Pharma Distribution Network Consolidation
Project Type: Lease for Specialized Use, Consolidation of Multiple Subsidiary Logistics Networks Into a Singular Facility, Insource of Third-Party Operations
Space Use: Pharmaceutical GMP Ambient and Cold-Chain Logistics
Location: Reno, Nevada
Size: ~200,000 SF
Services Provided: Real Estate Strategy, Site Selection, Transaction Implementation, Leasing
A Fortune 50 pharmaceutical company (“Client”) engaged JM Zell to devise a strategy to increase the efficiency of its western US distribution network both operationally and financially. JM Zell guided the Client through consolidation of several subsidiaries’ independent facilities and 3PL operations into a singular approximately 200,000 SF leased facility while simultaneously insourcing costly third-party operations and providing for additional capacity to accommodate future expansion. The most significant hurtle to leaving a legacy facility and/or insourcing from a 3PL GMP distribution provider is the significant CAPEX typically necessary to create a GMP ambient and cold chain distribution facility.
JM Zell conducted a deep analysis of the four subsidiaries’ (pharmaceutical, vaccine, animal health, and consumer goods) distribution requirements to determine overlap in the geographical areas served, define specialized space/use and other technical requirements, and understand remaining real estate obligations to determine project strategy and inform the search for a viable consolidated site. Congruently, JM Zell held discussions with various internal Client stakeholders to identify opportunities to meet corporate financial goals including limiting CAPEX expenditures and avoiding tax nexus by locating the consolidated logistics facility in a tax friendly jurisdiction.
Through our discussions with the Client, tour of the existing facilities, and in-depth research, JM Zell was able to identify several options which met the operational and location requirements in Reno, Nevada. Reno is located midway north and south on California’s border providing easy distribution throughout California, the Client’s largest US customer base, while avoiding costly California Tax Nexus.
Through continued market investigation, JM Zell identified one further off-market facility (“Off-market Facility”), in Reno, Nevada, which was a purpose built “plug-n-play” Pfizer pharmaceutical GMP ambient and cold chain storage / distribution operation. Pfizer never fully utilized the facility so disposed of the facility to a large electronics company. The electronics company’s specific requirement also never fully materialized and the facility was sitting dormant. With Pfizer’s GMP improvements still intact, the Client could re-utilize much of the in-place improvements dramatically reducing the CAPEX needed to stand-up the consolidated GMP operation.
JM Zell devised a transaction strategy where JM Zell would first approach the Owner of the Off-market Facility directly as an investor regarding the concept of the Owner selling the facility including the FF&E. Because of JM Zell’s broad platform and qualifications as an investor, based upon our development service-line, JM Zell was able put the site under contract without needing to disclose the Client’s identity minimizing the seller’s leverage in not allowing it to gage how valuable the infrastructure and equipment was to the Client.
Once under contract, JM Zell identified qualified investors / developers to purchase the Off-market Facility to act as landlord. JM Zell then drafted a comprehensive request for proposal giving the Client great flexibility to extend, terminate, use / dispose of the equipment, etc. with the only negotiable item being the rental rate and escalations of the lease. JM Zell assigned the contract at par value to the investor / developer which offered the best lease for the Client.
Through JM Zell’s strategy and implementation, the Client was able to obtain a flexible lease for a state-of-the-art facility, at a rent below market for a shell warehouse, while obtaining a GMP ambient and cold chain facility at no additional rent. JM Zell’s structure, platform, and experience enabled the Client to consolidate four previously standalone distribution networks at very low OPEX and CAPEX, while avoiding costly Tax Nexus in California.
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