Firm ‘banking’ on growth

Published 8:52 am Wednesday, February 3, 2010

COURTLAND—Bunrootis LLC — the Delaware-based investment company that will serve as mitigation banker and lease mitigation property from Southampton County at the Turner Tract industrial site — owns similar parcels in another state and was attracted to the site because of potential growth from the Port of Virginia.

David Gibbons – who serves as managing member for a second, Dallas-based investment company, Acadia Capital Group LLC – explained Tuesday that the ownership for both companies is the same.

“Bunrootis was created to hold and own stream mitigation properties,” Gibbons said. “Because of the nature of real estate, typically every time you have an investment set up you also need to set up a different single-purpose entity. Banks want to lend money to a single-purpose entity so that the assets aren’t co-mingled.”

What Bunrootis owns

According to Gibbons, Bunrootis owns two stream mitigation properties, both of which are in West Virginia.

The first is a 512-acre parcel near Looneyville called Hayes Run Creek, which Bunrootis purchased in August 2008. Gibbons said the site — which, like the Turner Tract, is a former farm — contains seven wetland and 9,000 stream mitigation credits.

According to figures from Acadia’s Web site, Hayes Run Creek is projected to earn a 55 percent profit once the credits and the property are sold.

Bunrootis also owns 396 acres near Spanishburg, W.Va., which it purchased in August, Gibbons said. Although the U.S. Army Corps of Engineers has not officially announced how many wetland and stream mitigation credits would come from the Spanishburg site, Gibbons estimates the property will yield six wetland and 16,500 stream mitigation credits.

“The Southampton County project has been in formulation for three years,” Gibbons said of the Turner Tract site. “Even though it’s the newest of the three sites for us, it’s farther along than the other two.”

Gibbons said Bunrootis is interested in finding more stream mitigation properties to add to its portfolio.

“We’re trying to find some others,” he said, adding that the firm would be interested in a parcel “if we perceive that there might be a potential highway project, or if there’s going to be anticipated development. There are a lot of things that go into why we would look at one area versus another, (but) if we perceive an area is in line to grow then that would be something that would be interesting to us.”

He added, “If it’s in the middle of Wyoming, then probably not so much.”

The Turner Tract site, Gibbons said, “was appealing to us because of a belief that there is going to be significant growth going in that direction caused by the Port of Virginia and all of the work that was done there.”

That growth should continue with the completion of a major project to expand the capacity of the Panama Canal, Gibbons said.

“Once that work (on the Panama Canal) is completed, I think the Norfolk port, with its channel depth and new facilities, is where you are going to see the container ships from China heading to,” Gibbons said. “Growth tends to follow the highway systems, and U.S. Route 58 ties into the port and is the closest tie to Interstate 95, which is the busiest route on the East Coast. That was all appealing to us.”

Will stream credits sell?

Joe Hines — an employee of the Richmond-based engineering, planning and design firm Timmons Group and the managing principal for the Turner Tract project — said Tuesday that the stream mitigation credits from the Turner Tract would sell.

“Historically there has been more of a market for stream credits than there has been for wetland credits in any given watershed,” Hines said. “Developers will go out of their way to avoid wetlands, but they really can’t go out of their way to avoid a stream.”

The restored wetlands at the Turner Tract site — which will officially be called the Cheroenhaka Wetland and Stream Mitigation Bank — are expected to yield 50.88 marketable wetland credits and between 12,739 and 14,427 stream credits. Collectively the credits currently have a market value of more than $9.5 million.

“This is the only bank in this watershed that has stream credits,” Hines said. “That’s why we think it’s a very valuable opportunity on behalf of the county to develop the industrial park in that regard.”

Hines added that there has already been some interest in the stream credits, but because of confidentiality agreements could not get into specifics.

“We have had inquiries from other consultants who are working with developers knowing that this project is getting ready to come on line,” Hines said. “We do feel relatively confident that there is a pretty good market for them.”

A large number of the stream credits could also be purchased if the limited-access highway roughly paralleling U.S. Route 460 from Petersburg to Suffolk is built.

“If you look at environmental studies for the 460 corridor project, there are significant stream impacts,” Hines said. “The current (Bob) McDonnell administration has apparently made that a priority, to try and get the 460 project funded.”

Acadia elsewhere

According to their Web site, Acadia has been investing in private, off-market ventures since organizing in 1999. The firm deals primarily with projects in the $2 million to $15 million range, and is primarily interested in properties in the southeastern U.S.

Acadia lists 11 investments it has made since 1995 on its Web site, although this includes Bunrootis’ investment at Hayes Run Creek. Of the other 10 investments, five were for warehouses. The others were for note acquisitions, an office building, developed lots, a land parcel and a mortgage.

The company has sold off nine of its investments for equity returns, ranging from the 15 percent it made for an office building in Coppell, Texas, and the 100 percent it got for land it purchased in Savannah, Ga.

Gibbons said Acadia currently owns one building: A 454,000-sqaure foot warehouse in Asheville, N.C., which it leases to home appliance manufacturer Electrolux.

Bunrootis-Southampton partnership details

On Jan. 25, the Southampton County Board of Supervisors unanimously approved a partnership with Bunrootis, paving the way for the development of the Turner Tract industrial site.

Bunrootis will spend $2.5 million of its own money to turn about 241 acres of the Turner Tract site into the compensatory wetland and stream mitigation bank, then serve as mitigation banker and lease the mitigation property from the county for 15 years at a cost of $1.75 million.

Meanwhile, Southampton will pay the company more than $2.9 million, which Bunrootis will in turn give to contractors for turning 251.3 acres of the site into land suitable for the construction of an industrial park. The money will come from bond proceeds from 2006.

The early phases of construction have been delayed by the wintry weather, but the work is scheduled to finish by the end of August.