of World Wide Technology.
The deal will enable World Wide Technology to continue its fast growth — the company reported more than $10 billion in revenue last year, up from just $2.5 billion a decade ago, and has grown from just over 1,000 employees to more than 4,600 workers during that same time span. This year alone, Kavanaugh said the company expects to add another 750 new employees across its 70 global offices.
Luring World Wide Technology to Gateway is also a major victory for TriStar, which to date has developed approximately 3 million square feet of industrial space in the business park over the last several years.
Developers typically sell off industrial facilities they build once they are leased. For instance, TriStar in 2017 sold three industrial buildings it developed in Gateway for tenants including Geodis, DB Schenker and Amazon for more than $100 million to institutional investors. Those buildings combined totaled just over 2 million square feet.
Incentives also have played a key role in that success. Among the local and state tax incentives at TriStar’s disposal include tax increment financing, property tax abatement and an exemption on sales and equipment taxes.
TriStar President Mike Towerman said the incentives allow the firm to pass along savings of about 80 cents to the dollar per square foot to potential tenants.
They were also crucial in getting World Wide Technology to commit to the move, said Matt Hrubes, Duke’s vice president of leasing and development. He said Duke tried to keep World Wide Technology at its Lakeview facility but couldn’t compete on leasing rates as the tax incentives on Duke’s building were set to expire.
“This is a good case study of tax abatement around ӣƵ — and really the entire country — because what is happening is tenants, once the abatement period expires, are expecting landlords to compete with new properties that have the abatement,” Hrubes said. “Frankly, it’s a recipe for disaster for investors because nobody wants to invest in a property that has annual gains that will backtrack after 10 years.”
Gateway and Lakeview are part of an Illinois Enterprise Zone, which among other incentives, gives developers up to 100 percent of new taxes on improvements abated in years one through seven, 70 percent abated in year eight, 40 percent abated in year nine and 10 percent abated the 10th year. After that, the property is fully assessed and taxed.
Kavanaugh said he considered staying put and expanding out of the existing buildings, but ultimately “we thought based on lessons learned over the last number of years, being able to redesign the flow of a new facility and building out for additional capabilities would make us more efficient and scalable.”
Meanwhile, Towerman said TriStar has the capacity to develop another 3 million square feet of industrial space in Gateway . An additional 4 million square feet of potential space could be added on nearby lots also in Gateway that are owned by separate entities.
TriStar also recently completed a speculative 600,000-square-foot industrial building that remains to be leased.
“Once we see good leasing activity, we’ll start on the next building,” Towerman said. “Our objective is to build a spec building a year until the market tells us to stop or we run out of space.”
ӣƵ is coming off one of its strongest years for industrial real estate, when roughly 4 million square feet of new space was completed, on top of the 6 million square feet delivered in 2016.
Also in Edwardsville, Fenton-based Kadean Construction is in the Lakeview Commerce Center for Panattoni Development.
