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DEVELOPING FOR THE FUTURE 1

FOR THE FUTUREFOR THE FUTUREA Publication of Koll Development Company (KDC)

VOLUME 1 • ISSUE 1

DEVELOPING

Extreme MakeoverThe Task of Hercules

Taking the LEEDCreatively Serving Baxter

Extreme MakeoverThe Task of Hercules

Taking the LEEDCreatively Serving Baxter

2 DEVELOPING FOR THE FUTURE

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I N S P I R E Y O U R C L I E N T S .


CEO’S LETTER

I am pleased to present you with the first issue of KDC’s

Developing for the Future! We created this publication to inform

our clients, friends, and associates of current trends and look into

the future of commercial and corporate real estate by sharing the

expertise of our KDC leadership team. Developing for the Future

will be distributed semi-annually and will provide readers with

interesting information about real estate development, acquisi-

tions, and asset management.

At KDC, our business is focused on developing, building,

acquiring, and managing commercial real estate nationwide.

Our goal is to constantly create VALUE for our clients on

every project and work diligently to exceed their expectations

every step of the way.

We want to thank everyone who contributed to this publication

and we encourage anyone interested in submitting an article in

the future to contact us for more information.

I would like to extend our thanks to the invited consultants

and contractors who helped support this effort with their

advertisements. We could not have produced this piece

without your support and we appreciate your involvement. It

is my promise that we will consistently deliver accurate and

enlightening articles in each and every issue.

I hope that you enjoy our first installment of Developing for

the Future.

Steve Van Amburgh

Chief Executive Officer

Koll Development Company (KDC)


C O N T E N T ST A B L E O F

Planning. To AchieveThe idea of master planning has been around for decades, but fewdevelopers truly embraced the concept or its potential. KDC saw atremendous opportunity with CentrePort, and pursued the developmentwith a passion.

The Time Is Right for Sale LeasebacksRight now is the ideal time for corporate real estate directors and CFO’sto examine this financing tool in today’s low cost of capital environment.

Extreme MakeoverSally Beauty Company required the full scope of what KDC provides.The national retailer wanted a home that would maximize efficiency, productivity, and employee morale. They also wanted a highly visiblesite, at just the right location.

The Task of HerculesThe Citigroup project was code-named “Hercules.” Three buildings inthree different states; a total of 531,000 square-feet; costingapproximately $100 million; and the entire project had to be builtsimultaneously in just seven months from start to finish.

Development with ClassToday’s principles for modern education facilities have an underlyingpremise that all learning environments should be knowledge-focused,developmentally-appropriate, safe, comfortable, accessible, flexible,and equitable --- in addition to being cost effective.

Taking the LEED: It Is Easy Being GreenEnvironmentally friendly, energy efficient, highly functional buildingscan also be cost effective and attractive work places.

Creatively Serving Baxter HealthcareCreative terms met Baxter’s financial needs and insured enoughcertainty to get the project capitalized and underway.

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PLANNING. TO ACHIEVEWhen Koll Development Company (KDC) was

awarded the marketing and management of the

CentrePort master plan community in 1995,

the Dallas-Fort Worth commercial real estate

market was still reeling from the 1980s Texas

real estate crash.

by Bill Guthrey

Senior Vice President, Marketing

Koll Development Company (KDC)


The idea of master-planning has beenaround for decades, butfew developers trulyembraced the concept orits potential. KDC saw atremendous opportunitywith CentrePort, andpursued the develop-ment with a passion.

Almost all segments of the market wereoverbuilt and most developers weretaking timid steps. Few were willing tothink big in terms of redefining what theycould offer. KDC, on the other hand,preferred to embrace a larger vision forthe development, investing in what it sawas the market's new direction.

The idea of master-planning has beenaround for decades, but few developerstruly embraced the concept or itspotential. KDC saw a tremendousopportunity with CentrePort, and pursuedthe development with a passion.

The 1,300-acre CentrePort is located atthe southern entrance to Dallas-FortWorth International Airport. DFW Airporthas transformed the North Texas regionsince opening in 1974. As the world’sthird busiest airport, DFW is the majorhub for American Airlines. In fact,American chose the development for itscorporate headquarters shortly afterCentrePort was built. Like AmericanAirlines, proximity to DFW was the majordraw for many of the first companies that

located in the development, as was theeasy commute from both Dallas and FortWorth.

In addition to location, the mixed-usecampus was designed to effortlesslyblend hotel, light industrial, office, retailand residential users in a logical andpleasing manner. Yet, in the midst of adepressed market, it would have beeneasy for KDC and the developer to ignorethe original master plan and concentratesolely on developing the property. Theychose to stay on course.

