Full Text
INDUSTRIAL RAIL PARK MARKET ANALYSIS Flathead County Economic Development Authority Kalispell, MT Prepared for: FCEDA Kalispell, MT May 2013 Project # 4612020 ---PAGE BREAK--- i I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 Contents Acknowledgements - 1 - Overview - 1 - Competitive Assessment - 1 - Transportation Connections - 3 - Similar Industrial Parks - 3 - Economic Trends - 5 - Financial Feasibility - 8 - Comparative Sites - 9 - Cultivation of Partnerships - 11 - Target Industry Identification - 11 - Freight Flow Analysis - 12 - Montana Rail Exports - 13 - Montana Commodity Exports - 16 - Freight Shipment through Montana - 18 - Canadian Imports & Exports - 20 - Identification of Specific Leads for Recruitment - 24 - Project Funding Development - 24 - Public Option Funding - 25 - Private Option Funding - 25 - Identification of Appropriate Operating - 25 - Deed Restrictions and Development Agreements - 26 - Owner/Lease Agreements - 27 - ---PAGE BREAK--- ii I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 Zoning Requirements - 27 - Community Rail Spur - 27 - Transload Operator - 27 - Recommendations - 28 - TABLES Table 1: Rail Park Site Information - 3 - Table 2: Economic Trends for Flathead County - 5 - Table 3: Top 20 Private Employers, 2012 - 6 - Table 4: FVCC Academic Year 2011-2012 Graduates (Top Degree Earners) - 7 - Table 5: Estimated Project Costs (Planning-Level Only) - 8 - Table 6: Comparative Industrial and Warehouse Sites - 10 - Table 7: Industry Employment Changes (2000 – 2010) - 12 - Table 8: Montana Rail Freight Movements (2011 – 2040) - 14 - Table 9: Commodity Exports within and out of Montana (2011 – 2040) - 17 - Table 10: Leads for Rail Industrial Park - 24 - ---PAGE BREAK--- iii I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURES Figure 1: FCEDA/BNSF Site Property and Existing Utilities - 2 - Figure 2: Identified Regional Industrial Parks - 4 - Figure 3: Percent of Degree Earners Supporting Manufacturing/Industry - 7 - Figure 4: Preliminary Site Layout - 9 - Figure 5: Freight Tonnage Shipped from Montana by Mode (2011) - 13 - Figure 6: Montana Rail Exports (2011) - 14 - Figure 7: Montana Rail Exports (2020) - 15 - Figure 8: Montana Rail Exports (2030) - 15 - Figure 9: Montana Rail Exports (2040) - 16 - Figure 10: Rail Shipments Through Kalispell, Montana (2011) - 18 - Figure 11: Rail Shipments Through Kalispell, Montana (2020) - 19 - Figure 12: Rail Shipments Through Kalispell, Montana (2030) - 19 - Figure 13: Rail Shipments Through Kalispell, Montana (2040) - 20 - Figure 14: Rail Imports and Exports to Canada (2011) - 21 - Figure 15: Rail Imports and Exports to Canada (2020) - 21 - Figure 16: Rail Imports and Exports to Canada (2030) - 22 - Figure 17: Rail Imports and Exports to Canada (2040) - 22 - Figure 18: Top Six Rail Exports from Montana to Canada - 23 - Figure 19: Top Six Rail Imports to Montana from Canada - 23 - Figure 20: Operating Model for Lease or Sale Sites - 26 - ---PAGE BREAK--- - 1 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 ACKNOWLEDGEMENTS Staff from Montana West Economic Development (MWED), board members from Flathead County Economic Development Authority (FCEDA) and the City of Kalispell have provided critical information and input throughout the market analysis. Their assistance was instrumental in completing this project. In addition, BNSF and Mission Mountain rail companies have been willing, supportive partners of the project and will continue to be a valuable resource moving forward. OVERVIEW FCEDA is assessing the potential to develop a rail-served industrial park to enhance the long-term vision for economic and job growth in Flathead County. The potential industrial park will serve as a place for manufacturers to produce and distribute goods via rail. Currently, FCEDA owns a 40 acre parcel, Figure 1, which is located on the east side of Kalispell and west of Highway 2, east of Whitefish Stage Road and south of the Stillwater/Flathead Rivers. In addition, BNSF owns approximately 55 acres of land adjacent to the FCEDA property that will be used in conjunction with FCEDA’s parcel to create a larger rail park and thus a more feasible site to attract new businesses and relocate existing businesses out of downtown Kalispell. A feasibility analysis will also be provided as an addendum to this report. The feasibility analysis will provide information about infrastructure and rail costs needed to improve the site as well as map and rail-park layouts for site specific properties. COMPETITIVE ASSESSMENT FCEDA’s site contains approximately 40 acres of industrial zoned land, which is located in Flathead County, and shown in Figure 1. The site is not located in Kalispell city boundaries; although preliminary annexation discussions are occurring between the City and FCEDA representatives. The property is the former McElroy and Wilken Gravel pit that has been reclaimed. The property sits adjacent to a State Super Fund site designated as the KRY Site and 0.7 acres of the property in the northeast corner is fenced and controlled by MT DEQ for use of their Land Treatment Plant in the ongoing cleanup process for the KRY Site. Remediation for environmental impacts is not required for the property other than the 0.7 acres previously identified. BNSF’s property contains approximately 32 acres directly north and adjacent to the FCEDA parcel. BNSF is currently remediating some site specific contaminants