NEWPORT – When Dermody Properties breaks ground on its LogistiCenter at I-95 Wilmington distribution center, it will be a first-of-its-kind multistory facility for Delaware.

Planning documents submitted to New Castle County show that the proposed 3.8 million-square-foot structure is a five-story facility, featuring 69 loading docks, nearly 2,000 parking spaces for employees and nearly 1,000 spaces for tractor-trailers. County land use officials confirmed to Delaware Business Times that the proposal seeks to build a five-story facility.

Dermody, Harvey Hanna & Associates, and the New Castle County Department of Economic Development all declined to comment about a potential tenant for the Boxwood project, but Dermody does have an existing relationship with Amazon, having built two facilities that the e-commerce giant now leases. The engineering firm for the project, Langan Engineering, also designed a four-story, 855,000-square-foot fulfillment center for Amazon near Denver that opened last year.

The distribution center will only cover a footprint of roughly 800,000 square feet of space, with the remaining 3 million square feet of space found in its top four stories.

Although Dermody is not seeking a variance to the county’s 90-foot height limit for the heavy industrial zone, the plan would make the LogistiCenter project perhaps the American distribution center with the most floors, as existing or announced projects have typically topped out at four floors. At 3.8 million square feet, it would also be among the largest multistory projects built.

It’s a departure from the plan first announced by Harvey Hanna & Associates, which purchased the 142-acre property in 2017 before selling about 88 acres to Dermody this month for about $21.6 million. Harvey Hanna had proposed building two single-story buildings roughly 1.1 million square feet and 1.3 million square feet each, along with secondary 350,000- and 310,000-square-foot buildings.

Those plans would have largely replicated what the public is used to at Boxwood, where a single-story General Motors plant covered some 3 million square feet for decades. Now, however, a tower facility is proposed to change the landscape and expand available square footage by about 25%.

In many ways, consumers’ expectations for next-day, or even same-day, shipping has led to an e-commerce arms race for logistics and distribution.

In 2017, 46% of consumers expected the possibility of next-day shipping, up 3 percentage points from the previous year, according to a UPS survey. And same-day shipping was expected by 20% of consumers, up 3 percentage points.

Amazon kicked off that race when it announced in April that the company was working to transform its Prime free two-day shipping to free one-day shipping. A month later, Walmart announced that it would offer next-day deliveries to about 75% of its American consumers by the end of the year – no membership required. Not to be left behind, Target announced in June that it would offer most U.S. customers same-day delivery for orders of more than $35 for a flat fee of $9.99, or for free if they’re already a member of its affiliated shopping app Shipt.

Now all three, along with a variety of other retail brands, are leading the e-commerce boom for logistics and distribution space.

As retailers push to one-day shipping on its products, however, a concurrent need has developed to move to more densely populated, urban areas to reach markets. To date, however, most fulfillment centers are farther away in less populated areas that could support the typical huge footprint needs.

For instance, Amazon’s single-story fulfillment center in Middletown covers 1.2 million square feet, while another Amazon center built by Dermody in Logan Township, New Jersey, also covers more than 1 million square feet. Workers utilize compact forklifts to reach products stacked dozens of feet high in a single-story warehouse spread out over hundreds of thousands if not millions of square feet.

Developers looking to bank on the growing e-commerce need began looking to an idea that had flourished in more densely populated overseas markets like Europe and Asia. Some of the first multistory warehouses were built in Paris in the 1970s and Hong Kong became home to the famed 22-story center about 20 years ago.

Prologis, a San Francisco-based logistics developer that is the world’s largest warehouse owner, built America’s first multistory industrial warehouse in Seattle last year and has begun eyeing another in its hometown. In September, the Wall Street Journal reported that Amazon signed a three-year lease for 500,000 square feet of the Prologis center while Home Depot signed on for 100,00.

Since then three more multistory centers have been announced in New York City, including a joint venture by Goldman Sachs Asset Management PRE and DHPH to develop a three-story, 370,000 square-foot distribution center in Brooklyn. Meanwhile, plans for other smaller multistory facilities have begun popping up in New Jersey, Virginia, and Wisconsin, according to media reports.

Just weeks ago, a project very similar to the one in Newport was announced near Memphis with plans for a four-story facility measuring nearly 4 million square feet, according to the Commercial Appeal newspaper.

While most of the multistory projects announced to date have been located within major cities, a project at the former Boxwood plant makes a lot of sense due to its close proximity to Interstate 95, the main Northeast corridor artery that can reach more than 50 million people from Boston to Washington, D.C., within a day’s drive.

Spencer Levy, senior economic researcher for commercial real estate firm CBRE, told DBT that multistory distribution centers, along with automated robotic service and taller warehousing, are the “next generation” of industrial building in America.

“Multistory distribution is still fairly new but growing in the U.S.,” he said. “It’s been a fairly new phenomena here compared to overseas because land is still relatively cheap, allowing for larger buildings.”

The challenge with multistory distribution, however, is the much higher cost of construction related to structural support, transportation paths, technological logistics and more, he said.

“Because of those costs, we’ve seen rents for multistory construction approaching that of office space,” Levy said.

While analysts have noted the difficulty in replicating the multistory model in America due to the country’s reliance on 53-foot trailers for transportation of goods – in foreign markets smaller trucks are more common and therefore easier to navigate ramps for upper levels – it appears the Boxwood project will still be relying upon the typical trailer. All of the trailer parking spots noted in the plans submitted to the county are either 55 or 58 feet deep.

The plans submitted to the county are similar to a project near Milwaukee set to open in 2020 for Amazon that will have docking only on the first level, with robotic equipment operating on three floors above to retrieve requested items. That differs from the design from Prologis, which built its three-level center in Seattle with a large ramp leading to a truck apron on the second level, allowing for docks on two levels.

More information may be revealed later this month when the New Castle County Board of Adjustment hears a special use request for the project at its Nov. 21 meeting. Dermody’s local legal counsel, A. Kimberly Hoffman, of Morris James LLP, submitted a request for an expedited hearing on the matter, saying that “the substantial number of construction and permanent jobs on offer through this project will be in jeopardy due to any delay in clearing this hurdle.”

The request references the ordinance passed by the county council earlier this year to address heights of landfills, but also forced all heavy industrial projects to receive special use approval despite being properly zoned. The initial plan submitted to the county did not need special use approval because it predated the ordinance passed in April.

State and county economic development officials said they could not discuss the particulars of the project due to non-disclosure agreements, suggesting there is a large employer interested. The site is not located within an Opportunity Zone, a federal program that would have made the project eligible for greater tax incentives. It is, however, a state-designated brownfield, or a former industrial site in need of remediation from contamination, which would make it eligible for other tax credits.

By Jacob Owens

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