NYSSA - A lease to run the Treasure Valley Reload Center favors a corporate giant and its local onion partners while providing little return for taxpayers putting up $29 million to build the public rail center.
The 24-page agreement was struck behind closed doors over months with no public oversight.
The green light for the deal came from the Malheur County Development Corp., the public company managing the Nyssa rail project and whose board is dominated by onion industry executives.
The lease goes to Americold, a Georgia company with billions in assets and an international network of warehouses and transportation centers.
An investigation by the Enterprise found that the lease payments from Americold will be a fraction of what is standard for industrial property and half what county officials had once expected.
And the company can abandon the Nyssa shipping center if it ever decides the finances don’t pencil out. The multinational company could leave with just a 60-day notice – and pay no penalty. Both conditions, real estate experts said, are unusual.
The terms of the lease also say that if the company sticks around for 20 years, it can buy the publicly-funded rail center for $1. That’s what taxpayers would get back in a sale after fronting the $26 million awarded by the state four years ago and another $3 million allocated this year.
Public officials justify the deal by saying they needed incentives to bring Americold to Nyssa. Americold officials in Georgia and Idaho didn’t respond to written questions.
Grant Kitamura, president of the development company while also running one of the area’s largest onion processors, said the state money set aside by the Legislature in 2017 was intended for the onion industry.
“It was a free gift to us,” said Kitamura.
He agrees the lease terms are unusual.
“In traditional business you wouldn’t do this, but in traditional business you don’t get $26 million from the state,” he said. He is general manager and partner in Baker and Murakami Produce Co. in Ontario.
Kitamura and Greg Smith, Malheur County’s economic development director, have explained that keeping down the lease costs benefits the onion industry.
“If we charged more, it would cost us more,” Kitamura said.
Smith made the same point after Malheur County officials asked him about the rate. They noted the county would have to continue spending up to $23,000 every month to support the rail center.
“I have no problem increasing the amount, but I just want to remind the county that the cost will just be passed on to the shippers,” Smith told them in an email last April.
In his response, Smith didn’t propose where the county could get the money to cover the monthly costs, which includes $6,000 a month paid to Smith’s company.
The role of the Treasure Valley Reload Center is to put more farm products onto railroad cars instead of trucks for movement to markets in the Midwest and on the East Coast. County officials had forecast that the volume of onions going by train would double if the Nyssa center opened.
Besides getting more reliable shipping, the onion industry would also get something else out of the public investment in Nyssa: savings.
Projections done in 2018 showed costs for the industry would drop by nearly $2 million a year if taxpayers built the center. With a less expensive lease, the savings for the industry may be even more.
That likely means higher profits for onion companies because industry leaders say that onion producers plan to ship the same amount of onions they do now - about 490,000 tons a year.
An aerial view of the site of the rail shipping center north of Nyssa, planned by the county and funded by taxpayer dollars. (The Enterprise/Austin Johnson)
WHAT THE LEASE SAYS: “Tenant also agrees to pay Landlord monthly rent in the amount of Two Thousand Five Hundred Dollars ($2,500) per month.”
The rail shipping center will feature a building proposed to be 60,000 square feet – about one and a half times the size of a chain grocery store.
Under the lease, Americold will pay $2,500 a month.
Matt Hilton, a commercial real estate broker at Windermere in Eugene, was surprised at the industrial rate, after first hearing the monthly payment and then the facility’s size. The rate comes to 4 cents a square foot.
“Sorry, did you say 60,000 square feet? Like six, zero, zero, zero zero?” Hilton asked. Referring to the lease cost, he said, “That seems like a really low number. Typically, if it’s a little rougher space, maybe it will be as low as 35 cents per square foot.”
Hilton noted that local market conditions and other factors can affect lease rates.
Devin Pierce, an industrial real estate expert at TOK Commercial Real Estate in Boise, said that lease rates are usually determined by looking at vacancy rate, demand for product, and comparable rates in the area.
“For a new project, we are currently seeing a rate of 75 cents a square foot for the warehouse square footage and $1.45 a square foot for the office space portion of the space,” said Pierce. “Second-generation spaces typically blend the rate into one asking rate across the entire space.”
At 75 cents, the Treasure Valley Reload Center would be worth $45,000 a month – not the $2,500 Americold will pay. One industrial warehouse available for rent in Ontario is going for 50 cents a foot. At that rate, Americold would pay $30,000 a month for the Nyssa center.
How Smith and his team decided the Nyssa rate couldn’t be established.
Smith agreed to a sit-down interview, and then canceled, having an aide ask for written questions instead. After the Enterprise provided written questions, the aide said they didn’t have time to respond.
In June, Smith provided one chain of emails in response to a request under the public records law from the Enterprise for “any record establishing the basis for the $2,500 monthly lease payment” and the record of any expert review of the proposed lease.
In one email to county officials last April, Smith explained, “Our number was constructed purely for insurance and nominal incidental issues that arise.”
He provided no other record showing how the lease charge was determined. In 2018, Smith and his team told state officials the shipping center would run profitably because revenue included lease income of $5,000 a month – twice what ended up in the Americold lease.
WHAT THE LEASE SAYS: “Landlord hereby informs Tenant of Landlord's right to impose a licensing or other registration system on customers utilizing the Reload Facility for the purpose of Landlord collecting fees from such users.”
Even with Americold running the shipping center, the public would still be on the hook to cover some costs, according to county records.
County Judge Dan Joyce said in an email last April that those costs would be $279,840 a year.