on their property. The existing rail has been removed to help with cleanup and this opportunity presents a unique prospect to combine both properties into one site consisting of 72 acres for rail-served industries. The advantage of moving forward as a combined site may allow BNSF to restructure their rail layout to accommodate a joint park. ---PAGE BREAK--- - 2 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 1: FCEDA/BNSF SITE PROPERTY AND EXISTING UTILITIES ---PAGE BREAK--- - 3 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 An additional six acres may be available within the BNSF property depending upon the current owners (Glacier Stone, Klinger Lumber and David Wilkins) potential lease/ownership agreement with BNSF. If the six acres become viable, the total rail park acreage could increase to nearly 80 acres. Acquiring or involving other potential parcels within the same land area as FCEDA and BNSF could increase the park’s total acreage to more than 92 acres. Table 1 displays a summary of site specific information. TABLE 1: RAIL PARK SITE INFORMATION Acreage 40 - FCEDA 32 - BNSF 20 - Other 92 – Total Environmental Concerns 0.7 acres (KYR site); no environmental impact to FCEDA site Zoning Industrial Water Availability Yes Transportation Access Yes Sewer Availability Yes T r a n s p o r t a t i o n C o n n e c t i o n s Transportation routes include Oregon Lane to the south, Montclair Drive to the east and Whitefish Stage to the west. Whitefish Stage is a classified as a minor arterial and could support truck traffic; however, a more viable truck route into the site is US Highway 2, which is 1/10 miles southeast of the site via Montclair Drive and provides access to Kalispell’s and Flathead County’s truck freight network. US Highway 93 is approximately one mile west of the site via Oregon Lane. Both highways provide truck freight access making it a viable location for a transload facility. Interstate 90 is approximately 110 miles south of the site by automobile. Interstate 15 is approximately 160 miles east of the site by automobile. BNSF and Mission Mountain service the site with rail and have long-term plans to improve the functionality of the site. A separate traffic impact analysis (TIA) will need to be conducted to determine improvements to the transportation network surrounding the site. The improvements should be coordinated with the Montana Department of Transportation (MDT) to ensure all state and federal regulations pertaining to access on US Highway 2 are implemented efficiently. S i m i l a r I n d u s t r i a l P a r k s FCEDA’s industrial park is one of four industrial parks located within a 100-mile radius of Kalispell. Figure 2 shows known industrial parks in Montana and Idaho; however, this may not be a comprehensive list as some industrial parks may not have been identified. FCEDA’s site has the potential to service the entire Flathead Valley and could become one of only two ports to ship items via rail into Canada; the Port of Northern Montana in Shelby currently ships to Lethbridge, Canada. Because FCEDA’s site will be reserved for rail-served only customers, it increases the marketing viability for potential BNSF and Mission Mountain customers. ---PAGE BREAK--- - 4 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 2: IDENTIFIED REGIONAL INDUSTRIAL PARKS ---PAGE BREAK--- - 5 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 E c o n o m i c T r e n d s Table 2 displays the economic trends for Flathead County. The trends indicate that the while unemployment remains high at 9.2 percent and has not changed significantly since 2010; the labor force and annual employment continue to increase or remain steady. The 12.1 percent increase in labor force and 5.0 percent increase in annual employment during the past decade indicate businesses are hiring and that the Flathead Valley business climate is improving. Moreover, the number of people unemployed has decreased nearly 19 percent and the unemployment rate has decreased 2 percent since 2010. Based on recent trends, the potential is increasing for the industrial rail park to create jobs and support new industries especially as manufacturing and other rail-oriented industries continue to recover from the recession and expand operations. Table 3 shows the top private employers by employees, indicating that service-oriented professions continue to be the largest employers. However, Plum Creek and Applied Materials are large scale lumber and manufacturing companies that lend credence that these industry types can thrive in the Valley. TABLE 2: ECONOMIC TRENDS FOR FLATHEAD COUNTY 2000 2010 2012 Percent Change (2000-2010) Percent Change (2010-2012) Population 74,741 90,928 92,867 21.7 2.1 Median Household Income $34,466 $44,998 N/A 30.6† N/A Labor Force 39,328 44,086 43,897 12.1 -0.4 Annual Employment 37,264 39,127 39,873 5.0 1.9 Unemployment 2,064 4,959 4,024 140.3 -18.9 Unemployment Rate 5.2 11.2 9.2 6.0 -2.0 Sources: 2000 US Census; 2010 ACS 5-year estimates; Montana Department of Labor and Industry, Research and Analysis Bureau; Development Alliance †Not adjusted for inflation ---PAGE BREAK--- - 6 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 TABLE 3: TOP 20 PRIVATE EMPLOYERS, 2012 Business Employees Kalispell Regional Medical Center 2,282 Plum Creek 685 Teletech 550 Whitefish Mountain Resort 525*/80 LC Staffing Service 450 National Flood Services 437 Applied Materials 400 Wal-Mart 