Hartford Business Journal

14 Hartford Business Journal • April 2, 2018 • www.HartfordBusiness.com EDITOR'S TAKE Hartford bailout a moral hazard? I n the wake of an agreement by the state to bailout the city of Hartford and relieve it from more than a half-billion dollars of debt, leaders from several municipalities are crying foul, asking where's their help. New Haven and Bridgeport mayors and others are peeved that Hartford is getting more attention and support than their respective cities and towns. While they have a legitimate gripe to some extent, the real concern is the precedent that Hartford's bailout sets. Few people with a vested interest in the Capital City wanted to see a Hartford bankruptcy. But the magnitude of the rescue — with the state agreeing to pay off about $550 million in debt over two decades — will give rise to future cash-strapped cities and towns expecting a similar bailout. Moral hazard was thought by some to be a contributing factor to the 2008 financial crisis. The notion was that certain large financial institutions took on more risk than they knew they could handle because they thought regulators wouldn't allow them to fail. I'm not sure I buy into that argument 100 percent, but once the federal government bailed out Wall Street firms at the peak of the crisis, the notion that some institutions were too big to fail was cemented. Hartford has clearly been deemed too big to fail, but at what point and to what ex- tent do we hold municipalities responsible for their own financial mismanagement? Republicans and even some Democrats are questioning the scope of Hart- ford's bailout. It's not clear to me that lawmakers during last October's budget agreement OK'd a full absolution of Hartford's debt. It seems extreme. More concerning is that the financial rescue doesn't address some of the fun- damental problems that plague the city, including an exorbitant commercial tax rate, an exceedingly high percentage of tax-exempt property, and a population steeped in poverty. Mayor Luke Bronin himself called for a more regional approach to municipal governance, yet nothing of the sort is part of the Hartford bailout. The debt relief will certainly put the city on a better financial footing, and a state bailout may be a better option than bankruptcy. But what leads us to believe that the city's financial woes won't return in the future? To be fair, the city of Hartford has made strides under Bronin's leadership. He's cut the cost of city government, renegotiated some union contracts and been the chief cheerleader of the bailout plan. And there are some significant strings attached to the financial rescue. The city is under state oversight; its spending will be scrutinized for years. The city is also restricted from taking on new debt without the state's permission. But many fundamental problems still plague Hartford and they won't be solved by a government handout. Malloy cements pro-Hartford legacy With the financial bailout of the city of Hartford near completion, Gov. Dannel P. Malloy has cemented his legacy as Hartford's white knight. Whether you agree or disagree with the scope of Hartford's financial rescue, it can't be denied that Malloy's leadership has left the city a better place. It started with the creation of the Capital Region Development Authority, which has played a key role in developing hundreds of new apartment units downtown that have enlivened the city. Malloy was also a major supporter of bringing UConn and its hockey team downtown and he spent significant politi- cal capital urging greater investment in the aging and dilapidated XL Center. He and his economic development team also worked behind the scenes to encourage more employers to come downtown. His crowning achievement was Indian IT firm Infosys' recent announcement that it was opening a downtown tech center bringing 1,000 jobs to Hartford. The city's problems are far from over, but Malloy's support for Hartford and his leadership in getting lawmakers and the state Bond Commission to pour hundreds of millions of dollars into the city for economic development and other purposes has given Hartford a fighting chance for future prosperity. EXPERTS CORNER Repurposing CT's industrial real estate for the e-commerce age By Leah C. Rubega and Thomas W. Madonna Jr. T o say that the rise of Amazon and other e-commerce companies has disrupted the retail and real estate industries would be an understatement. It has altered the way we shop and changed our expectations of how quickly our online orders will be deliv- ered. Additionally, retailers are choos- ing to open their brick-and-mortar stores in more select and high- demand markets, and then relying on quick delivery times between stores for any products they may not carry. Some startup retailers are minimiz- ing risk by building an online presence first and then opening stores in mar- kets where they have been successful. As a result, retailers are reconfig- uring their supply chain to accom- modate this shift in quick delivery dependency, resulting in an in- creased demand for industrial space located closer to population centers. Warehouse and industrial spaces have become critical to retail suc- cess, given the role they play in ex- pediting delivery times to stores and consumers. Big-box stores requiring large warehouse spaces have typi- cally looked for facilities on the out- skirts of population centers, where facility uses include fulfillment, sort- ing, redistribution and returns. Urban facilities, which are smaller in size, complement the regional hubs and assist in enhancing the speed of the delivery of goods in the "last mile." Aligning a vacant property with a new e-commerce tenant is a win-win for the property owner and the retailer. Such a deal is easier said than done, however, because e-commerce tenants have very specific requirements. Here are the top five property attributes desired by e-commerce tenants. Be accessible: Many e-commerce tenants look for properties with manageable access. Freight trucks and other delivery vehicles are a common sight at e-commerce buildings. Having the physical access for these vehicles is critical. Easy access to major highways and roadways is also plus. Measure up: The desired size for an e-commerce building can vary from 100,000 square feet to upwards of 600,000 square feet. While e-commerce tenants want large building footprints, they also look for specific building heights in order to house equipment and inventory. Demand for in- creased height — typically 30 feet to 40 feet — has been on the rise over the past year or so. Keep it open: E-commerce tenants typical- ly look for open floorplans to provide adequate space for equipment, inventory and staff. Additionally, a square or rectangular shaped footprint is a plus to create a space that best fits the tenant's needs. Avoid environmental liability: E- commerce tenants want to avoid li- ability or indemnification obligations with respect to the property, espe- cially since the typical e-commerce use is not one to present environ- mental issues. Understand property rights: E- commerce tenants usually seek to clarify that any personal property installed at their space — such as shelving or other logistical equipment — will remain their property upon the lease's expiration. Tenants want the ability to remove such equipment without being subject to the landlord's rights to ownership of it. Landlords, however, can obligate the tenant to repair any damage to the property that may be caused by the removal of such property. Although Connecticut is no longer in the running in Amazon's widely publicized search for a second headquarters, the state can still benefit from the rising demand for industrial real estate in the age of e-commerce. Connecticut's central location in the Northeast and proximity to large cities like New York and Boston make it a favorable location for retailer shipping centers as long as the properties fit the tenant's requirements. Leah C. Rubega and Thomas W. Madonna Jr. are lawyers in Hinckley Allen's real estate practice. Opinion & Commentary Greg Bordonaro Editor Leah C. Rubega Thomas W. Madonna Jr.

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