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Monday | 29 August, 2011 | 2:07 pm

The cloud of eminent domain

By Lauren Duensing

After a long legal battle, Central Steel Supply relocates its warehouse to Marlborough, Mass.

July 2011 - The legal process of eminent domain allows the government to possess private property and reappropriate it for public use or delegate it to third parties-in the case of designated Urban Enterprise Zones, which pave the way for development of blighted neighborhoods. Urban renewal projects of this type were used to create both Baltimore’s Inner Harbor and New York City’s South Street Seaport.

On the surface, this type of project seems to have little downside, but determining if an area is blighted is highly subjective. Sometimes these types of renewal projects appropriate well-functioning, if not exactly showplace, properties and raze them, creating fewer opportunities for companies to place roots within the community and provide citizens with jobs. In 1999, steel service center Central Steel Supply Co. Inc., Marlborough, Mass., was the victim of a major plan change to an existing urban renewal plan that covered an entire 130-acre district in Somerville, Mass., known as Assembly Square.

For 21 years, Michael McParland, R/W-RAC (Right of Way Relocation Assistance Certification), Auxilium Inc., Needham, Mass., has been providing services to clients undertaking relocation projects. He has represented a variety of operations in the area of eminent-domain-necessitated relocation-including Central Steel Supply.

"Eminent domain is in the Fifth and 14th Amendments to the Constitution," he says. "The Fifth Amendment states that government should not take private property for public use without paying just compensation.

"The situation here in Somerville was that the city was going to take private property and turn it over to a for-profit developer. That situation has been tested before the U.S. Supreme Court in Kelo v. New London," McParland says.

In that case, the court decided in favor of the City of New London, Conn., ruling that a government agency could turn over private property to for-profit enterprise.

"It is a concept that has been tested in the courts time and time again," McParland notes.

Growth amid setbacks
In 1948, Walter Lipsett founded Central Steel and American Steel Trading Corp. with $1,500 in savings and two employees. The business grew over the years, but the company faced setbacks to rapid-fire growth.

In 1982, a fire consumed the building, equipment and inventory - "a lot of steel was destroyed," says John de Vries, president and CEO, Central Steel Supply. "We were able to move to a temporary location. We didn’t skip a beat, and all our employees stayed with us." The company was able to provide its employees with full compensation as well as bonuses and continued to operate in the area it had called home since 1967.

"We were operating quietly there and were a good citizen of the City of Somerville," de Vries says. "In 1979, [the city] wanted to take the old Ford motor plant and convert it into a mall. In order to accomplish this, it needed to acquire nearby property through eminent domain to add access points for the mall and parking lots, creating an urban renewal zone in the process," he notes.

In 1979, the planners designated 10 percent of the property in the area for industrial use - approximately 14 acres. "We were only two acres and there were only a couple of other industrial users, so we were well below that number. We thought that it wasn’t going to hurt us. How can you fight something that isn’t planning to take you at all? So we didn’t fight it in 1979."

The plans were intended to last 20 years, but in 1999, "the city was out of money and the developer offered to provide a major plan change which would increase the tax base with apartment buildings and retail locations," de Vries says.

"The threat of eminent domain started in 1999," he continues. "We went to all the meetings; we told them about the story of Central Steel. They said, ‘That sounds good and everything, but we don’t want you here. We want to make this area a new development.’ We took it all the way to the state Supreme Court and lost in the beginning of April 2006, and at that time, we knew we were gone."

Twelve years after the process started and two years after purchasing its current facility in Marlborough, Central Steel received its settlement in September 2010.

"It takes your concentration off business," de Vries says. "You’re constantly trying to work on a real estate deal. There are the lawyers and trying to talk to a moving consultant about how much it’s going to cost to move, trying to fight for the right amount to get paid so you can move. The cost to move a steel place is high. It includes all your overhead cranes, all the rails that hold up the cranes, all the uprights that hold up the rail and all the foundations that were poured under those uprights, so we’re talking about the whole frame of the building, basically. Because you really can’t move it, you have to pay to replace it."