A true master-plan encompasses morethan just a blueprint and a few ideas – itinvolves a holistic vision that impartscontrol and flexibility at once. Whileseemingly counter-intuitive andparadoxical, the most important key tosuccess in a master-planned project isflexibility. The developer/project managerhas to serve as the quarterback, guidingthe game quarter-by-quarter, yet alwaysmindful not to sacrifice long-term gamestrategy. KDC believes that CentrePortstands as evidence of what is possible.


As the market changed, KDC and CorganArchitects, as the master planningarchitect, adjusted CentrePort to meetnew demands and opportunities thatarose, yet kept the original plan intact.Today, CentrePort serves as a regionalhub for well known brands, includingBank One, Southwestern Bell, Uniden,Mercedes-Benz, Keebler and Whirlpool.

AEW Capital Management is the advisorto the owner of the land. AEW and KDCcoordinate development and land salesat the park. “This development is trulyremarkable in the sense of expansive-ness and functionality,” said Dan Bradley,AEW’s portfolio manager. “An all encom-passing development such as thisis truly challenging yet offers a greatopportunity to create and “add-value” ona project-by-project basis.”

In addition to attracting Fortune 500companies, CentrePort attracted theDFW stop for the Trinity Railway Express(TRE) regional commuter rail line.Although not originally part of the masterplan, the TRE has transformed CentrePort

into a "live-work-play" community andsupercharged the viability of allproduct types. The new rail line,which opened in 1996, servessuburban workers who commute tothe central business districts of Dallasand Fort Worth, as well as employeesof CentrePort tenants. CentrePort isnow known as a Transit OrientedDevelopment (TOD), a “walkablecommunity” centered on a highquality train system.

Complementing the public transitaspect is the dedication to thepedestrian-friendly design, which wasa core concept in the original masterplan. The “green” aspect is more thana selling point—it is a communityvirtue. Because CentrePort offers on-site retail amenities ranging from drycleaning, restaurants and hotels todaycare and fitness centers,employees spend much less time intheir cars. They can do their work, jogduring lunch, take care of errands andwalk to the nearby TRE station fortheir daily commute.

In staying on course, KDC has helpedcreate a vibrant community foremployers and employees. Whenchoosing an office location, companieshave five basic decision points on theirmatrix: convenience and quality of life forworkers, cost, flexible space, securityand efficiency of consolidation. TheCentrePort master plan includes all ofthese values, allowing for market-demand changes, but protectedin image by strong CCRs, projectmanagement and a firm vision.

That is what sticking to a plan means,and why some master plans – likeCentrePort – fit together perfectly.

Photography by GlennPatterson, Skycam

The Campus at CentrePortoffers 300 acres of primeoffice/campus land fordevelopment. The “@” symbolmowed in the grass grabsattention from the nearly 2,000flights daily at DFW InternationalAirport.


THE TIME IS RIGHT FOR

SALE LEASEBACKSSale - leasebacks are a t r ied and t rue

financing technique for companies that don’t

want to tie up their resources in bricks and

mortar. Right now is the ideal time for

corporate real estate directors and CFO’s to

examine this financing tool in today’s low

cost of capital environment.

by William L. Rafkin

Senior Vice President, Koll Development Company (KDC)


The goal of a sale-leaseback is to unlocka corporate owner’s equity in their realestate through a sale, but allow it tomaintain control through a long-termlease. In a well written lease, a companycan virtually control the real estatethrough its useful life. The foundation ofthe transaction is the owner’s (and soonto be tenant’s) financial creditworthi-ness; meaning, the stronger the credit,the lower the cap rate. In a sale-leaseback, value is determined by thestructure, term, and creditworthiness ofthe lease, with the underlying real estateplaying a subordinate role.

In a typical sale-leaseback, the leaseterm is equal to, or in excess of 10 years.However, it is not uncommon to see 20year lease terms. The longer the term ofthe lease, the lower the cap rate.Depending upon the length of the leaseand certain financial measurements, a 20year lease can still be regarded as an“Operating Lease”, which is an offbalance sheet lease. A “Capital Lease”,on the other hand, must appear on acompany’s balance sheet as a liability.

The Financial Accounting StandardsBoard (FASB) determines the classificationof a lease depending on its features.An Operating Lease cannot transferownership of the property to the tenantat the end of the lease term, cannothave a bargain purchase option, cannothave a term in excess of 75% of theproperty’s estimated economic life,and cannot have base rent paymentsthat aggregate over 90% of theproperty’s fair market value whendiscounted at the tenant’s incrementalborrowing rate. The last provision is theone which typically restricts OperatingLeases to terms of 20 years or less.

A tenant’s operating responsibilities inthe lease play a big role as a true netlease provides the best price to the seller(and future tenant). A true net lease alsotransfers obligations and costs ofmaintenance and repairs to the tenant,leaving the landlord with little operationalrisk. These terms are no different fromwhat the tenant faced earlier as owner.In conventional sale leasebacks, a truenet lease is practically a given.

