GM Filing Affects Industrial Sector, Local Economies

A major part of bankrupt carmaker General Motors’ plans to fast track its reopening as a new, sleeker firm in 60 to 90 days, are a number of real estate-related decisions that could have an effect on commercial property industry, especially the industrial sector. GM plans to close two assembly plants this year. The firm will close its Wilmington, Del., assembly plant in July and its Pontiac, Mich., assembly plant in October. At the end of this year, GM will also close its service and parts operations and warehousing and parts distribution centers in Boston, Jacksonville and Columbus. Stamping plants will close in Grand Rapids, Mich., this month; and in Indianapolis in December 2011 and in Mansfield, Ohio, in June 2010. Powertrain plants in Flint, Mich.; Willow Run, Mich.; Parma, Ohio; and Fredericksburg, Va.; will all close in December 2010. The Livonia, Mich., plant will close in June 2010. While there are many consequences of these closures, one will be the additional empty industrial spaces in these regions as well as the trickle-down effect with suppliers, Jim Cummings with the I-55 Corridor industrial group of Grubb & Ellis Co. in Rosemont, Ill., told CPN. “The closings will increase supply of industrial properties, thereby driving down prices, all else held equal. This assumes, however, that GM plans to sell the properties,” Randall Guttery, associate dean for graduate programs and professor of finance and real estate at the University of North Texas College of Business, told CPN. “A concern for potential buyers is that these facilities may be so customized that it may be difficult to convert them to another use.” However, Guttery said, a greater concern is the effect on local economies near the shuttered plants. “With the layoffs, many other suppliers, subcontractors and shop owners at large will be affected adversely. I am not sure what the multiplier would be, but I suspect it is significant,” Guttery said. All the suppliers in those areas will be shut down, too, Cummings added. “That is lot of suppliers and there will be a huge fallout from that with spaces emptying, too,” he said. Depending on the type of product and the market, these properties could be difficult to turn over, Cummings said. “In the U.S. market, manufacturing has experienced a decline. So, demand for production and assembly facilities isn’t good. They’ll probably need to be reworked or developed to meet smaller needs and break up space. Some might just sit idle depending on the market.” The distribution and warehouse facilities will be adding more product to already overabundant marketplace, too, Cummings said. “A facility as big as these are could have some serious significance in those markets,” he noted. “Large production facilities – with the immense scope and scale these likely have – may be broken down into space for multiple tenants. But, we’ll have to wait and see how this really plays out. The assembly plants are so highly specialized that it will be very difficult to lease them. Who else can buy that and use it?” Efforts to reach GM officials regarding their plans for the vacated facilities were unsuccessful.