390 Burlington Northern 375 North Valley Hospital 348 Immanuel Lutheran Home 267 Glacier Bancorp, Inc. 252 The Lodge at Whitefish Lake 235*/120 Costco 232 Western Building Center 180 Flathead Electric Co-op 159 Lowes 145*/135 Source: Montana West Economic Development Table 4 identifies the top 10 Associate of Applied Science (AAS) degrees and the top 5 Certificate of Applied Science (CAS) degrees with from Flathead Valley Community College (FVCC) for year 2011-2012. Data indicates that degree earners such as Welding and Inspection Technology (19), Heavy Equipment Operator (17), Electrical Technology Small Business Management HVAC and Cabinet and Furniture Technology are graduates that can support manufacturing and industries associated with rail. Moreover, Table 4 indicates that more than 50 percent of all AAS graduates and CAS graduates have a degree that could service manufacturing, agricultural/forestry and rail-oriented industries. Should potential businesses want to relocate or start-up in the rail park, they would have a ready and available pool of human capital to meet and expand business needs. ---PAGE BREAK--- - 7 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 TABLE 4: FVCC ACADEMIC YEAR 2011-2012 GRADUATES (TOP DEGREE EARNERS) Major Graduates Associate of Arts 102 Associate of Science 96 Associate of Applied Science (AAS) Practical Nursing AAS 27 Welding and Inspection Technology AAS 19 Culinary Arts AAS 12 Medical Assistant AAS 11 Electrical Technology AAS 9 Natural Resources Conservation & Management AAS 8 Graphic Design AAS 7 Information Technology AAS 7 Substance Abuse Counseling AA 7 Accounting Technology AAS 6 Medical Administrative Assistant AAS 6 Small Business Management AAS 6 Surgical Technology AAS 6 Certificate of Applied Science (CAS) Heavy Equipment Operator CAS 17 Medical Coding CAS 9 Heating, Ventilation, & Air Conditioning (HVAC) CAS 5 3D Jewelry Design and Production CAS 4 Cabinet and Furniture Technology CAS 3 Source: Flathead Valley Community College FIGURE 3: PERCENT OF DEGREE EARNERS SUPPORTING MANUFACTURING/INDUSTRY Source: Flathead Valley Community College 55% 53% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AAS Degrees CAS Degrees Other Degree Earners Manufacturing /Industry ---PAGE BREAK--- - 8 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FINANCIAL FEASIBILITY The financial feasibility aspect of the rail park is currently being studied in conjunction with the City of Kalispell, who is conducting a separate study regarding the costs associated with relocating businesses out of downtown and into the industrial park. These two efforts will be combined to produce a detailed financial feasibility report outlining the funds needed to improve and relocate businesses to the rail park. However, a planning-level cost estimate that outlines site improvements has been created and is outlined in Table 5. The total project cost is estimated to be $14,500,000 (in 2013 dollars). A preliminary site layout map is displayed in Figure 4 and includes preliminary track layouts as shown on site. The map also includes eight site pads for future development; however, the site layout may change depending upon business and industry preferences and layout requirements. The pads range in size from 13.4 acres to 2.4 acres. TABLE 5: ESTIMATED PROJECT COSTS (PLANNING-LEVEL ONLY) Item Description Information Unit Cost Railroad 16,800 Feet of New Rail l.s. $8,450,000 Roadway and Traffic Improvements 4,200 Feet of Roadway, Traffic Signal l.s. $3,050,000 Electric and Gas Electric and Gas Service to Facility l.s. $450,000 Wastewater Wastewater Service to Facility l.s. $1,400,000 Water Water Service to Facility l.s. $1,150,000 Total Estimated Cost - - $14,500,000 ---PAGE BREAK--- - 9 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 4: PRELIMINARY SITE LAYOUT ---PAGE BREAK--- - 10 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 C o m p a r a t i v e S i t e s However, several industrial and warehouse sites throughout the Flathead Valley were researched as a comparative. Table 6 displays the comparative sites that would be similar to the sites at FCEDA’s rail park. However, FCEDA’s sites will have direct access to rail siding, which will likely be a significant advantage as compared to some sites listed below. Building sale prices range from $37.00 - $106.48 per square foot, while acreage sale prices range from $95,000 - $522,727 per acre. Lease prices for buildings range from $0.001 - $0.397 per square foot of building space. The lease prices do not necessarily reflect market prices for buildings nor are they an accurate representation of land lease prices. Rather, the lease rates indicate a market that is waiting to rebound by offering low rates to attract potential businesses. FCEDA should not necessarily be concerned with the low lease rates because most industries targeted for the rail park will need access to rail; therefore, FCEDA’s site offers a service not available to other properties. The sale prices do suggest a competitive market for industrial uses; FCEDA’s pricing needs to account for current market rates. TABLE 6: COMPARATIVE INDUSTRIAL AND WAREHOUSE SITES Site Type Sale Price Lease Rate Building Square Feet (SF) Price per SF/Acre Address (Zip Code 59901) Industrial $950,000.00 - 10,000 $95.00 (SF) 75 Alder Drive Industrial - $1,250.00 3,150 $0.397 (SF) 56 3rd Avenue West North Warehouse $595,000.00 - N/A N/A 2155 US-2 