Many corporate CFO’s are against saleleasebacks for the following reasons:one, the property is “mission critical” tothe company and gets modifiedfrequently to accommodate new uses;two, the company has no need for cashand real estate is a good store of value;and three, it is cheaper for the companyto own than to lease the property.

Of these objections, the first and secondare most reasonable. Some companiesown “mission critical” facilities forpurposes of control. A good example isa research lab that is frequentlyrefreshed. The costs of the land andenvelope of the building typically pale incomparison to the cost of thefurnishings, fixture, and equipmenthoused inside. The need for flexibilitydrives that company’s decision toown mission critical real estate.Additionally, some fortunate companieshave been stockpiling cash and usingthat windfall to build state-of-the-artcorporate headquarters. They justifythe investment as a good store ofvalue, and believe they can always do

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a “sale-leaseback” in the future tounlock invested cash.

The third objection is a little foggier.Today, a company can borrow verycheaply to own real estate. However,that company is using its borrowingcapacity to own real estate, rather thanto invest in more productive assets.Wouldn’t a company be better offdedicating its resources to finding newlife-saving drugs or to designing moreefficient machines than to purchasingreal estate?

In today’s low interest rate environment,some companies compare a cap rate totheir short-term cost of borrowing.Although quick and dirty, that analysisleads to erroneous conclusions. Nocompany can borrow indefinitely ontheir short-term credit lines; not even theU.S. government. Instead, the averagecap rate on a sale leaseback should becompared to a company’s “hurdle rate,”which is a more accurate metric. If theaverage cap rate is below a company’shurdle rate, the company should lease

the real estate and invest its capitalelsewhere. It is the hurdle rate, insteadof the short-term borrowing rate, thatshould be used when evaluating themerits of a sale leaseback.

Companies use hurdle rates in allocatingtheir scarce capital to competingprojects. (A hurdle rate is an all-in rate ofreturn on investment, and related to acompany’s blended cost of equity anddebt capital.) Hurdle rates typicallyrange from 8 1/2% to 16%. Today, acompany’s cost of leasing is well belowtheir hurdle rate.

KDC has recently employed variationson the sale leaseback theme. Forexample, a company need not leaseback all the space it is selling, but ratherwrite a lease which allows it to shrink insome of the space. KDC could thenredevelop the tendered space for re-lease to third-party tenants. Additionally,a company could sell a large package ofproperties to KDC, some of which willbe leased on a long-term basis, some ona temporary basis, and the remainder

not at all. It is a good way for a companyto clean up its balance sheet, rationalizeits owned real estate portfolio, anddispose of some unwanted real estate. “Sale leasebacks have become sopopular and commonplace that bothcompanies and real estate investorshave become more and morecomfortable taking a creative approachin structuring these deals,” says KevinKelley, a partner with Gardere WynneSewell LLP, a law firm that hasrepresented KDC in several saleleaseback transactions.

Interest rates are near their historicallows and investors are paying highprices (low cap rates) for real estate. If acompany is evaluating a sale leaseback,now is the time to act. Although no onehas an accurate crystal ball, manyeconomists are predicting higherinterest rates for 2005, with cap rates toshortly follow. With such a greatopportunity, now is not the time tosquander.


EXTREMEMAKEOVER

Beauty that is more than just sk in deep.

For the world's largest distributor of professional

beauty supplies – a company that generates

more annual sales than internationally-known

brands like Revlon – their old corporate headquarters

was no beauty. Sally Beauty Company’s main

offices in Denton, Texas were dated, worn out

and ultimately inefficient. KDC was responsible

for overseeing this corporate headquarters’

“extreme makeover.”


Photography by Craig D. Blackmon, AIA


"Their headquarters was a convertedwarehouse in Denton," said David Flatt,vice president/director of interiors ofPageSutherlandPage. "And we're nottalking about the cool, converted typeof urban warehouse designs you see inmovies or magazine ads.”

The office/warehouse location onMorse Street was the beauty supplygiant 's second home s ince i tsfounding and relocation from NewOrleans. As the company grew insize and evolved, space was addedor changed as needed.

Each addition made sense, but overtime the compounded changes createda complex env i ronment whereinformation took the longest route,

slowing decisions and answers. Andtaking into account that Sally Beautyconsiders its corporate headquartersless an "HQ" and more of a "customersupport center" -- since their field salesteams are "customers" – the problemdirectly affected the bottom-line andpotential growth.

Sally Beauty Company required the fullscope of what KDC provides. Fromsite selection and design, tospace planning and constructionmanagement, the beauty supplycompany needed an extrememakeover. The national retailer wanteda home that would maximizeefficiency, productivity, and employeemorale. They also wanted a highly-visible site, at just the right location.

And they were willing to commit thecapital to make it happen.