"When you don’t ask to be taken, when you have no reason to move, it has a tremendous impact on your psyche," McParland says. "The whole process takes years out of your life. You have to deal with government agencies or their designated developer and bring them to the table to make sure they’re all acting in good faith. At the same time, you’re running a business and looking out for your employees."

A new layout
To streamline the move, Central Steel turned to AGH and Associates Ltd., Lake Forest, Ill., an industrial consulting company. Both Central Steel and AGH are members of the North American Steel Alliance, Laguna Hills, Calif., a member-owned purchasing cooperative that serves the metals distribution industry.

Art Helt, president of AGH and Associates, has provided consulting services for four of the five original founding members of NASA. "Through NASA, I met John de Vries, the president of Central Steel and Supply Co., and explained to him what I do. He said, ‘Would you come out and look at our facility?’ So, back in 1999, we developed a layout and design for their existing building."

Helt was "instrumental in helping us with the layout that we did in 1999 in our warehouse," de Vries says. "It worked out well for the time we remained there, so we turned to him to do the new layout and help us line up where we were going to get the equipment."

At first, the company didn’t know where it would relocate, so Helt and de Vries "started making layouts for new buildings as well as looking at building a new facility somewhere," Helt says.

"I did the layout, and we started getting prices and cost estimates for buildings, which are pretty expensive, and then John called and said he found a building in Marlborough, Mass., and wanted me to take a look at it," he continues.

That building is the company’s current location. "We’re very excited about the new place," de Vries says. "We have 54,000 square feet there with seven overhead cranes. We bought a brand-new, 400-amp, high-definition plasma machine that can cut up to 2 3/4-inch plates, so we’re able to do work that we couldn’t do before. We also bought a brand-new shear and a lot of material-handling equipment, so we’re handling our steel better, everything is 100 percent accessible, and it’s just really nicely laid out. I have four saws next to each other. In my other warehouse, it was three saws in all different spots, which is not the best for efficient operation.

"Everything flows correctly," he continues. "We have two drive-throughs, which we didn’t have in Somerville. Everything gets loaded in the far drive-through and it flows toward the sales office."

Making lemons into lemonade
Helt has 41 years of experience working in the industry and has been involved in the design of more than 350 different service centers and manufacturing plants.

"Sixty to 70 percent of my work is looking at existing facilities and improving what’s there or expanding what’s there, not necessarily building new," Helt says. "The key to our success has been the ability to come in and look at existing facilities and improve them so that companies can increase their inventories, increase their productivity and reduce their manpower."

There are few bright sides when forced to switch locations, but companies often can use the opportunity to improve the efficiency of their warehouses.

"About five years ago, I did the same thing in Chicago," Helt says. MC Steel was affected by the O’Hare Airport expansion and had to relocate. However, "they were able to build a new warehouse. They found a site out in Wheeling," Helt notes. "I did the layout for them, and, again, the building size did not change, but they were able to achieve a better material flow with the new building. Originally, the trucks used to back in because there was no drive-through. It worked, but it was very inefficient. They had to have people standing out on the road to stop traffic. When the company moved, we were able to lay out the property on the new site with drive-throughs on the back end to receive all the coils. Trucks would drive through, unload and then pull right out."

Central Steel’s new location is 40 miles west of Boston, de Vries says, which allows it to serve a larger radius of customers.

"We’re now shipping to Springfield, we’ll soon be going to Hartford and New London, so we’ll be covering most of Connecticut, most of Massachusetts. We still cover all of Rhode Island and southern New Hampshire," he says.

The move went so smoothly some customers didn’t realize the company had relocated. Helt says that’s because both he and the employees at Central Steel worked to organize the move by bay.

"There are three bays, and we did it by product category," he notes. "When we moved a bay, we moved a product line, like sheet and plate. Then we moved the bar and tube bay and then we moved the structural bay. We broke it down into components, and that’s the key - to look at it as components, not just one big move. It’s too scary. There are a lot of details that require complete attention."

"I give all the credit to my team," de Vries says. "Joseph Doucette, my operations/purchasing manager, worked relentlessly executing the move with Art’s guidance. March was the month we moved, and we did one of our record months in terms of sales, in terms of tonnage. We didn’t miss a beat, which is amazing." MM

 

 

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