Ready for Development: Power of 32 Site Development Fund to Capture Business Opportunities for the Region

Jun 4, 2015 Economy, Government, Transportation & Infrastructure

Dennis Yablonsky, CEO, Allegheny Conference on Community Development

In 2010, the Power of 32 held 156 community conversations in 32 counties to create a shared vision for the region’s future. The outcome was a Regional Agenda, published late in 2011, outlining 15 initiatives. One of the key initiatives was to create better sites for business growth in the region. The goal was to launch a fund to assist development of high-quality sites, emphasizing redevelopment of brownfields, to support business relocations and expansions to the 32-county region. 

Today, that fund is a reality. 

On May 28, the Allegheny Conference on Community Development, which led the effort to create the fund, announced the Power of 32 Site Development Fund LP, a new, nearly $49 million fund that will help close critical infrastructure financing gaps and move prepared sites to market more quickly.

The fund, established with the investment of 14 private sector investors and foundations, is built on the belief that successful business investment depends on all the strengths of the 32-county region regardless of geographic boundaries, and that an investment in real estate at any one location benefits the region as a whole.

“When we went through our regional visioning process, there was clear consensus — not just in Pittsburgh but in all 32 counties — that we needed to put more investment in infrastructure and especially get brownfield sites ready for reinvestment,” said William (Pat) Getty, president of the Claude Worthington Benedum Foundation, co-chair of the Power of 32 regional visioning project and president, Power of 32 Site Development Fund, LLC. “The need for sites big enough to attract companies that could have regional hiring and economic impact was the catalyst for creating the fund.”

Emphasis on Brownfields and Community

According to Dennis Yablonsky, chairman of the Fund’s Board of Managers and CEO, Allegheny Conference on Community Development, the fund is a response to the market demand for more shovel-ready sites.

“Simply put, we have more companies that want to locate here than we have places for them to locate,” explained Yablonsky. “When those companies are ready to commit and start building, they don’t want to wait for infrastructure.”

At the fund announcement, Yablonsky pointed out that over the last 12 years the Pittsburgh Regional Alliance, which markets the Pittsburgh region for business expansion and location, has won 65 percent of the projects that it competed on to bring businesses to the region. He stressed however, that the number one factor in competitive losses has been the lack of available land with infrastructure in place and ready for development.

However, getting traditional funding for site development is difficult.

According to Josh Lavrinc, CEO of the fund manager, Callay Capital, LLC, the fund’s efforts to invest in site development involve substantial risks.

“We’re financing costs to prepare sites for future productivity that may not have adequate or any sources of current income,” he explained. “Although the likelihood of and capacity to attract future demand at the site are analyzed, the fund is making a loan for the development of land to accommodate speculative demand that resembles Field of Dreams, because of the hope that if it is built, they will come.  As a result of the risks associated with site development at an early stage in advance of known demand, conventional financing at rates that promote feasible projects is not available in the market without some subsidy.”

The site fund fills the investment gap for the region.

Lavrinc further explained that in addition to being a speculative loan fund, the fund is a patient loan, meaning that repayment of principal is delayed so that site work can be done and a tenant can be developed.

Site loans will be used to develop all of the infrastructure required to prepare sites for development including grading, environmental remediation, roads, utilities and other infrastructure.

“The primary driver for selecting a site is job development,” said Lavrinc. “We prioritize projects that are located within the 32-country region and large enough to have a regional impact on economic development. Then we consider other attributes, such as whether the site is in a low or moderate income census track or whether it’s a brownfield project we can remediate.” 

First Investment at a Brownfield in West Virginia

The Fund’s first site loan of $2.6 million is to Trimodal Terminal, LP, in Follansbee, W. Va., an 80-acre brownfield site located on the Ohio River approximately 45 miles from Pittsburgh with river, rail and highway access. The new funding will be used for rail line expansion and renovation, utility infrastructure (gas and water) and clearing, grading and creating additional shovel-ready pads within the site.

According to Jim Joseph, co-owner, Trimodal Terminal, L.P., the funding fills a gap in the financing market and allows his company to accelerate the site coming to market.

“The funding lets us make all of the improvements to capture the companies – in particular in the shale industry – that otherwise would pass us over,” said Joseph, who notes the site’s proximity to the Pittsburgh Airport and the Route 22 corridor.

The funding is also important for the growth of companies already located in the region.

“We have an existing tenant that the availability of the additional rail makes it viable for them to consider an expansion of this site,” Joseph added.

Whether retaining businesses or recruiting new businesses, capturing economic development is good for the region and important to West Virginia.

“West Virginia has been particularly hard hit with the demise of the steel industry – especially the state’s Northern Panhandle,” he said. “There is a heavily skilled labor force here; they need a place to work.”

“Our commitment — beyond business — is to really make an impact in the Panhandle.” 

Investors are Stakeholders in the Region

Like Trimodal, the investors have a keen interest in projects that can revitalize communities in the region. The 14 limited partners, primarily local banks and foundations, have joined together to make more shovel ready sites available by closing financing gaps.

“We feel it is a really good opportunity for us to assist in business expansion and job creation in a way that limits our risk at the same time,” said Lisa Quattrochi, vice president and senior community development relationship manager for Huntington National Bank, one of the investors. “Our colleagues and customers live and work in these areas, so for us, helping with job creation is really the right thing to do if we have the opportunity.”

Continuing Opportunities for the Region

The opportunities for economic development across the region continue. According to Lavrinc, funding is ongoing, and there are currently five active projects in negotiations.

“We have an open-ended fund that can be lent and relent continuously through the expiration date of those mandates,” he noted.

“We are open for business every day,” he added. “We are getting new opportunities every day and selecting the best of those opportunities until the monies are initially deployed. And when that money becomes available again, we will redeploy to the best projects at that time.”

Lavrinc has high praise for the Allegheny Conference and the Power of 32 for raising the funds and promoting regionalism.

“It is one thing to do real estate investment, it is more difficult and more beneficial when you are breaking down political boundaries and working regionally to create solutions,” said Lavrinc.

The importance of regionalism is echoed by Yablonsky.

“No matter where these sites are in the 32 counties, the workforce is going to come from multiple states and the supply chain is going to come from multiple states.  This region is geographically integrated and the Power of 32 Site Development Fund is going to have a regional impact whether the sites are in Pennsylvania, West Virginia, Ohio or Maryland.”