"Our specia l ty is bui ld - to -su i tdevelopment, and we take that termvery seriously," said Don Mills, seniorvice president of KDC. "This newheadquarters for Sally Beauty wasnecessary to suit all of their needsgoing forward. It would provide theneeded support for all the retailcenters around the country.”

KDC analyzed and performed duediligence on a number of sites beforethey found the ideal location. The sitewas 27 acres of elevated, undevelopedland set back in a grove of trees fromInterstate 35 in southern Denton.The design team – led by Page


The national retailer wanted ahome that would maximize efficiency, productivity, and

employee morale.


“I got goose-bumps when I first drove up to it. Itwas a proud day for everyone at Sally Beauty.”

– Michael Renzulli, president and CEO of Sally Beauty


Southerland Page – went to work on creating amasterpiece that would represent SallyBeauty's image to clients, stores andemployees.

The development team featured industryleaders Alliance Geotechnical Group, Kimley-Horn & Associates, McCarthy Building Cos.,Pacific Builders and TD Industries.

"This is a very high-quality building – from thestructure and mechanical system, to theexterior. This company has climbed its way tothe top and is developing the kind of headquar-ters that will last for many years to come,"

Michael McWay, president of McCarthy, said.Incorporated into the site design were sevenfull acres of land left untouched, preserving thegreen space. Inside, form followed function,maximizing information and data flow. On topof all other business considerations, the facilitywas designed and finished-out to be a beauty inthe eye of all beholders.

After 20 months, the new home for Sally Beautywas ready for occupancy in December, 2004.

"I got goose-bumps when I first drove up to it. Itwas a proud day for everyone at Sally Beauty,"said Michael Renzulli, president and CEO ofSally Beauty, which operates more than 3,000stores in the U.S., Puerto Rico, United Kingdom,Canada, Germany, Mexico and Japan.

Mr. Renzulli wasn't alone.

"When the new facility welcomed the 500employees for the initial open house, they wereawed by their new home," Mills said. "You couldsee it on their faces."

The 200,000-square-foot corporate campusfeatures the latest in high-tech infrastructure,dual-feed power, a serene tree preserve, and anon-site dining facility that rivals area restaurants.

The employees realized this was a place wherethey could be happy and more productive thanever, and it was certain that their new “corporatehome” showed the value the company placedon them.

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"When the new facility welcomedthe 500 employees for the initialopen house, they were awed bytheir new home."


Everyone knows that to accomplish anear-impossible task requires a“Herculean effort,” so it was nosurprise that the Citigroup project wascode-named “Hercules.”

What was this challenge? Threebuildings; in three different states; atotal of 531,000 square-feet; costingapproximately $100 million; and, theent i re pro ject had to be bui l tsimultaneously. While not a typicalproject for KDC, what made it worthyof the legendary Greek hero wasthe timetable: just seven months fromstart to finish.

While Project Hercules was one of themost challenging projects KDC hasundertaken to date, it encompassedthe full scope of what KDC offers itsclients. It was a complete turnkeydevelopment -- from land acquisitionthrough construction and tenant

improvements, all the way to the on-time and on-budget completion ofthree high-tech build-to-suit facilitiesspread across the continental UnitedStates.

"Our Citigroup project was driven bytheir technological needs and madepossible by the technologicalprocesses we have in place,” saidMike Rosamond, senior vice presidentof construction for KDC. “A lot of ourstrengths came into play in makingthis project come together, and it issafe to say that what facilitated thewhole of this was our ability to deliverand manage data.”

"These three facilities are highlytechnical, mission-critical operationsand secure call centers for Citigroup.Part of what drove the timetable wasthat they wanted to roll out a newinternal software system that would

encompass their existing sites, as wellas the three new ones.”

The buildings, financed through KeyBank, in Boise, ID, Louisville, KY, andGreensboro, NC would ultimatelyhouse 2,000 employees each andinvolve millions of dollars in high-techcabling alone. “The Citigroup projectwas a huge economic boost to thearea and the momentum willreverberate for years to come,” saidAndrew Burke, president of theGreensboro Economic DevelopmentPartnership. “We were thrilled to workwith all of the contributors that playeda role in bringing this project tofruition.”

NEED FOR SPEEDFrom the very beginning – beforeCitigroup had even awarded thedevelopment contract in late February

A C L I E N T N E E D S T H E W O R L D M O V E D . A N D T H E Y N E E D I T Y E S T E R D AY.

HERCULESThe Task of


2004 the KDC team was taking steps toincrease both quality control oversight, aswell as speed of delivery. KDC had selectedmaterials, purchased the design process,and even made the risky decision to beginconstruction before having closed on thethree land purchases. (KDC was vertical bythe time of closing in April.)

