3rd Party Logistics Providers - The of their presence in your community

value

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Questions for you…

1. How many communities represented here have closed a deal with a 3PL in 2012?

2. What is the average size of 3PL deals done in the U.S. in 2012?

3. Which companies are using 3PLs?

4. What drives demand in 3PLs?

5. What are some challenges in incentivizing 3PLs?

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Discussion agenda

• 3PL market and recent activity

• 3PLs today

• Real estate trends, requirements and challenges

• Incentive challenges with 3PLs

• Opportunities to attract 3PLs

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3PL market and impact on economy

• The U.S. 3PL industry continues to experience significant growth and has experienced a strong rebound from the economic downturn in 2009.

• U.S. 3PL market’s gross revenue for 2011 was $133.8 Billion and was three times the growth in U.S. gross domestic product (GDP).

• 1996 – 2011 CAGR = 10.3%.

• 3PL demand has been strong all year; 3PLs have been the most active user segment in 2012 both in the US and Europe. • 3PLs are benefitting from uncertainty

• An uncertain environment drives need to shift risk• 3PLs provide flexibility and scalability

2013 Armstrong & Associates, Inc

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Recent big box deals – 3PL

Inland Empire, Los Angeles Company Size (s.f.) Industry

Q2’12 Ontrac 403,444 3PL & Logistics

Indianapolis Company Size (s.f.) Industry

Q2’12 Carrier Corp 436,000 3PL & Logistics

Q1’12 Prime Distribution 403,000 3PL &Logistics

Q2’12 Jacobson Companies 334,000 3PL & Logistics

Chicago Size (s.f.) Industry

Q2’12 M Block & Sons 915,643 3PL & Logistics

Philadelphia Size (s.f.) Industry

Q2’12 Ceva Logistics 600,000 3PL & Logistics

St. Louis, Kansas City Size (s.f.) Industry

Q2’12 OHL 412,000 3PL & Logistics

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United States focus on…

Dispersion by industry 2012 Dispersion by size 2012

2013 Armstrong & Associates, Inc

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Distribution of tenants in the market

Size Consumer Goods/ Retail

Food & Beverage

3PL & Logistics

Manufacturing All Industries

100-199KSF 20% 32% 31% 52% 35%

200-299KSF 21% 15% 22% 22% 20%

300-399KSF 12% 17% 16% 5% 14%

400-499KSF 7% 6% 12% 8% 8%

500-749KSF 19% 17% 12% 5% 12%

750-999KSF 5% 2% 3% 5% 3%

>1 MSF 16% 11% 4% 3% 8%

3PL & Logistics most matches the overall distribution of tenants in the market due to the wide variety of industries these firms serve.

2013 Armstrong & Associates, Inc

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3PL Perception vs. Reality

Traditional View

•Inexpensive, older buildings

•Low tech• MHE

• IT

•Most 3PLs are not credit worthy.

•Compete on price.

•Heavy penetration in apparel; automotive. Some industries do not use 3PLs.

3PLs Today

•Frequently in market for large, 32’/36’ clear, cross dock facilities, focused on class A.

•Often running mechanized facilities; leveraging IT acumen.

•Many 3PLs are financially strong-higher percentage of deals have the 3PL on lease.

•Still a price sensitive business, but error-free performance and safety are critical to many customers.

•3PL customer mix matches overall user profile.

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3PL Real Estate Trends and Requirements

• Lease length tied to length of contract• Spec buildings may offer landlord more flexibility on lease length

• Need to react quickly• Often have to turn around an RFP in a short period of time• Need to be cognizant of buildings/space immediately• Need to be able to quantify operating costs

• Lots of dock capacity

• Access to highways• Frequently the “final mile” logistics is outsourced to 3PLs

• 3PLs remain focused on securing high quality class A product• The trend in the U.S. is towards 36’ clear heights

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• Immediate occupancy

• Multi-channel distribution

• Lack of cross-dock facilities in major markets

• 3PLs need quality space and lower prices

• Who controls the lease?• The 3PL?• Their customer?

3PL Real Estate Challenges

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3PL State and Local Incentive Challenges

• Timing to respond to RFP• Can the 3PL create competitive leverage by reducing their costs through incentives? • Can incentives be pre-negotiated with offer to remain for a fixed period of time?

•Who controls the capital investment?• The 3PL?• Their customer?

• Who owns the employees?• The 3PL? or Their customer?• Are the employees considered contract employees?

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3PL State and Local Incentive Challenges

• Timing to respond to RFP• Can the 3PL create competitive leverage by reducing their costs through incentives?

•Who controls the capital investment?• The 3PL?• Their customer?

• Who owns the employees?• The 3PL? or Their customer?• Are the employees considered contract employees?

• Short-term leases •Can incentives be negotiated for shorter periods? Most 3PLs are not signing leases greater than 5 years.

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3PL State and Local Incentive Opportunities

Need to find a way to incent 3PLs for the period of time they are adding value to the state/community.

• If the incenting entity utilizes a 10-year ROI calculation, how can that be adjusted for shorter leases?

• Can incentives be approved with a phased approach to accommodate lease extensions and renewals?

• If the lease and employees are not held by the same taxing entity; how can benefits be realized?

• Can incentives be pre-negotiated with offer to remain for a fixed period of time to assist 3PL with responding to RFP?

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1. What is the average size of 3PL deals done in the U.S. in 2012?

2. Which companies are using 3PLs?

3. What drives demand in 3PLs?

4. What are some challenges in incentivizing 3PLs?

Same questions as earlier… for your consideration

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3PLs are an industry that bring significant value to the states and communities in which they locate; however, unlike their customers, the 3PL’s investment and employment often does not quality for state and local support.

• 3PLs are the fastest growing segment – in terms of occupiers of industrial real estate.

• 3PLs have gained penetration in a wide variety of industries, and now mirror the overall market.

• States and communities must find a way to help offset the risk for the 3PLs just as they do for other industries

• Address timing

• Lease term

• Contract employees

In conclusion