"Hillwood seals deal on San Bernardino airport project"

Tuesday, June 17, 2003

Hillwood seals deal on SB airport project
Cost of 15-year development estimated at $335 million
By JIM STEINBERG
The San Bernardino (CA) Sun


SAN BERNARDINO - Ending 30 days of uncertainly and speculation, Hillwood
cemented a deal making it the master developer for 500 acres at San
Bernardino International Airport.

Just hours before a 5 p.m. Monday deadline, a top Hillwood executive told
Inland Valley Development Agency officials his company would not terminate
its contract.

Hillwood proposes to build up to 9

million square feet of buildings at what it's calling AllianceCalifornia
over the next 15 years for an estimated $335 million.

While local business leaders are generally bullish about the deal,
squabbling between city leaders and Hillwood vice president John Magness had
some observers speculating that Hillwood would pull out.

John Husing, a Redlands economist who studies the Inland Empire, said "I
prefer a marriage without love to a divorce that sets us back two years. 

"This is what developers do. They push the envelope. What cities do is push
back. That is what is going on here. I have watched this many times in many
cities,' he said.

Hillwood has brought to SBIA a 575,000-square-foot Kohl's warehouse, which
opened late last year, and this year signed Mattel Inc. to a long-term lease
for a 1.2

million-square-foot warehouse.

"We look forward to a long-standing relationship with the Inland Valley
Development Agency and onward to the airport,' said Magness.

Hillwood has an exclusive one-year option to negotiate a contract to become
master developer for airport property. The IVDA contract has an initial term
of seven years, which can be extended for up to 29 years if the benchmarks
are met. 

A $5 million infusion

Hillwood's decision to stay with the project commits the company to spending
$5 million, guaranteed by an irrevocable letter of credit, on a wide range
of improvements at SBIA.

Next week, the IVDA will give Hillwood an invoice for $675,000, the cost of
overruns for street-widening at Tippecanoe Avenue and Third Street, said Don
Rogers, part of the IVDA's interim management team.

There will be a second major drawdown of those funds up to $1.2 million when
the IVDA pays its share for a water system integration project with the city
of San Bernardino, Rogers said.

"I'm glad they made the announcement when they did,' said Robert Christman,
vice chairman of the IVDA. 

The announcement came after the IVDA board approved during a special meeting
Monday morning an item allowing transfer of transportation credits from the
IVDA to Hillwood. These credits would reduce the amount Hillwood would pay
for road improvements needed for the project.

"There were times when we were not sure we could put a deal together (with
Hillwood) and even when we did have a signed deal, we weren't positive they
were going to stay. It's nice to have that uncertainty gone,' said
Christman, who is a Loma Linda City Council member.

IVDA board member and Loma Linda council member Karen Hansberger said now
that the agreement is settled "the proof is in the pudding.

"We will see what they produce. I certainly think they have the skills to
make something great. I hope they can make it happen,' she said.

"I want Hillwood to make lots of money,' Hansberger said. "But we don't need
Hillwood to fill this land with warehouses. We could have done that
ourselves.'

San Bernardino Councilwoman Esther Estrada, who sits on the IVDA board, said
Hillwood has proved itself by landing high-profile companies such as Kohl's
and Mattel. 

She is concerned, however, with the limited number of jobs warehouses bring
to an area.

"I hope the corporations they bring in are a little more diversified,' said
Estrada. "I like the warehouses, but they don't bring a lot of jobs 100
here, another 100 there, but we lost 10,000 jobs (when Norton Air Force Base
closed).

"I would like to see Hillwood bring in clean jobs and provide good placement
jobs for those coming out of the colleges,' she said.

Dennis Hansberger, co-chairman of the IVDA and chairman of the county Board
of Supervisors, said he was not surprised at Magness' announcement.

"They certainly did what they could to improve the context of the deal right
up to the last moment. This is hard on us, but good business on their part.
What is important now is that we start seeing jobs,' said Hansberger, who is
Karen Hansberger's husband.

IVDA board member John Mitchell, the lone dissenter in the vote approving
the trip-credit transfer, said he isn't sure Hillwood will stick around to
finish the project.

"If they complete the project, that is great. If they chose to leave earlier
than the completion date, I wouldn't be surprised,' he said.

The Colton council member said he is basing that statement on how the
negotiations with Hillwood proceeded and "a lot of things that I am privy to
and can't discuss.'

Nevertheless, Mitchell said, if Hillwood stayed and completed the job,
meeting its guidelines, he would be happy.

"You don't need to love everybody you do business with,' he said.

San Bernardino's reaction

When asked about Magness' announcement, Judith Valles, who is co-chairwoman
of the IVDA and mayor of San Bernardino, said Magness' statement was good,
but she would like to defer further comment until after the 5 p.m. deadline
period.

Valles and City Attorney James F. Penman recently questioned whether
Hillwood improperly made concessions to Mattel, giving away incentives that
only the city could offer.

But Hillwood signed Mattel to a 10-year lease at AllianceCalifornia without
such concessions.

Valles also has been critical of how Magness had put political pressure on
her to approve the concept of a train yard on the Palm Meadows Golf Course.

Penman said the friction that existed between him, Valles and Hillwood's
Magness won't hinder the city's relationship with the company. "I think the
problem that existed has been limited to one individual, and the
relationship with the mayor and the top management people at Hillwood has
always been very good,' he said. 

Estrada said she hoped the tension wouldn't cause lasting problems.

"I think the city is looking at Hillwood, not an individual,' she said. "I'm
hopeful from a corporate side, they make sure John Magness is carrying the
directives of the corporation. From the city side, we will act
professionally and in the best interest of the people.''

Business' reaction

Reaction from the business community was highly favorable.

"I am glad the deal worked out the way it was supposed to work out,' said
Pat Cavanagh, a senior vice president for Catellus Commercial Development
Corp.

Catellus is the developer of the 588-acre Kaiser Commerce Center in Fontana.
The company is the process buying 36 acres in San Bernardino.

"This is great for Hillwood and the city (of San Bernardino). And hopefully
it will be great for us. Having a large developer like that on a project
brings it great visibility,' he said. "Hillwood has a quality company with a
good reputation.'

Rick Lazar, president of Lazar & Lauer, a commercial real estate firm based
in Redlands, said Hillwood's decision "is great for the whole area.'

When Hillwood started to look at the area three years ago, there was not
much going on in terms of commercial interest, he said. Now the volume of
activity is very high, said Lazar, who credits Hillwood's interest in the
area with the turnaround.

Dougall Agan, principal of Stirling, the master developer for Southern
California Logistics Airport in Victorville, said it is "fantastic' to add
Hillwood's name to the top-level developers showing an interest in Southern
California.

"It's like championship teams in the playoff. The level of play and the
quality of service goes up. It brings out the best of the best,' he said.

San Bernardino and Riverside counties have a chance to do something unique
in the country, Agan said.

"Political leadership is needed as a strategic partner (with developers). We
don't want to project an image of a stagnant political environment,' he
said.


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