"We knew we could do this -- because wehave the relationships and the resources --but we also knew that every step had to betaken with the client's unusual needs dialed-in, because each step affected everysubsequent step," said Scott Ozymy, seniorvice president for KDC.

KDC was working so far ahead that theyheld the first design review session on thesame day they were awarded the project. Toease the process in exchanging informationand updating directives, KDC set up awebsite among their team members,including Clayco Construction Co., ForumStudios, Munsch Hardt Kopf & Harr andGreensboro Economic DevelopmentPartnership. The pace appeared breakneck,but quality control was a priority.

The process was one of the most rapidand well organized that I’ve been involvedwith,” said Steve Rigby of CBRE. “I wasamazed that KDC was able to pull all theplayers together in such a high pressuresituation, while coordinating hundreds ofdetails at the same time.”

"This project was under an extremely tighttimeframe and budget," said Bob Clark,chief executive officer of ClaycoDesign/Build. “KDC kept the channels ofcommunication open, which allowed eachteam member to step-up the pace and stayon schedule.”

"Data delivery is the very reason for thesethree centers to exist, so data cabling andpower line testing was imperative. It wasdone in an environment unlike any we'veever seen before. Just four months into con-struction – while the superstructure itselfwas still being put in place for parts of thefacility, we had the computer equipmentroom (CER) up and running," Rosamondsaid. "It was like a movie set… inside theCER everything was complete, and thenyou'd step outside and there were walls thathadn't been constructed."

Delivery of all the sites for occupancy camein under the wire. In October 2004,Citigroup's newest high-tech facilities werehumming.

"It's because of experience and our positionas the pre-eminent build-to-suit developerwe were able to pull off what I don't thinkanyone else could," Ozymy said. "We don'tever intend on doing one project for a client.We intend on doing our first project for aclient, which is just the beginning. Here, Ithink we proved that there's no test a clientcan offer that we cannot meet."

While Project Hercules wasone of the most challengingprojects KDC has undertakento date, it encompassed thefull scope of what KDC offersits clients.


D E V E L O P M E N TWW ii tt hh CC ll aa ss ssCompetition is increasing in the world of academia and

we’re not speaking of test scores and accreditation.

It now involves facilities as much as student grades.

At primary and secondary school levels, evolving

concepts in the education model and new technologies

demand a much different approach to educational

facility development beyond the traditional classroom.

by Tobin C. Grove

President, Koll Development Company (KDC)

Just as we have seen commercial user'sdemands evolve to seek more inclusive,mixed-use, integrated, lifestyle friendlyworkplaces, the needs of the educationalworld are following close at all levels.Today’s principles for modern educationfacilities have an underlying premise thatall learning environments should beknowledge-focused, developmentally-appropriate, safe, comfortable, access-ible, flexible and equitable – in addition tobeing cost-effective.

The ultimate goal is to optimize the schooland its surrounding community as aneffective setting for growth and learning.Further, there's a growing demand forcolleges to retain students longer as theywork on advanced or technology-relateddegrees. Students want more "urbanized"living environments, much like thedevelopment movement in the 1990stowards "urban villages" for commercialusers.

INSTRUCTIONALLYHIGH PERFORMANCELEARNING SPACESKoll Development Company (KDC) isfocused on providing educationalinstitutions with the same market-leadingreal estate development resources itprovides commercial clients. This ensuresthat academia receives the same level ofcommitment to client satisfaction, on-time delivery, and below-budgetmanagement.

Many educational institutions are balance-sheet rich and cash poor. They haveexplosive growth needs, and uniquefinancial challenges based on their public

status. State budgets vary in reliability andthe importance of maintaining bondratings can’t be stressed enough.

KDC is focused on providing theprocesses to fulfill educational institu-tion’s capital construction and facilityneeds, while leveraging our experience asthe leader in build-to-suit developmentand investment. From financing to designand delivery, the same expertise that hasgarnered more than $1.2 billion in newdevelopment in just the past five years isbeing refined to the unique needs ofeducation clients. KDC is not just focusingon residential halls or sports facilities – it ispositioned to provide complete educationfacilities development and projectmanagement.

KDC is currently working to provide aes-thetically-integrated, custom learningcenters and highly personalized collegefacilities, based on specific institutionalneeds. Examples range from high-techclassrooms and fitness/wellness centersfor students, to on-campus hotels andconference centers. These extensivelifestyle amenities will make the universi-ties more appealing to their studentswhile helping to better prepare them forthe future.

KDC has assumed a leadership position inthe tailored development of commercial,office, mixed-use, retail and light industrialproperties – from project initiation andfinancing, to project management andcompletion. That successful experienceand energy will bring new focus to ourdevelopment of educational facilities.


KDC is currently working toprovide aesthetically-integrated,custom learning centers andhighly personalized collegefacilities, based on specificinstitutional needs.


