With Great Risk Comes Great Reward

Sometimes you have to be willing to stretch and think big,” says Daniel Hemmer, the general counsel and secretary for Illinois-based CenterPoint Properties Trust. “It can open up a specialty and build your reputation.”

He and his firm should know: CenterPoint has become Chicagoland’s largest owner, manager, and developer of industrial real estate by reaching beyond its traditional scope and taking on a series of large projects that have pushed its conventional funding methods and widened the fields in which it operates.

The CenterPoint Intermodal Center

It all began about a decade and half ago, on a property everyone expected to become a dump. Though CenterPoint began real estate operations in 1984, the project that set it apart and remains its flagship development began in 1998. That was the year the firm acquired 1,800 acres of the Joliet Arsenal site in Elwood, Illinois, once home to a huge weapons manufacturing plant that closed in the 1970s, leaving the land so environmentally contaminated that it was considered a Superfund site. The property was slated to become the nation’s largest landfill, but CenterPoint acquired it through the Base Realignment and Closure Commissions (BRAC) process and spared the neighboring towns from a potential scrapheap. Instead, the firm envisioned a rail-based industrial park for BNSF Railway Company.

The project was a risk. The whole Joliet Arsenal site had to be cleaned up in cooperation with the army, and CenterPoint had to invest millions of dollars to get started. And before Hemmer even stepped through the firm’s doors, the project’s plans had already been drawn up and the first half had been completed. His first assignment, five years into the project, was to close its financing portions, which took some care because it received the largest amount of tax-increment financing (TIF) that has ever been offered in Illinois. CenterPoint sold senior portions of this financing to investors, which accelerated earnings and clarified the profitability of the project. Hemmer worked with investment bankers regularly, helping the speculative development by selling the bankers on the idea of a future tax stream that did not yet exist, and he successfully helped raise around $40 million using the TIF bonds.Based in part on the success of the Arsenal development, CenterPoint was acquired by CalPERS, the nation’s largest pension fund, after a management-friendly takeover in 2007. It wasn’t long after getting the company de-REITed and delisted from the New York Stock Exchange that Hemmer turned to supporting CalPERS’s strategic plan: building the business.

When the company decided to “double down” on the intermodal business plan and build another massive industrial park near its BNSF facility, Hemmer got to participate on the ground floor from his more senior position. He created an anonymous property-acquisition company to buy thousands of acres of land from hundreds of different farmers, helped plan the zoning regulations that allowed Union Pacific Railroad to join the project, and helped secure federal tax-exempt financing for the whole thing.

Today, the original project is about 80 percent complete, and instead of being the nation’s largest landfill, it has become its largest inland port. The site’s warehouses are integrated into a campus-like environment, and with the addition of 3,600 more acres, CenterPoint has developed the two largest intermodal rail facilities for the country’s two largest railroad companies, creating the third largest container port in the country (behind only the ones in New York / New Jersey and Los Angeles / Long Beach, California).

Although CenterPoint’s home base remains in Illinois, half of its business is now outside of the state; it has offices in Los Angeles; Norfolk, Virginia; and Kansas City, Missouri, having “followed the railroads out of town.”

The History of the Centerpoint INtermodal Center (Formerly the Joliet Arsenal)

1941
At the height of WWII, a federally owned, 23,500-acre site located 40 miles southwest of Chicago is opened and named the Joliet Army Ammunition Plant (JOAAP).

June 5, 1942
An accident in the building where anti-tank mine fuses were being assembled results in a major explosion that is felt as far as 60 miles away, killing 48 munitions workers and injuring 46 others.

1941–1945
Nearly 57% of the US Army’s TNT is produced at the JOAAP during WWII.

March 24, 1945
Another explosion at the JOAAP kills two workers.

1941–1975
The JOAAP serves as a major employer in Will County during three US wars (WWII, the Korean War, and the Vietnam War), employing as many as 12,000 people.

1976
The plant’s production begins to dramatically decline.

1990
The United States establishes the Defense Base Realignment and Closure (BRAC) Act, providing the framework for the transfer and disposal of military installations when bases are closed.

1993
JOAAP is declared excess army property.

1995
The Joliet Arsenal Development Authority (JADA) begins transforming the former Joliet Arsenal into manufacturing and distribution business parks.

1998
CenterPoint Properties acquires 1,800 acres of the Joliet Arsenal site, with the vision of creating an intermodal transportation center on the land.

2002
The CenterPoint Intermodal Center opens in Elwood, IL (at the former Joliet Arsenal site), serving the Burlington Northern Santa Fe (BNSF) train line.

2007
CenterPoint Properties acquires 3,600 additional acres of land at the Joliet Arsenal site to build an industrial park next to its BNSF facility (officially named CenterPoint Intermodal Center–Joliet).

June 11, 2007
A memorial is dedicated to the 50 victims of JOAAP explosions. It’s located across the street from the Abraham Lincoln National Cemetery in Elwood.

2010
CenterPoint Properties opens a 785-acre Union Pacific–Joliet Intermodal Terminal, offering international and domestic intermodal service to and from every West Coast port.

Today
80% of the CenterPoint Intermodal Center–Elwood is complete, and already it is the nation’s largest inland port.

The NNSA National Security Campus

In Kansas City, the company parlayed its infrastructure-development and government expertise to win a bid to build and fund a $750 million nuclear weapons manufacturing and research facility for the National Nuclear Security Administration (NNSA).

Development of the NNSA National Security Campus began in 2009 and finished in the summer of 2013 on time and under budget. Hemmer helped guide the project’s complicated financing, working with joint-venture partners and debt sources to fund 97 percent of the costs during the height of the financial crisis. Similar to what it did for the Joliet Arsenal project, the company presold all the government rent payments before the building was built, avoiding the need to raise equity for the project.

One tricky aspect of the financing was the need to keep more than $700 million off of CenterPoint’s balance sheet. Even though the debt was nonrecourse to the company, it was so large it would have swamped its debt covenants. After the Lehman Brothers bankruptcy, it became a game of “off-balance-sheet-financing hot potato,” so it took a lot of work to create a “highly structured, highly levered transaction that was acceptable to the bankers, the auditors, the government, and [CalPERS],” Hemmer says.

“The success of these big infrastructure and development projects gave us the confidence to build more,” Hemmer adds. “Success builds future success.”