One way to pay those bills would be by imposing a new onion tax – a county fee on every bag of onions shipped out of Nyssa.
Smith and his team had included such a fee in explaining in 2018 how Treasure Valley Reload Center would be profitable for the county. The team estimated then that the fee on onions would bring the county $445,000 a year – and account for a good share of the profits from the reload center that would flow to the public.
But now, the public will get roughly half that amount – and it wouldn’t be enough to cover the county’s costs.
That’s in part because the amount of onions to be shipped out of Nyssa is about 50,000 tons less than projected in 2018.
On top of that, the county is planning to cut the fee it planned to charge – from 15 cents for every 100 pounds of onions to 10 cents. The result is the onion industry would contribute less to the public cost of running the rail center, leaving taxpayers to make up any shortfall.
Records show that county officials at one time considered language that would have Americold take on the job of collecting the fee.
By the time the lease was finished, that job had been shifted to Malheur County Development Corp. but the cost of that extra work hasn’t been disclosed.
It’s possible there would be even more income from this fee in the years to come. The shipping center was promised as a place where a range of farm products besides onions could be shipped. The county said it intends to collect a fee on those products as well, but no one has forecast what additional money for the county that would generate.
WHAT THE LEASE SAYS: “If the Tenant determines, in its sole and absolute discretion, during the Term that operating the Reload Facility is not financially viable due to insufficient customer volume or cost increases or any other cause then Tenant shall have the right to terminate this Lease.”
Industrial leases typically spell out ways for either the landlord or tenant to end the arrangement – on a friendly basis or not. The core benefit of a lease is to lock in certainty for both parties. The owner of the property can count on lease income for a set period and the business using the space is certain to have a place to operate at a predictable cost.
In the rail shipping lease, Malheur County Development Corp. can send Americold on its way if it doesn’t pay its lease – a standard provision.
What’s not standard is how Americold could get out of the lease.
Americold holds the “sole and absolute discretion” to terminate the lease if it decides that running the shipping center “is not financially viable due to insufficient customer volume or cost increases or any other cause,” according to the lease.
The lease doesn’t require Americold to produce evidence of those causes.
“It doesn’t make sense to tie Americold down if they are losing money,” said Ryan Bailey, an aide to Greg Smith in Ontario. “It’s kind of like getting married and not being able to get divorced. They are a company. There has to be a way for them to get out.”
Dennis Parker of Stone Castle Consulting has worked on industrial projects in Oregon and Idaho, including an industrial park being developed in Nampa.
He said such an open ability to leave is “absolutely not” a typical part of industrial leases.
For Parker, the lease suggests Americold’s uncertainty about the facility’s prospects.
“If at any time the board of directors says it’s not profitable, they’ll just walk away,” Parker said. “And then what happens?”
Kitamura, the development company president, said he didn’t expect Americold to walk but if it did, another operator would be brought in.
No other company, however, bid to operate the Nyssa center when county officials sought proposals in 2017.
WHAT THE LEASE SAYS: “Tenant will have the option, but not the obligation, to acquire the Leased Property and the Improvements from Landlord (the “Purchase Option”) for the agreed upon purchase price of One Dollar ($1.00)”
Americold knows how to make money.
The company, which operates warehouse and shipping facilities around the world, reported a profit in 2019 of $48.2 million.
That financial muscle was put on display in 2015 when the company bid to build and then lease a shipping operation in Maine.
In its proposal, Americold estimated for the Maine Point Authority that the project would cost up to $30 million.
“Americold has the cash on hand to execute on this deal without any additional outside financing,” the company said.
And, it said, it would like to have its standard term on the lease – 40 years.
Americold’s lease for Nyssa would run 20 years, not 40, and the company is helping design but not paying for construction of the rail center.
Instead, public money will cover an estimated $6.5 million for the building. Millions more will be spent to level the farmland where the shipping center is going and to install rail track connecting to the Union Pacific Railroad line.
At the end of 20 years, Americold can buy the building and ground for $1.
“It’s an incentive for them to stick with it and make it work,” said Kitamura.
The Enterprise in June requested from Smith and his team “any assessment, review, calculation or any such work” to determine what the Treasure Valley Reload Center would be worth in 20 years.
Smith provided no record of such a review and he didn’t respond to subsequent written questions seeking his explanation about the sale provision.
Pierce, the Boise real estate broker, said developers typically look for close to a 6% return when developing an industrial building.
That would mean on the Nyssa building alone, the public would expect to get back its original $6.5 million and nearly $400,000 more.
The Port of Columbia County, which owns 2,400 acres along the Columbia River west of Portland, also uses public money to build industrial buildings for lease to private companies.
Asked if the port would sell its buildings, a port representative replied, “The port does not usually sell property. It would have to be a very compelling case for the port to sell a building or land.”
DEAL NOT DONE
Even now, though, Americold has yet to legally commit to running the Nyssa center.
State officials all along have insisted that the deal between Malheur County Development Corp. and Americold be locked in and signed before money for construction would be released.
After repeated delays testing the patience of state officials, Smith’s team last spring agreed to a new hard deadline to get the deal done - June 15.
On that day, Smith turned in the Treasure Valley Reload Center lease but the line reserved for an Americold executive’s signature was empty.
Instead, a law firm wrote the state in a one-paragraph letter on June 15 that Americold agreed “in principle” with the lease but would sign it only “after final authorization by its board and management team.”
With the June deadline blown, Smith in early July assured state officials that “Americold will sign no later than July 30.”
That was last Friday.
As of Monday, Americold had not signed.