East Warehouse $575,000.00 - > 5400 $106.48 (SF) 525 8th Street East Industrial - $6.00 6,000 $0.001 (SF) 460 Ash Road Industrial - $6.00 6,000 $0.001 (SF) 980 Demersville Road Industrial - $5.75 1,200 $0.005 (SF) 426 Snowline Lane Industrial - $6.00 2,500 $0.002 (SF) 430 Snowline Lane Warehouse $475,000.00 - N/A N/A 55 4th Avenue West North Warehouse $750,000.00 - 20,000 2 (acres) $37.50 (SF) $375,000 (acre) 2741 Us Highway 93 South Warehouse $349,000.00 - 4,000 $87.25 (SF) 19 6th Avenue West Warehouse $295,000.00 - 1.74 (acres) $169,540.23 (acre) 66 & 68 8th Avenue West North Warehouse $345,000.00 - 0.66 (acres) $522,727.27 (acre) 707 West Center Street Warehouse $190,000.00 - 2 (acres) $95,000.00 (acre) 1900 Mt Highway 35 Industrial $950,000.00 - 10,000 $95.00 (SF) 75 Alder Drive Source: Montana Site Selector (http://www.montanasiteselector.com/northwestmontana) ---PAGE BREAK--- - 11 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 CULTIVATION OF PARTNERSHIPS Currently, MWED and FCEDA have been cultivating partnerships with BNSF, Mission Mountain, and the City of Kalispell to create a viable industrials park. However, additional groups such as Flathead Valley Community College, Kalispell Chamber of Commerce and Flathead Regional Business Center, Gallatin County Planning Department, MDT, should be brought into the process as the park develops into a feasible site plan. Including these groups and establishing partnerships not only extends MWED’s and FCEDA’s marketing outreach for potential businesses, but it opens new avenues for site development options and funding. The Chamber of Commerce’s new Manufacturing Alliance is a resource that should be utilized as this project moves forward. The Alliance will likely involve key members of the manufacturing and agricultural/forestry industries that could benefit from the new rail industrial park. MWED and FCEDA should develop contacts within the Alliance to help attract businesses and explain the benefits of expanding or relocating to the park. TARGET INDUSTRY IDENTIFICATION Identifying suitable employers to locate to the rail industrial park is critical to the park’s success. Employers and businesses must recognize the importance of rail service to their business plan; however, MWED and FCEDA also recognize that job creation is the highest priority for creating the industrial park. Therefore, a balance of rail-oriented businesses that can create jobs will be the target industry. Depending upon the site layout, a business that does not require rail may be suitable to locate within the park as long as the site does not have rail siding. Table 7 displays the change in employment for the top ten industries in Flathead County. The data indicates that while manufacturing declined 39 percent during the past decade, growth in employment suggests that manufacturing may experience the largest employment gains. While the fastest growing sectors are service oriented – Health Care; Arts, Entertainment and Recreations; Finance and Insurance; and Administrative and Waste Services – manufacturing and agricultural/forestry businesses should still be targeted for the park. Most, if not all, service-oriented businesses do not have an operating model that requires rail or service to rail whereas manufacturing and agricultural/forestry businesses depend upon rail to move goods. Therefore, MWED and FCEDA should focus their efforts on attracting those industries as well as emerging industries such as health care and pharmaceuticals, which are estimated to need future rail service to ship goods cross-country. ---PAGE BREAK--- - 12 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 TABLE 7: INDUSTRY EMPLOYMENT CHANGES (2000 – 2010) NAICS Code Industry Average Annual Employment (2000) Average Annual Employment (2010) # Change % Change 44 Retail Trade 4,678 5,504 826 17.7 62 Health Care and Social Assistance 3,229 5,125 1,896 58.7 72 Accommodation and Food Services 4,062 4,830 768 18.9 31 Manufacturing 3,880 2,366 -1,514 -39.0 23 Construction 2,144 2,364 220 10.3 56 Administrative and Waste Services 1,712 2,275 563 32.9 52 Finance and Insurance 1,100 1,596 496 45.1 81 Other Services (ex. Public admin) 1,209 1,450 241 19.9 54 Professional and Technical Services 1,172 1,345 173 14.8 71 Arts, Entertainment, and Recreation 857 1,279 422 49.2 Source: Quarterly Census of Employment and Wages; MT Dept of Labor and Industry, Research and Analysis Bureau F r e i g h t F l o w A n a l y s i s National rail freight trends were studied to determine target industries for the rail park. Freight analysis data from the Freight Analysis Framework (FAF) were used to track and identify future shipping trends. The FAF integrates data from a variety of sources to create a comprehensive picture of freight movement among states and major metropolitan areas by all modes of transportation. Figure 5 shows freight shipped by mode. Data was reviewed geographically to determine which freight movements might use rail lines in Kalispell. In 2011 Montana ranked 31st of the 50 states in total freight shipped with more than 215,000,000 tons; 28 percent (60,000,000 tons) was shipped via rail. Most of the tonnage was shipped to neighboring states in the northern US. ---PAGE BREAK--- - 13 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 5: FREIGHT TONNAGE SHIPPED FROM MONTANA BY MODE (2011) Montana Rail Exports Table 8 and Figure 6, Figure 7, Figure 8 and Figure 9 show rail