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TAKING THE LEED:IT IS EASY BEING GREEN

"When the idea of building ‘green’ first came to our

attention a decade ago, the initial reaction in the

industry was not exactly positive," said Murray

Newton, execut ive v ice pres ident for Kol l

Development Company (KDC). "A lot of developers

thought ‘green’ might be thought of as buildings

with unproven power reliability and expensive

building systems.”


Clearly, the truly "green" building of the future isfundamentally different from the structures of thepast. But, it is successful today.

LEED (Leadership in Energy and EnvironmentalDesign) is a certification awarded by the U.S. GreenBuilding Council to projects that meet a strictchecklist of design and construction requirementsagainst environmental costs and impacts. One of thecornerstones of the LEED program is the use ofrecycled and environmentally-neutral materials. Thismeans the project site and products are chosen fortheir low impact on the environment, such aspollution, as well as limited use of scarce resourcesand energy during production and transit. LEEDawards points for optimizing indoor air quality andusing regionally-available construction materials.

"KDC took a different approach,” said Newton. “We sawfrom the genesis of the idea that initial investments inemerging green technologies could have significantbenefits for our clients. So, a decade ago, we embracedLEED principles. Today, the majority of the developmentworld is embracing it as well."

Photography by Glenn Patterson, Skycam

EPA RegionalHeadquartersdeveloped by KDC.

Ficus trees oxygenate the air.

Green buildingsare developedthrough the useof environmen-tally-friendlyrefrigerants andenergy efficientHVAC systems.

KDC undertook such a project early onfor an organization that knows greenissues better than most – the U.S.Environmental Protection Agency – fortheir office in Kansas City, Kansas.

“Kansas City was anxious to revitalizethis area and KDC developed a trulylandmark addition to our downtown.Awarded the contract based upon adesign competition, KDC demonstratedthat environmentally-friendly, energy-efficient, highly-functional buildings canalso be cost-effective and attractiveworkplaces," said Kansas City MayorCarol Marinovich. "As a testimony, theEPA’s Kansas City headquarters won thePresidential Closing the Circle Award, aprestigious award for ‘Green Building’design.”

High PerformanceThere is no one single distinctive charac-teristic that differentiates a greenbuilding from a standard building. Butimagine the following:

Underneath the entry plaza, watercirculates through a grid of 90 wells andloops in a single system. Each wellreaches to a depth of 300 feet, wherethe earth’s temperature is a constant 55degrees Fahrenheit.

The building’s storm drainage systemfilters and slows water runoff, using a30,000 cubic foot detention tankinstalled under the parking lot at the rearof the building. There, storm water isfiltered and run through an oil separator,then released at the same rate as when

the land was wooded. Extra water issaved for non-potable uses within thebuilding.

Electronic faucets and waterless urinalsdesigned around gravity and chemicalseals are used instead of traditionalfixtures, thus saving tens of thousandsof gallons of water.

Office spaces have large, insulatedwindows to admit natural light andsensors that automatically switch offelectric lights when sufficient daylight ispresent. The natural lighting not onlyreduces electricity use but also has beenshown to improve work performanceand morale.

More GreenMore BackThe list of environmentally-sensitive andbeneficial features is long and growing.But as Newton and KDC discoveredearly on, the benefits to their clients waseven greater.

"It has a positive effect on employee pro-ductivity, health care costs, absenteeismand morale," Newton said. "And thatimpacts the bottom line. The marketdemands high-performance companiesand high-performance people –necessities which multiply when youhave a high-performance building."

The long-term benefits are plentiful. Theintroduction of more natural lightreduces the cost of lighting. Buildingorientation and increased insulation

values reduces heating/coolingequipment size and power required torun the systems. The elimination ofchemical pollution from buildingmaterials and second-hand tobaccosmoke benefits employee health,reduces sick time and increases produc-tivity. Construction waste managementreduces tipping fees. Finally, greenbuildings are less expensive to operate,because they can impart a substantialsavings in energy costs.

And embracing environmentally-sounddesign and construction can also affectimage.

"It's a very high-profile commitment togood corporate citizenship that is wellreceived by the public. It can alter theimage of a company that may have aless-than-stellar image in regards to environmental considerations," Newtonsaid. "It's also increasingly accepted inthe corporate community and amongdevelopment regulators who desire suchgreen projects in their communities.”

"Clients want this. Communities wantthis. Brokers and builders increasinglywant this," Newton said. "This processwill continue to evolve with technologyand the economy of scale of increasingdemand. The buildings of tomorrow –what users and the public as a wholedemand – will be significantly differentfrom what we have today.

“We made an early commitment to thisand want to continue this obligation as anenvironmentally-responsible developer."



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Peterman & Associates, Inc.972-263-3500

972-624-8850 Faxwww.petermanassociates.com


Creatively Serving


Quick ly assembl ingthe necessary resourcesand capabilities to meetclient needs is the hallmark ofKoll Development Company(KDC). Once the final project

is completed and all parties are happy with theresults, KDC considers its efforts a success.

