Change in Stafford tax rate attracts distribution center developer

Aug. 12--A Baltimore company expected to break ground soon on a nearly half-million-square-foot distribution center near Stafford Regional Airport is the first developer to take advantage of a new Stafford County tax rate on inventory.

CSG Group, a commercial real estate development and investment firm, already has permits for what will be the second-largest building in the county's history, according to John Holden, Stafford's director of economic development and tourism. When it's finished next spring as expected, e-commerce businesses leasing it will pay just 0.0001 cent per $100 worth of inventory going in and of the facility.

"We like to call it a 'catalystic' project," Holden said. "It's going to bring, potentially, hundreds of new jobs."

County officials have long desired to attract commercial development around Centreport Parkway and the airport, but found that distribution center developers were turned off by Stafford's previous merchant's capital tax rate of 50 cents per $100 worth of inventory.

"It was just too burdensome on them, and was preventing them from choosing Stafford as a location," said county Revenue Commissioner Scott Mayausky. "Most localities don't have this tax. They can't have it and a [business, professional and occupational] license. We're the largest locality in Virginia without a BPOL tax. It was putting us at a disadvantage."

He worked with Del. Bob Thomas to get the General Assembly to allow a local option for changing that tax rate specifically for warehouses over 100,000 square feet. Stafford supervisors approved the new rate April 16. Distribution centers will still have to pay taxes on real estate and such business property as forklifts and racks.

CSG Group purchased 89.7 acres for the distribution center site from M&T Bank for $1.3 million in April. Located immediately south of the airport runway and west of Centreport Parkway, it is part of six parcels totaling 183 acres along the airport and parkway that an affiliate of CSG Partners and Ryan Development had purchased in late 2008 for speculative development.

"The market faltered and the properties were foreclosed and purchased by the lender, M&T," Rich McDaniel, Colliers International's senior vice president in Fredericksburg, wrote in an email. "They eventually decided that the land, which is zoned light commercial, wasn't worth the amount they still owed M&T, and let it be sold in foreclosure in 2013. M&T purchased all six parcels."

McDaniel, who handled the recent sale for M&T, said CSG's leadership changed over the years, and the company decided to repurchase from M&T the large parcel just south of the airport for a speculative distribution center.

"CSG would not have proceeded with this project without that tax reduction, as it would have limited the prospects severely," he said. "The tax would have placed a huge burden on a distribution operation."

Distribution centers have become increasingly popular with developers as e-commerce has exploded and companies such as Amazon and Walmart advertise one-day shipping. Vacancy rates register around 4.3 percent, which is the lowest ever, according to Logistics Management magazine. The industry publication said that vacancies have hovered between 8 and 9 percent historically.

The distribution center that CSG plans to build will be a 486,720-square-foot "world class facility designed with e-commerce users in mind," according to Colliers International's prospectus for the property. It will have 567 parking spaces for vehicles and 157 trailer stalls for storage. It will also have easy access to Interstate 95, which will put it within 25 miles of I -- 495, 40 miles of Washington and 157 miles of the Norfolk International Terminals, the largest of the Virginia Port Authority's four facilities.

M&T's remaining parcels from the auction have been sold to various investors. Among them is Skip Groupe and his son Johnny Groupe of The Engineering Groupe of Woodbridge, McDaniel said. They've graded the one between Centreport Parkway and I -- 95, and plan to sell or lease sites to those who want frontage along the interstate.

McDaniel, who is also handling that property, said that a few prospects have seemed interested in it as the location for such things as storage, data centers, and recreational vehicle and boat sales.

"No deals signed yet," he said.

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