freight tonnage exports from Montana from year 2011 to year 2040. States were clustered and others ignore in order to group freight movements more efficiently. Note that some intrastate shipments stay within Montana. All values are measured in 1,000 tons of freight annually. For example, a value of 4,567 is equal to 4,567,000 tons per year. The following maps show rail freight flows over time that impact Kalispell; again values show total tons of freight annually. All the maps show the United States with major rail lines. The general conclusion is that rail freight shipments to the west will grow as fast as rail freight toward the upper Midwest. However freight movements to the west will remain relatively unchanged while freight movements toward the upper Midwest peak in 2020 and decline through 2040. FCEDA should use this information when marketing to industries to determine if their commodities and goods can be exported to the west as well as to the upper Midwest. Truck, 31.2% Rail, 27.9% Air, 0.01% Multiple Modes, 3.3% Pipeline, 33.7% Other, 3.9% ---PAGE BREAK--- - 14 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 TABLE 8: MONTANA RAIL FREIGHT MOVEMENTS (2011 – 2040) Year Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Montana Intrastate Minnesota North Dakota South Dakota Wisconsin Illinois Indiana Iowa Kentucky Michigan Missouri Ohio Oregon Washington Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia Arkansas California Colorado Kansas Nebraska Nevada New Mexico Oklahoma Texas Utah Idaho Wyoming 2011 3,232 27,372 4,784 19,595 232 4,938 2020 4,697 31,250 4,130 21,552 351 5,461 2030 6,133 25,455 3,213 18,821 430 5,910 2040 7,918 21,616 3,057 18,515 525 6,757 Source: Freight Analysis Framework Version 3 (FAF3); unit of measure for weight is thousand tons FIGURE 6: MONTANA RAIL EXPORTS (2011) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 15 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 7: MONTANA RAIL EXPORTS (2020) Source: Freight Analysis Framework Version 3 (FAF3) FIGURE 8: MONTANA RAIL EXPORTS (2030) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 16 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 9: MONTANA RAIL EXPORTS (2040) Source: Freight Analysis Framework Version 3 (FAF3) Montana Commodity Exports The top commodities shipped within Montana as well as the top commodities shipped out of the state are listed in Table 9. The FAF data does not drill down into specific regions or cities across the state; data is only collected for the entire State of Montana. Therefore, while wood products, metallic ores and miscellaneous manufactured products are not within the top five commodities for the state, they are likely the top export commodities for the Flathead Valley based on the region’s economic and natural resources. Commodities such as electronics and pharmaceuticals were not identified as a top rail shipment in year 2011, but are projected to be the fifth and seventh largest freight commodities shipped within Montana in year 2040. Machinery will continue to be a top export commodity within and from Montana and should continue to spur manufacturing in the Valley. Moreover, shipment of live animals/fish, precision instruments (firearms), mixed freight and articles-base metal may provide additional growth for transload operations at the park. ---PAGE BREAK--- - 17 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 TABLE 9: COMMODITY EXPORTS WITHIN AND OUT OF MONTANA (2011 – 2040) Intrastate Exports within Montana Exports from Montana to Other States Commodity 2011 2040 Commodity 2011 2040 Coal-n.e.c. $8,645 $20,984 Coal-n.e.c. $9,827 $8,965 Machinery $3,485 $9,045 Crude petroleum $7,773 $10,793 Gasoline $2,959 $3,293 Live animals/fish $5,782 $12,029 Fuel oils $2,338 $2,490 Cereal grains $4,037 $5,942 Mixed freight $1,034 $2,245 Machinery $3,697 $14,844 Crude petroleum $768 Mixed freight $1,357 $2,774 Unknown $783 $1,984 Metallic ores $972 Motorized vehicles $638 Wood prods. $787 Wood prods. $425 Articles-base metal $644 Other foodstuffs $780 $1,352 Misc. mfg. prods. $463 Electronics $2,316 Precision Instruments $3,845 Pharmaceuticals $2,114 Electronics $2,246 Live animals/fish $1,286 Articles-base metal $2,085 Meat/seafood $1,955 All Commodities $29,150 $61,289 All Commodities $43,252 $79,891 Source: Freight Analysis Framework Version 3 (FAF3); unit of measure for value is million U.S. dollars (current A summary of the top five commodity exports within and out of Montana are listed below for years 2011 and 2040. Within Montana Out of Montana 2011 2040 2011 2040 1. Coal-n.e.c. 1. Coal-n.e.c. 1. Coal-n.e.c. 1. Machinery 2. Machinery 2. Machinery 2. Crude petroleum 2. Live animals/fish 3. Gasoline 3. Gasoline 3. Live animals/fish 3. Crude petroleum 4. Fuel oils 4. Fuel oils 4. Cereal grains 4. Coal-n.e.c. 5. Mixed freight 5. Electronics 5. Machinery 5. Cereal grains ---PAGE BREAK--- - 18 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 Freight Shipment through Montana The largest freight movement that has the potential to directly impact Kalispell is the transportation between the northern central states of Minnesota, North Dakota, South Dakota, and Wisconsin and the northwestern states of Oregon and Washington. Rail traffic from the central states to the west coast is expected to grow dramatically. By 2040, more than 75 million tons of freight per year is expected to be transported by rail from the northern central