A perfect example of KDC meeting client needs is a recent project for a division of Baxter

Healthcare Corporation in Bloomington, Indiana. In early autumn 2003, KDC received a

call from Michael Burns, Principal in the Staubach Company’s Chicago office, who was

having a client meeting with Baxter. He explained how Baxter had an immediate

expansion need and were weighing three different options: a ground-up build-to-suit; a

modification of an existing lease space; or an acquisition and expansion of an empty

building. After reviewing the options with KDC, it was clear that the last one was most

feasible. The challenge, however, was in the details. At what price could KDC buy the

empty building? How much would it cost to expand and adapt to the needs of Baxter?

How long would it take?

by WIlliam L. Rafkin

Senior Vice President, Koll Development Company (KDC)

Baxter Healthcare

A few days after Burns’s call, a teamfrom KDC arrived in Bloomington tobegin the process. KDC decidedto buy an empty 90,500 square footcall center and to expand it by 35,000square feet for sophist icatedproduction, warehouse, and officeuse. The challenge, however, was thatconstruction had to be completed innine months and on a tight budget.That same day, while standing in thevacant call center, a team from KDCand Staubach negotiated a deal withthe seller’s agent. The resulting pricewas a substantial discount toreplacement cost, and the buildinghoused many amenities that Baxterneeded, such as furniture, fixtures,and cafeteria equipment.

Although plans for the rehabilitationevolved over time, financial arrange-ments needed to be nailed downimmediately. Baxter wanted toown the facility eventually, but neededtime for capital budgeting. Since

construction costs would not befinalized until well into rehabilitation,structuring the lease was a bit of achallenge. Baxter and KDC quicklycame to terms on a long-term lease,with a unilateral right for Baxter topurchase the building at a set price ata set time. In addition, KDC grantedBaxter a share of future profits if it eversold the building to a third party, if bychance Baxter passed on its purchaseoption. These creative terms metBaxter’s financial needs, yet gave bothparties enough certainty to get theproject capitalized and underway.

KDC worked with Compass Bankto provide an acquisition and con-struction loan, which featured amini-perm option that allowedKDC to finance the finished projectuntil Baxter exercised its purchaseoption. Due to Compass’ speedyresponse, KDC purchased theempty building 60 days after itsfirst visit to Bloomington.

“Due to our good relationship andconfidence in KDC, and the stellarcreditworthiness of Baxter Healthcare,we were able to respond quickly with awell conceived structured financing,”said John Reichenbach, Executive VicePresident of Compass Bank. “We werevery pleased with the results.”

A 35,000 square foot, air-conditionedwarehouse was added to the buildingand the interior and exteriors werecompletely rehabilitated. Additionally,because jobs were added to the localeconomy, Baxter and KDC worked withMonroe County to obtain property taxincentives that rewarded Baxter for itslong-term commitment to the area.

KDC assembled a great team. WeddleBrothers was hired as the generalcontractor, and Oddle, McGuire & Shookwas hired as the architect and engineer.All parties met frequently on-siteto ensure a rapid and successfulcompletion. Hard and soft development


Built on values.

Quality, professionalism and peoplehelped build Hill & Wilkinson.

What can we build for you?Diverse Projects – we construct a widerange of project types. Our managershave experience in a tremendous varietyof project types including tilt-up warehouses, high-speed automatedpackaging plants and healthcarefacilities.

Our established consortium of similar construction companies throughout thecountry enables us to tackle any construction project – anywhere in theUnited States – in order to serve yourneeds.

214.299.4300www.hill-wilkinson.com

800 Klein Road, Suite 100 • Plano, Texas 75074

costs were monitored daily, and KDCexercised its skills in value engineeringevery aspect of the redevelopment.

As construction was underway, Baxterfurther modified its interior finish andsignificant improvements to the buildingwere implemented. These improve-ments, however, required additionalfunding. At the point of nearingcompletion, both parties met to revisitthe financial terms of the lease.Although KDC desired to own thebuilding for a few years, Baxter’s needsprevailed and they relinquished theirpurchase option and asked that KDCput the building up for sale.

KDC quickly found a buyer for theproperty, Capital Lease Funding, anewly-formed NYSE-traded REIT.CapLease did a magnificent jobreviewing the building, lease, andmarket, and came quickly to terms withKDC. At the time of Baxter’s occupancyand lease commencement in late 2004,

CapLease closed on its purchase.Baxter’s share of the profits from thesale was enough to pay for the costs ofadditional interior improvements, whichwas the reason for the sale.

