"On the East Coast, foreign trade zones have been widely and successfully utilized, but it's not been popular in California," observes Barry Hibbard, vice president of commercial and industrial development for Tejon Ranch Co., which is developing the 1,450-acre master-planned business park in partnership with Rockefeller Development Group. "The problem, I think, is that most developers don't know what to do with it. They don't understand how it benefits tenants or how to explain the benefits to tenants. That's one reason we hooked up with Rockefeller. They have been very good at quantifying the benefits so companies can clearly see what it does for them."

According to Hibbard, many developers have become expert at setting up foreign trade zones, but few have recognized the need for follow-through. "If you look at most zones, they don't have someone who can articulate to the tenant what they will gain by locating in an FTZ," he says. "You need someone who can walk you through the whole process and point out you don't have to pay this duty or this tax or help you figure out what percentage of your materials comes from nontaxable sources. You need someone who runs the whole thing out on a spec sheet and tells you, here's your savings."

The exec tells GlobeSt.com his company became familiar with Rockefeller Group's expertise in this area through the latter's work with IKEA, which was the first company to activate a zone in California when it built a two million-sf distribution center on a 184-acre site near Tejon Ranch. "We were looking for somebody to team up with to help get the project going, and we were impressed with the breadth of their knowledge," he says. But when initially approached a few years ago, the New York City-based developer rejected the partnership offer after a commodity-flow analysis it conducted determined the site did not make economic sense.

Hibbard reconnected with the company last year when the Rockefeller executive in charge of the IKEA project questioned the previous analysis after spending time in the area. "It turned out the first time, they did the analysis from an intersection in the center of Bakersfield, missing all the traffic on I-95, which goes by the city but not into it. When they redid it, they realized their original figures were way off," he explains.

For his own part, Hibbard says he initially had to be convinced of the value of FTZ status. Rockefeller representatives took him to an FTZ project it was involved with in Mt. Olive, NJ. The market had many similarities to Bakersfield, including a large blue-collar labor force with a solid work ethic, which helped attract businesses to the area. But as in California, most prospective tenants were unaware of the benefits available to them from locating in a trade zone and had to be educated as part of the marketing process.

According to Hibbard, FTZ status on its own is not sufficient to attract tenants, even if they are cognizant of its benefits. But he says it is a useful tool to help seal a deal and differentiate your project from others in the same market or competing markets.

Instant Insights /

California Project to Use Foreign Trade Zone Status

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