states through Montana to the northwest as shown in Figure 10, Figure 11, Figure 12 and Figure 13. The largest freight movement impacting Kalispell is from the northern central states to the west coast. A summary of the top five commodities making this trip for years 2011 and 2040 are listed below. Commodity Exports through Montana 2011 2040 1. Cereal grains 1. Cereal grains 2. Other ag products 2. Other ag products 3. Gravel 3. Gravel 4. Animal feed 4. Animal feed 5. Other food stuffs 5. Alcoholic beverages FIGURE 10: RAIL SHIPMENTS THROUGH KALISPELL, MONTANA (2011) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 19 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 11: RAIL SHIPMENTS THROUGH KALISPELL, MONTANA (2020) Source: Freight Analysis Framework Version 3 (FAF3) FIGURE 12: RAIL SHIPMENTS THROUGH KALISPELL, MONTANA (2030) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 20 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 13: RAIL SHIPMENTS THROUGH KALISPELL, MONTANA (2040) Source: Freight Analysis Framework Version 3 (FAF3) C a n a d i a n I m p o r t s & E x p o r t s There is a growing amount of freight that is moved on rail between the United State and Canada through Montana. Below are maps showing the amount of freight that is imported and exported on rail between Montana and Canada. All measures are in 1000 tons of freight annually. These figures represent rail freight shipped through Montana, even though Montana might not be the point of origin. It includes products loaded on trains in other states that cross the border into Montana. The US imports about 1,200,000 more tons annually than it exports, however the trend is expected to change in the future as shown in Figure 14,Figure 15,Figure 16, andFigure 17. By 2040, the US is expected to have larger rail exports to Canada than rail imports. Again all measures include only freight entering and exiting the US on rail through the State of Montana. Exports are expected to almost quadruple in the next 30 years as trade increases dramatically. Imports grow almost as rapidly, while only a handful of products are shipped through Montana. The top six commodities exported and imported are displayed in Figure 18 andFigure 19. A signficiant break was evident in the tonnage shipped for the top six commodities. Coal imports are expected to grow significantly more than the other top commodities over the next 30 years. Two export commodities, non-metalic minerals (sand, gravel, cement, stone, clay) and metallic ores (aluninum, copper, gold, iron) comprise the majority of exports. However, in year 2040 they are projected to represent 94 percent of all rail exports through Montana. FCEDA should focus on industries as potential tenants that could mine/create the commodities. ---PAGE BREAK--- - 21 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 14: RAIL IMPORTS AND EXPORTS TO CANADA (2011) Source: Freight Analysis Framework Version 3 (FAF3) FIGURE 15: RAIL IMPORTS AND EXPORTS TO CANADA (2020) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 22 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 16: RAIL IMPORTS AND EXPORTS TO CANADA (2030) Source: Freight Analysis Framework Version 3 (FAF3) FIGURE 17: RAIL IMPORTS AND EXPORTS TO CANADA (2040) Source: Freight Analysis Framework Version 3 (FAF3) ---PAGE BREAK--- - 23 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 18: TOP SIX RAIL EXPORTS FROM MONTANA TO CANADA FIGURE 19: TOP SIX RAIL IMPORTS TO MONTANA FROM CANADA 0 1,000 2,000 3,000 4,000 5,000 6,000 Tonnage in Thousands 2011 2020 2030 2040 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Tonnage in Thousands 2011 2020 2030 2040 ---PAGE BREAK--- - 24 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 IDENTIFICATION OF SPECIFIC LEADS FOR RECRUITMENT Specific leads for recruitment are summarized in Table 10. The preliminary list is a starting point to begin marketing to businesses in target industries. As the project progresses, potential tenants will be identified and analyzed per available site and business requirements. Specific industries should only include those that require rail service or service rail-oriented businesses. The industrial park is not intended for businesses or commercial enterprises that ship via truck only. TABLE 10: LEADS FOR RAIL INDUSTRIAL PARK Business Industry Type Potential for Relocation/Expansion Blackwell Enterprises Construction/Trusses Medium Cenex Harvest States Agriculture/Fertilizer High Cold Front Cabins Housing Low Welding Oil Tank Construction Low Fastenal Construction Medium Glacier Stone Landscaping Stone Medium Great Northern Ag Agriculture/Pulses Medium HE Simpson Lumber High Northwest Drywall Construction/Drywall High PROJECT FUNDING DEVELOPMENT Several options including private and public funding mechanisms exist for site improvements to the rail-served industrial park. A combination of both private and public options should be implemented to ensure the success and viability of the park. If only one option is implemented, the success of the park hinges on that entity making investment decisions; however, combining public and private funds ensures all parties are interested and vested in the park’s success. MWED has a detailed outline of public grants, loan programs and other assistance opportunities, which are listed below, to help bring new industries or relocate existing businesses to the park. Private options are also included and should