At the end of the day, all parties werepleased. Baxter had a state-of-the-artproduction, warehouse, and officefacility meeting its long-term needs at arental rate that was below market andalso below the cost of a typical ground-up, build-to-suit building. CapLeasemade a solid, long-term investment witha blue-chip, superb tenant. KDC accom-plished its tasks on time and on-budget,made a nice return on its investedcapital, and forged closer relationshipswith talented individuals from Baxter,Staubach, Compass Bank, and CapitalLease Funding. From KDC’s perspective,the strength of those relationships is thetrue measure of success.


At the end of the day, all parties werepleased. Baxter had a state-of-the-artproduction, warehouse, and officefacility meeting its long-term needs at arental rate that was below market andalso below the cost of a typical ground-up, build-to-suit building.


ADVERTISERS INDEX

Abstract Construction Company ...........29

AEW New Capital Management L.P. .........12

Alliance Geotechnical Group..................38

CB Richard Ellis .........................................6

Clayco Construction Co..........................24

Compass Bank ........................................33

Corgan Architects....................................24

Cummings Electrical, Inc........................36

Gardere Wynne Sewell LLP .....................2

Gensler .....................................................24

Greensboro Economic

Development Partnership.........................4

Highland Builders ....................................14

Hill & Wilkinson, Inc.................................36

HKS, Inc....................................................15

JR Engineering ........................................33

Kimley Horn & Associates ......................37

McCarthy Building Companies, Inc.......25

Munsch, Hardt, Kopf & Harr PC .............33

Pacific Builders, Inc. ................................21

Page Southerland Page...........................25

Peterman & Associates, Inc....................33

Potter Concrete, Ltd................................29

Promise Building Service Inc..................38

Rogers-O'Brien Construction Co............38

Sunwest Communications.....................38

T D Industries, Inc. ..................................37

The Staubach Company .........................40

Thomas S. Byrne.....................................38

Developing for the Future is published by Innovative Publishing Ink. For advertisinginformation, please contactAran Jackson10629 Henning Way, Suite 8Louisville, KY 40241502.423.7272www.ipipublishing.com

Graphic Designer: Daniel Owsley

Innovative Publishing Ink specializes in creating corporate magazines for businesses. Please direct inquiries to Aran Jackson, [email protected].

AGG’s full range of services include:• Geotechnical Engineering and Consulting• Construction Materials Inspection & Testing• Geotechnical & Construction Materials QA/QC• Value Engineering Studies• Drilling Services• Full In-House Labratory Testing Services• Inspection and Testing• Foundation and Specialty Analysis• Site Dewatering/Infiltration Prevention• Roadway/Transportation Studies• Foundation Pre-stress Investigation• Consulting Regarding Distressed Buildings

Contacts:Mark J. Farrow, P.E.

Frank Shirazi3228 Halifax Street • Suite A

Dallas, TX 75247tel: 972-444-8889 fax: 972-444-8893

An Employee Owned Firm

Koll Development Company (KDC), one of America’s leading commercial real

estate firms, provides a full range of commercial real estate services including

corporate build-to-suit development, acquisitions, corporate facility project/con-

struction management, project financing, asset and land management, and

marketing and leasing. Koll Development Company, headquartered in Dallas, has

offices nationwide to serve its clients.

In the last five years, KDC has built or bought over $1.6 billion of real estate

nationwide. Recent clients include: Abbott Labs, AT&T Wireless, Bank One,

Baxter Healthcare, Citigroup, EDS, EPA, FedEx, Ford Motor Company, IBM, Intuit,

Nokia, Nortel Networks, Omnicom, PetsMart, Sally Beauty Company, and Siemens.

866.869.1700www.kolldevelopment.com

HUNTON & WILLIAMS

PINNACOL ASSURANCE

BARNES & NOBLE

NEXTEL

NISSAN

“There is just never any questionof conflict of interest

working with Staubach.”

— Albert P. ShotwellVice President, Real Estate & Facilities,

Nextel Communications, Inc.

“Thanks to Staubach, we got to stay put and

cut occupancy costs.”

— Thurston R. MooreManaging Partner,

Hunton & Williams LLP

“Thanks to Staubach, weopened over 100 new stores inmarkets we wanted, ahead of

the competition.”

— Mitchell KlipperChief Operating Officer,

Barnes & Noble, Inc.

“Thanks to Staubach, Nissan MotorAcceptance Corp. saved over $17 million

developing a new customer service center.”

— Steven R. LambertPresident & CEO, Nissan Motor Acceptance Corp.

and Infiniti Financial Services

“Thanks to Staubach, we have a new headquarters right where we wanted with

exactly the features we needed.”

— Jeff TetrickChief Financial Officer,

Pinnacol Assurance

Five More Reasons to Talkto The Staubach Company.

w w w. s t a u b a c h . c o m1 . 8 0 0 . 9 4 4 . 0 0 1 2

The Staubach Company provides global services

through DTZ Staubach Tie Leung

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