By Dan McCue
Staff Writer

The Port of Charleston may be losing ground currently to Savannah in terms of shipping calls and annual container volume, but developers in the hot distribution center market believe the Holy City’s waterfront is poised for a major rebound.

And those developers expect it to commence almost as soon as the first shovels hit the ground at the planned new terminal on the grounds of the former Charleston Naval Base.

The current state of affairs between Charleston and its main competition to the south was the subject of an extended discussion by the S.C. State Ports Authority board at its April 17 meeting.

During that session, SPA staffers told the board that despite a good month ending March 31, when the Port of Charleston handled 93,909 containers, 4% more than it did during the same month last year, the cumulative volume for the current fiscal year compared to last was down 2.5% to date, and had fallen 9% below SPA projections for the year.

In all, the Port of Charleston has handled 816,796 containers during the fiscal year that began last July 1, 2006.

By comparison, according to a recent report issued by the Georgia Ports Authority, cargo volume at Savannah’s Garden City terminal for July 2006 through February 2007 was nearly 1.5 million containers, a 10.9% increase over the same period last year. In February alone, the Garden City terminal—the GPA’s largest facility—handled 189,857 containers, a 17.6% increase compared to February of last year.

Part of the SPA’s downturn for the year is a direct result of the ongoing reorganization of the Maersk steamship line, a consolidation process that has seen the company make extensive changes to its call schedule.

Maersk is a major player at the port’s Wando Welch terminal. Fred Stribling, the SPA’s vice president of marketing and sales, said those changes have reduced the line’s calls to the port by about two vessels a week.

But Whitemarsh S. Smith, the SPA board’s vice chairman, painted an even bleaker picture, saying he’d seen an analysis that suggests the Port of Charleston actually lost 103 vessel calls between November 2006 and March 2007, about four calls a week.

Smith, who is also president of the Charleston Branch Pilots Association, said while some of those lost calls involve break-bulk material, the vast majority were the kind of container-bearing vessels that are the port’s bread and butter.

“The impact of losing those ships is felt throughout the port community,” he said.

However, changes at Maersk are only part of the story behind the SPA’s sluggish start compared to Savannah. The far bigger factor, the board was told by staff, is Georgia’s room, and its willingness to provide financial support, for a burgeoning city of retail distribution centers on the outskirts of Savannah’s historic downtown.

“As long as the majority of ships calling the East Coast are still coming through the Panama (Canal), rather than Suez Canal, the proximity and number of those distribution centers is going to continue to be a draw,” SPA President and CEO Bernard Groseclose said.

While concern over the present state of affairs is understandable, recent moves by retailers and distribution center developers suggest there’s still a tremendous amount of confidence in the Charleston brand and its workers’ reputation as the “pros of productivity.”

Patricia Noble, a partner with the Charlotte-based Childress Klein Properties, said her company paid The Beach Co. $6.5 million last fall for the last developable 55 acres of land in the Charleston Regional Business Center on Clements Ferry Road, precisely because of Charleston’s promise and what she described as “the pent-up demand” for quality distribution center space in the region.

Childress Klein is currently building two buildings on spec in the business center and will start a third later this year. The first will be 351,000 square feet with loading docks on two sides, with the potential to expand to 700,000 square feet.

The second building will be 112,000 square feet and feature a front-loading dock. Both of these are expected to be ready for occupancy by Oct. 1, and both can be modified for use by a single tenant or multiple tenants.

Construction will start on the third building, also slated to be 351,000 square feet, in six to eight months, Noble said.

Because Childress Klein already owns buildings in the Charleston market, the company has long been aware of a growing demand for distribution space in the market.

“The problem has always been that there’s little to no available Class ‘A’ space,” she said.

In late 2006, Childress Klein formed a joint venture with Amstar Group, a Denver-based private real estate equity firm, to secure the few parcels that were left in close proximity to the port.

Given the rapidly escalating rate of trade anticipated for the region and its historic expertise in developing spec sites, Childress Klein decided to pursue spec building rather than build-to-suit construction in the market.

“It’s our belief that as shippers continue to try to avoid congested West Coast ports, and as cargo is increasingly transported from Asia through the Suez Canal, ports like Charleston are going to be even more vital than they are today in getting goods to market,” Noble said. “That’s particularly so because retailers have indicated that their customer base is growing faster on the East Coast than in any other location in the country.

“More than that, though, companies involved in logistics and trade aren’t going to have the time to do a site search and design and build a building to meet their needs,” she said. “That’s why we’re entering the market and essentially offering them an opportunity to locate here and get down to business right away.”

Childress Klein isn’t the only real estate investment company eyeing the Charleston region for future distribution center development. Both the Rockefeller Group Development Corp., which today is owned by the Mitsubishi Estate Co. of Japan and not by the Rockefeller family, and Hillwood Development Co., a development company headed by Ross Perot Jr., have confirmed that they are actively considering sites here, but remain mum on additional details.

“That’s an attribute we retain from our days of being controlled by the Rockefellers,” said Sandy Manley, spokeswoman for the Manhattan-based real estate company. “We don’t start talking about a project until the deal has been closed.”

She did suggest that the company might have additional news in the Charleston market next fall. David Pelletier, a spokesman for Hillwood, said he also would not comment on the company’s interest in the Palmetto State.

Several weeks ago Peter S. Fennelly, vice president for Colliers Keenan Commercial Real Estate Services in Charleston, confirmed the Rockefeller Group’s investment in the area by saying the company, which owns numerous industrial parks across the United States, is under contract to purchase 400 acres near Interstate 26 in Jedburg.

Real estate industry analysts said that while the housing market has softened across the country, the huge increase in imports from China, India and other Asian countries is resulting in an increased demand for distribution centers and warehouses.

In fact, so brisk is the demand the Rockefeller Group plans to build a 500,000-square-foot building on the site later this year, Fennelly said.

“The demand in and around Charleston is huge,” he said. The port’s reach is also being felt throughout the state. In early April, footwear company Adidas announced plans to build a 2 million-square-foot distribution facility near its existing operations in Spartanburg.

“That’s excellent news for the Port of Charleston,” Stribling said.

Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.

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