be utilized whenever feasible. Tax increment finance (TIF) districts are likely to be the most economical funding mechanism to develop the rail park’s basic infrastructure (roads, water, sewer). However, KLJ recommends waiting until the State Legislature convenes in April 2013 before moving forward with implementing a TIF district as state laws regarding TIF application are currently being changed. ---PAGE BREAK--- - 25 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 EDA grants for public infrastructure and economic development facilities are another option to finance improvement costs. Currently, the funding request deadlines are June 13, 2013 for funding cycle 4 of FY 2013; and September 13, 2013 for funding cycle 1 of FY 2014. Should MWED and FCEDA choose to pursue EDA assistance the Feasibility Analysis with improvement costs will be critical to the grant application and solicitation. P u b l i c O p t i o n F u n d i n g • Workforce Training Grant Programs • Relocation Grant Programs • Montana Board of Investment Finance and Loan Programs • Tradeshow Assistance • Tax Credits, Abatements and Exemptions • Federal Loan and Grant Sources (EDA) • Tax Increment Finance Districts (TIF) • Transportation Investment Generating Economic Recovery (TIGER) Grants P r i v a t e O p t i o n F u n d i n g • Land-Owner Investment • Rail Company Investment • Lease-to-Own Programs IDENTIFICATION OF APPROPRIATE OPERATING MODEL The operating model, which is shown in Figure 20, should include a mix of both lease and owner- occupied units to provide a flexible environment for changing economies. The ability to lease property allows FCEDA to adapt to businesses that may leave or change when new technologies become available or when new businesses relocate to the Flathead Valley. While no specific formula of what percentage of sites should be owned versus leased, FCEDA should consider the dynamics of what the organization wants to accomplish. KLJ recommends as least 25 percent of the sites or acreage should be reserved for leases. This provides businesses and industries, which do not want to own land, the ability to locate within the park without having to worry about land costs and associated taxes. Lease-only sites also provide potential start-up businesses with an opportunity to that would not be afforded to them if the business had to purchase land. Because FCEDA wants to encourage job creation, lease-only sites offer an excellent avenue to spur new businesses associated with rail. KLJ recommends at least 50 percent of the sites or acreage should be reserved for owner occupied sites. This provides FCEDA and the City of Kalispell with an increased tax base, but also provides future businesses the long-term commitment of staying with the park. Additionally, industries that own land are more likely to see that the park succeeds as they have invested their own time and money. In turn, these businesses tend to be engaged with marketing and recruiting other potential businesses that will enhance the long-term viability of the park. ---PAGE BREAK--- - 26 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 FIGURE 20: OPERATING MODEL FOR LEASE OR SALE SITES All sites should be reserved for rail-only businesses; the exception may be for one or two parcels that don’t have access to rail siding or a need for large shipments. However, FCEDA should be aware that selling or leasing non-rail-served industries may comprise the intent of the park and the future operability of sites should businesses relocate or close. The issue arises when owner- occupied sites sell property or when lease-only sites remain unused for an extended period. It is not a problem when the park first opens, but occurs 5, 10 or 20 years after the industrial park first opened its doors. Several options exist for ensuring the intent of the park specifically targets and retains rail-served industries well into the future. D e e d R e s t r i c t i o n s a n d D e v e l o p m e n t A g r e e m e n t s FCEDA can place restrictions on the sale of land that only allow rail-oriented businesses to locate in the park thus preserving the intent of the rail park should future sales occur between multiple owners. FCEDA can also create specific language using a development agreement between a future property owner and the City of Kalispell specifying rail-served industries only be allowed to operate within the park. The development agreement could require future businesses to produce documents showing the number of potential rail carload shipments or an agreement with BNSF or Mission Mountain to ship materials. Failure to produce such information would allow FCEDA to deny the sale/lease of the property to a business. Owner Occupied 50% Lease Only 25% Other/Combo 25% Recommended Division of Owner/Lease Sites ---PAGE BREAK--- - 27 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 O w n e r / L e a s e A g r e e m e n t s Owner and lease agreements are similar to development agreements, which specify what businesses can locate within the rail park. However, the owner and lease agreements should also include a right of first refusal (ROFR) and right of first offer (ROFO). These two mechanisms allow rail-served industries or railroad companies to be given preferential treatment should land become available. A ROFR would specify that a land owner be required to offer to sell the land at a fixed price to FCEDA or BNSF before he/she sells