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The Art of the
Deal
Goodbye Park Avenue; hello Richmond
Virginia Business
March 2004
THE
DEAL: Corporate relocation of Philip Morris
USA from New York to Richmond.
KEY PLAYERS: Jeff Cooke, senior vice president
and Birck Turnbull, broker, Thalhim-er/Cushman &
Wakefield in Richmond; Raymond Pace, real estate manager,
Philip Morris USA; Herbert C. Peterson, vice president
for business and finance, University of Richmond; William
J. Kiniry, president, Kiniry & Co. in Richmond.
HOW DEAL UNFOLDED: In fall of 2002, Philip
Morris USA contacts Thalhimer/Cushman and Wakefield
with a request to survey the Richmond market for 75,000
square feet of office space. By early 2003, the company
wants a stand-alone building with more than 200,000
square feet. Three area buildings are considered —
the Virginia Dominion Power building at Innsbrook Corporate
Center, the Heilig Meyers building at West Creek and
the former Reynolds Metals headquarters on West Broad
Street. Since Philip Morris USA wants to lease and two
of the buildings are for sale, the selection is narrowed
to the Reynolds building. It’s considered a gem,
because it offers plenty of space — four stories,
250,000 square feet of space, a 35-acre campus —
and history. Built in 1958 by award-winning architect
Gordon Bunshaft, the building is listed on the National
Register of Historic Places. There’s just one
problem: a part of one floor has already been leased.
Construction is underway on the space for tenant Hankins
& Anderson, a local engineering consulting firm.
“We asked them to give up the lease. The engineering
firm said no,” recalls Cooke. “To a salesman,
no means maybe.”
MAJOR HURDLE — Breaking
a 10-year lease: Thalhimer and Philip Morris
USA dug in. Meanwhile, some of the Virginia’s
most powerful politicians lobbied on behalf of Philip
Morris USA’s relocation. Hank-ins & Anderson
heard from the offices of U.S. Republican Senators George
Allen and John Warner. Republican Rep. Eric Cantor (whose
district includes the Reynolds building) called personally
as did Michael J. Schewel, Virginia’s secretary
for commerce and trade. “They expressed how it
would be a benefit to Virginia,” says Michael
W. Matthews, president of Hankins & Anderson. Finally,
after six weeks of negotiations, the firm agreed to
break the lease, but the calls, says Matthews, “had
no influence. We don’t work for the state or the
chamber of commerce. It was purely a business decision.”
None of the parties will disclose the figure for the
buyout, a cost shared by Philip Morris USA and the building’s
owner, the University of Richmond. Hankins & Anderson
ended up relocating to Innsbrook, a suburban office
park further down West Broad Street in Henrico County.
Once that obstacle was removed, Philip Morris signed
a 15-year-lease valued at $47 million.
ECONOMIC SIGNIFICANCE: The deal brings a Fortune
500 company to Richmond, relocating about 270 positions
— less than the 450 jobs originally announced.
More than 100 workers have already moved from New York,
and another wave is expected soon. Eventually, the building
could house as many as 650 workers. By 2005, the move
is expected to save Philip Morris USA $60 million a
year in lower taxes and other costs. The state sweetened
the deal with $31 million in incentives, with a portion
of the money available only if the company meets performance
targets. As part of the deal, Philip Morris plans to
sink the majority of a $300 million investment into
its South Richmond cigarette plant, which employs 3,500
people. Over 10 years, the corporate headquarters is
expected to generate more than $85 million in state
and local tax revenues.
To
submit a transaction for The Art of the Deal, contact
Paula Squires at psquires@va-business.com.
Virginia
Business - March 2004
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