$10 Million Fixer-Upper?

$10 Million Fixer-Upper?

Copyright 2003, Traffic World, Inc.

If anybody had any doubts how absurdly valuable land underneath defunct truck line terminals has become - and how costly it is to run trucking operations in the Northeast - the saga of Consolidated Freightways'' former Newark, N.J., 90-door terminal should erase them.

In a bidding war worthy of David vs. Goliath, $2 billion LTL giant Con-Way Transportation Services outbid privately held New England Motor Freight and other corporate interests in offering $10.15 million in an auction for one of Consolidated Freightways'' last prime terminal locations. Con-Way is a unit of $5 billion CNF Inc. NEMF is part of the $500 million Shevell Group of carriers, brokerage facilities and other transport interests, and is headquartered in nearby Elizabeth, N.J.

Con-Way won CF''s old Newark, N.J., facility that one transportation executive called "ground zero" for any major transportation-logistics operation. Con-Way bought the property when NEMF stopped bidding at $10.1 million.

But Con-Way officials admitted that even their winning bid does not guarantee immediate occupancy of a facility that they know needs some work.

"It will be at least one year before we get in and operate in it," said Ned Moritz, Con-Way vice president of marketing. "It will be looked at very carefully. We have to look at it closely and perform due diligence."

Despite its "as-is" condition, the old CF terminal will enable Con-Way Central Express, the largest unit in the Con-Way system, to expand its presence in the Northeast. Con-Way hardly could have bought a more prime freight location. It is approximately one mile to Newark Liberty Airport, one mile to the Port of Elizabeth, and close to the former Conrail railhead. Bidding started at $6.5 million for the 90-door, 14-acre facility.

Besides Con-Way and NEMF, the bidding attracted Hertz Corp., which wanted the site to expand its off-airport facilities near Newark Liberty Airport. Rental car agencies increasingly are requiring extensive real estate near airports because they are being eliminated from on-airport facilities because of economics, security concerns and other factors, industry officials say.

Although the auctioneer handling the CF estate expected the Newark facility to fetch a nice price, few trucking industry officials expected it to sell for the equivalent of more than $100,000 per door.

And that was just to get the property as is. Improvements probably will be necessary for it to operate as an integral part of the $2 billion-plus Con-Way regional LTL system.

New Jersey real estate experts admitted privately that the facility may require another $2 million to $3 million investment to make it suitable for modern trucking needs and environmental upgrades.

The bidding for one of the final CF terminals available was one of the most fiercely contested among the 225 terminals that are up for sale since CF began liquidating last year. CF''s estate has received more than $250 million from more than 125 terminals that have been auctioned so far.

The Newark facility wasn''t the most expensive sale in terms of total dollars, only in its per-door cost. Earlier Phoenix-based Swift Transportation, the nation''s largest publicly held truckload carrier, paid $26 million on a 399-door former CF terminal on 80 acres in Mira Loma, Calif. Similarly FedEx Freight bought CF''s former Nashville facility (216 doors on 122 acres) for $12.5 million and one in Laredo, Texas (93-doors plus a warehouse on 20 acres) for $6 million. Roadway bought an 80-door facility in Long Beach, Calif., on eight acres for $8 million, which works out to about $100,000 per door.

The Newark facility was one of the most anticipated sales among all the former CF properties. That''s because of its prime location as well as the fact there are not that many suitable locations for Northeast-based trucking companies to expand because of cost, zoning regulations and the public''s NIMBY-like desire to keep trucking operations out of their neighborhoods.

Carriers are forced to rent terminal facilities for as much as $750 per door per month, especially in the Northeast. That makes ownership of facilities even more crucial, industry officials say.

Even though it lost out in the bidding, NEMF may be a winner in the long run. That''s because industry officials acknowledge that companies like NEMF, which own virtually all the real estate in their network, have a huge economic cost advantage over carriers that are forced to lease their facilities.

Mature companies, such as NEMF and others that have been able to acquire their terminal network over decades, have a distinct advantage because they were able to buy those properties before real estate prices escalated so sharply. That''s true everywhere, industry executives say, but especially in the high-cost Northeast where all truckers'' operating costs are above average.

More and more, shrewd trucking executives are seeing increasing value in owning their own facilities. In the Northeast, where a decade-long string of bankruptcies has erased familiar names ranging from St. Johnsbury to A-P-A Transport, shippers increasingly are recognizing that financial stability among their carriers is a prime factor in carrier selection for long-term contracts.

"I don''t know how you make money in the Northeast," one trucking executive said privately. "You just have to do it through rates. Shippers just have to realize if you''re doing business in the Northeast, they''re going to have to pay a premium for it."