the land to another business or property owner. If FCEDA declined to buy the land, the current owner could sell to any entity for the same fixed price. A ROFO would require a property owner to negotiate a deal with FCEDA or BNSF; should the deal collapse, the property owner would be free to begin negotiations with another entity without price restrictions. Z o n i n g R e q u i r e m e n t s The City of Kalispell could delineate through its zoning code two options to encourage and/or restrict uses to rail-served industries only. The first option would be to zone the land as I-2 Heavy Industrial with a planned unit development (PUD) overlay. The PUD would specify terms and conditions that must be met before building in the park; this is usually done in conjunction with a development agreement. The second option is to create a rail-only industrial zone that would apply to FCEDA’s and BNSF’s property. This option may be more cumbersome and time-consuming than the first option, but it could specific that specific uses only be allowed to operate while prohibiting other non-rail-served businesses from operating. C o m m u n i t y R a i l S p u r A community rail spur should be developed within the park for sites that do not have direct access to rail siding. The spur could also service businesses and industries located throughout the Flathead Valley, but do not have access to rail. Preliminary site drawings will include a community spur; although if BNSF and Mission Mountain provide overwhelming evidence to the contrary then a community spur may not be needed. T r a n s l o a d O p e r a t o r Transloading is the transfer of goods and commodities via different transportation modes such as truck to rail, rail to truck, truck to barge or a combination of any mode. A qualified transloader at the park has the potential to improve revenue for FCEDA as FCEDA should lease out operations on a term-limit (i.e. five years). This provides FCEDA and BNSF to find a new transloader should the current operator fail to provide quality and efficient service. Additionally, a transloader that has previous experience tends to have a comprehensive understanding of what is needed to service an industrial park that has on-site shipping as well as off-site (community spur) needs. Transload operations also allow businesses without direct access to rail to ship goods via multiple modes. ---PAGE BREAK--- - 28 - I P a g e Industrial Rail Park Market Analysis FCEDA May 2013 RECOMMENDATIONS MWED and FCEDA should pursue industries such as lumber companies, scrap steel, and other grain elevators/agricultural uses. In addition, industries related to creating machinery and other precision instruments should be targeted for the rail park. Emerging technologies such as electronics and pharmaceuticals and metallic ores/non-metallic minerals may be viable industries to locate within the park as long as they can prove a need for rail shipments. If they cannot prove a need for rail service, the business should not be allowed. Businesses that would utilize transload facilities are important to target because of their need to ship materials via truck and rail. Example industries that could utilize transload facilities are big box retailers, large good producers (recreational toys such as ATVs, boats, snowmobiles), and liquid/petroleum products. Creating a rail park with a transload operator will help stimulate rail freight movements for the Flathead County and thus improve economic development potential for the entire Flathead Valley. More importantly, the transload operator will market freight shipments to potential businesses as a viable and economical option. For sale and for lease I sites should be created to foster a mix of relocation or expansion options for potential businesses. While no “one size fits all” financial model can be established in terms of the number of sale versus lease sites, FCEDA should reserve at least 25 percent of the sites for each option. FCEDA should work with the City of Kalispell and BNSF to create development agreements, deed restrictions or similar owner/lease agreements to foster rail-only industry development within the park. Should a site become available that does not have access to rail siding, a potential non-rail oriented business could occupy the site. However, the site may provide a rail-oriented business, may only need rail service a couple times a year, a perfect opportunity without having to pay a premium for rail siding. A community spur should be created for industries throughout the Flathead Valley. While not all businesses may be able to locate within the park, they may need rail service. In addition, as the Valley continues to grow, some industries may only have a need for shipping rail without having to have direct access to rail siding on a daily, weekly or schedule. FCEDA should lease out transload operations to a qualified transloader that has previous experience loading and unloading rail cars as well as loading truck shipments onto rail and vice versa. A qualified transloader will improve efficiency at the park, thus improving relations with businesses in the park as well as businesses throughout the area. Because FCEDA owns the property, a lease with a potential transloader is the preferred operating model as it will allow multimodal shipments throughout the Flathead Valley thus providing service to businesses that would otherwise not have access to rail.