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Safeguard families form $100 million equity fund Investments would help company move beyond foreclosures By CHUCK SODER csoder@crain.com
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The families behind Safeguard Properties have formed a $100 million private equity fund that could help the Valley View company expand beyond its core business — taking care of empty houses. What kind of companies might the fund buy? For one, think about companies that inspect stuff. Oil rigs. Electrical equipment. Retail stores. The list of options is long, according to CEO Alan Jaffa. Those types of businesses could get a big boost by working with Safeguard Properties and the 3,000 companies that Safeguard uses to inspect and maintain homes throughout the United States, Jaffa said. “There isn’t a community, a neighborhood, a ZIP code that we haven’t touched,� he said. And Safeguard Properties would benefit from those relationships, too. The businesses acquired by the newly formed Safeguard Capital Group could end up buying services from Safeguard Properties, he said. For instance, they might pay to use the company’s two new data centers in Columbus and Fort Worth, Texas. And though Safeguard Properties doesn’t technically own Safeguard Capital, the fund’s managers will be keeping an eye out for companies that could end up being acquired by Safeguard Properties.
“There isn’t a community, a neighborhood, a ZIP code that we haven’t touched.� – Alan Jaffa CEO, Safeguard Properties After all, the families that own Safeguard Properties own a majority stake in Safeguard Capital. So when the fund buys companies, they will “become part of the Safeguard family,� Jaffa said. Four years ago, Jaffa started talking with a local investment banker, Sean Dorsey, about ways that Safeguard Properties could expand beyond the business of managing empty homes that are in default or foreclosure. Don’t get him wrong: That market has been good to Safeguard
Properties. The company’s sales have grown by a double-digit percentage every year since Robert Klein started the business in 1990. But the last several years have been crazy: The company generated $1.3 billion in sales last year, up from $159 million in 2005 — before homes across the country started going into foreclosure. Safeguard Properties took on the role of caring for many of those homes, often for banks that ended up taking ownership of them. In 2012, the company even ended up buying the unit of Bank of America that manages houses owned by the Charlotte-based company, which is the secondlargest bank in the United States. Even as the economy has improved, Safeguard Properties’ revenue has continued to grow. But Jaffa said he expects that growth to slow down over the next five years. The plan to create Safeguard Capital started coming into focus more than two years ago, but it got put on the back burner when Safeguard Properties bought Bank of America’s field service division. However, Jaffa and Dorsey stayed in touch as Safeguard Properties focused on integrating that division into the company. They revived the plan about six months ago, Jaffa said. “I said, ‘OK, Sean. Enough is enough. I don’t want to delay this anymore. Let’s do this,’� he said. See SAFEGUARD Page 7
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Another step is about to be taken in the redevelopment of the former Twinsburg Chrysler Stamping plant site for the next generation of industrial users — and one with a big footprint for the region’s industrial market as well. Recast as Cornerstone Business Park after the mammoth Chrysler building was demolished by Twinsburg Industrial LLC, a joint venture formed by developer Scannell Properties of Indianapolis and contractor DiGeronimo Cos. of Independence, the site is about to spawn a 207,000-square-foot office/warehouse building on a speculative basis. That means the developer is about to put enough space for almost four football fields under roof without having a tenant committed to take space in it. Plans call for the structure to start going up this summer at Chamberlin Road and state Route 82, and to make it ready for tenants to-be-named later in February 2015. Scannell, which oversees development and marketing of the plant in the joint venture, plans to construct the largest multitenant industrial
building in the region since 2008 because, as Terry Coyne, the director of Newmark Grubb Knight Frank’s Cleveland industrial unit and broker for the park, said, “The market is ready for it. The market is tight.� Such a building is called a bulk warehouse property because it will have 32-foot-high ceilings to allow shippers and warehouse operators to stack more products on higher shelves and other features. Within that category, vacancy stood at 5.3% at the end of April this year compared with 6.6% last year. In the larger industrial market, vacancy was 8.1% at the end of April from 8.8% at the same time last year. Scannell’s new building is not the first multitenant building to rise from the ground in the region since the recession put much realty development and leasing action to a halt. Its precursor is the first building at Bluestone Business Park in Euclid, a 111,000-square-foot building that was constructed after a tenant committed to taking about 30% of it. Bluestone also is a new industrial park rising on the site of an old factory, in its case the former Copper Chase & Brass factory constructed to make munitions during World War II. Bluestone’s first building may be
leased by the end of the year, said Ray Fogg Jr., president of Brooklyn Heights-based Ray Fogg Corporate Properties Inc., which developed the Bluestone Business Park and the first bulk warehouse there. “Inquiry activity is good,� Fogg said. He said he believes the planned Twinsburg project will tap a different market than his in Euclid. The market is strong enough, he said, that Fogg will look at adding another building next year. If the remaining space goes and the market stays this active, he said, Fogg will look at adding another Bluestone building next year.
Timing is everything Industrial realty experts are excited about the renewed development activity of bulk warehouse properties. Joseph J. Martanovic, director of Ostendorf-Morris Co.’s industrial unit, said, “It’s the right time to do it. Money will never be cheaper than it is now. Construction costs will never be lower. The market will welcome another building.� With a site in Twinsburg in the vibrant southeast industrial market, Martanovic said, the Scannell project will also be located on a site with good highway access. See WAREHOUSE Page 9