Processor, port mired in dispute over lease

Officials resist longtime tenant Northwest Packing's plea to cut rent

By Aaron Corvin, Columbian port & economy reporter

Published:

 

A landlord-tenant dispute between Northwest Packing Co. and the Port of Vancouver is no minor squabble.

With hundreds of local jobs on the line, the long-running negotiations between a major regional food processor and the state's third-largest public port provide a rare window into local high-level corporate and government decision-making. And the conflict reveals a tough debate over the role of government in economic development.

Northwest Packing -- a division of Vancouver-based The Neil Jones Food Co. -- wants a 33 percent rent reduction, public records obtained by The Columbian show. Paying $100,000 annually instead of $149,439 would boost its ability to compete, the company says, despite higher operational costs than in other parts of the state. The port, for its part, says the company has benefited from low rent for many years and now must pay fair-market value.

Northwest Packing, which employs an estimated 550 workers -- 125 full time, 425 seasonally -- has said it would prefer to stay in Vancouver. But the 40-year tenant of the port might take its business elsewhere if it doesn't get the rent concession.

The port said Northwest Packing is a good tenant and that it also wants the company to stay and grow. However, the company's lease contract requires its payments to be brought up to speed, the port said.

"We move people to fair-market value," said Theresa Wagner, the port's communications manager. "That's standard practice for us."

It's unclear whether a resolution is in sight.

The two parties have time to figure it out. Northwest Packing's lease, which was recently given a short-term extension by the port, doesn't expire until the end of 2014.

The port and the company, Wagner said, continue to negotiate.

Tom Hunt, a spokesman for the company, declined to comment in detail.

"We have our position in this, and there's a great deal at stake," he said. "We want to be fair, so we really can't talk right now."

Deals sought

Northwest Packing processes a variety of fruits, including pears, cherries, cranberries and plums, for canning, juices and sauces. Much of the fruit is sold to retail grocers for their house brands, and to hospitals and the U.S. government for childhood nutrition programs or military personnel.

Its 15-acre site, which includes more than 670,000 square feet of space, hums on the port's east side, sandwiched between West 16th Street and Northwest Harborside Drive.

The company has been a tenant of the port since 1973. Under a 25-year leasing arrangement inked in 1987, Northwest Packing paid rent based on land value only. That helped push the company's annual payments substantially below market rates, the port said. It was a friendly economic-development move aimed at encouraging the company to grow in Vancouver.

The company's lease was slated to expire by the end of 2011. Northwest Packing had the right to extend its lease for another 25 years, but with the contractual understanding that its new rent would reflect fair-market value.

Before the lease deadline, the company had sought to end its renter status or to secure a lower lease payment.

In 2001 and 2007, the company expressed interest in purchasing its property, public records show. And in 2009, it proposed a 25-year lease with a fixed rent of $100,000 per year, with an additional 25-year option.

In 2010, the company again attempted to persuade the port to sell. In that case, Northwest Packing noted that the port had agreed to sell about 20 acres to Farwest Steel Corp. for $5 million to build a fabrication plant.

Northwest Packing argued that buying its property would neither limit the port's access to its other land, nor curtail its ability to ship cargo.

The port said in response that it rarely sells land but made an exception for Farwest, because the deal involved an undeveloped tract outside the port's more intensive operations.

To this day, it maintains its position against selling to Northwest Packing.

The company's site "is in the heart of our industrial area," Wagner said, and ownership of its property remains critical to other port operations, including utilities, and road and rail access.

The two parties kept talking.

By September 2011, as the company's lease expiration date neared, port commissioners agreed to extend the company's 25-year lease for three years. The extension bought more time to study options in a still-shaky economy. The port also reduced Northwest Packing's annual rent from $154,859 to $149,439, reflecting the fact that the company no longer used a piece of its property.

Costs cited

Discussions between the port and the company reached another turning point in November 2012.

That's when Matt Jones, president and CEO of Northwest Packing's parent, The Neil Jones Food Co., responded to the port's request for a lease pitch. He drafted a letter to port Executive Director Todd Coleman and commissioners describing how much the economy and his industry had changed over the decades. He noted a shrinking number of food processors. He pointed to the volatile nature of agriculture, its supply-and-demand issues, and price pressures. He also listed burdensome freight and water costs as roadblocks.

"We no longer have product to process in our immediate vicinity," Jones wrote. "It must be transported over some distance to reach our processing facilities."

Freight costs in Yakima were $987,600 less than in Vancouver. And water costs in Sunnyside were $162,688 less than in Vancouver.

Jones proposed a 33 percent rent reduction as part of a new, 25-year lease agreement. Northwest Packing would pay an annual rent of $100,000 for the first eight years. Rent for the next eight years would increase no more than 15 percent. Likewise for the final nine years.

"If the Neil Jones Food Company is to continue to grow at this location," Jones wrote, "we strongly believe it is imperative to have long-term clarity regarding the lease."

The port frowned on the offer, as indicated by a Dec. 3, 2012, email from Curtis Shuck, the port's director of economic development and facilities, to Coleman, the port's executive director.

"We are concerned that any additional 'consideration' the port provides to NW Packing could be negatively perceived by the public as subsidization and does not allow NW Packing to stand on their own merits after 25 years in business," Shuck wrote. "This precedent could also create a climate where other tenants would expect a 'Me Too' deal which could lead (to) significant parity issues."

The port has "invested nearly $5.8 million in NW Packing in rent considerations over the past 25 years," Shuck wrote, "and it was envisioned that during the first option period that (the port) would be compensated for its earlier investment."

It's not that the port didn't care about Northwest Packing's future. On the contrary, if the company "chooses to pursue other more economically beneficial facilities," Shuck wrote, the port will work "vigorously with them to make any transition a smooth and cost effective one."

'Still talking through it'

Talks between Northwest Packing and the port intensified this year as it became clear that the company, though still interested in sticking with the port, was also seriously considering pulling up roots.

In June, Jones wrote another letter to Coleman, saying the company "is looking at expanding its operations and desires to continue its long-term relationship" with the port.

But as the company compares its "working environment with that of other processors," Jones wrote, "we find lower values have been established for land and operations in other parts of the state."

Northwest Packing's property "has been used for food processing for more than 50 years," Jones went on, "and its value should be based on that use."

Jones suggested the company and the port conduct an appraisal "to establish the value of food processing property" in the state.

"This would give all parties the opportunity to understand what the value of food-processing property needs to be in order for it to remain competitive in our communities," Jones wrote. "In this way, we will be able to maintain and expand the jobs and training this industry is currently providing."

About a month later, Shuck sent another email to his boss, Coleman, outlining points for the port's executive director to consider before meeting with Jones.

Shuck noted Northwest Packing's favorable lease agreement from 1987 and the requirement that it bump up to a fair-market rate. In 2010, he noted, the port conducted a land-only appraisal of the company's property, which pegged fair market value rent at $372,021 annually.

He recapped the company's request for a 33 percent rent reduction. He highlighted Northwest Packing's property, transportation and utility cost challenges. Shuck also pointed to the company's $13.5 million payroll, its $60 million in gross sales and the $26.1 million in capital improvements it had invested in the past 35 to 40 years.

And, he wrote to Coleman, the company "has provided additional information that they are now considering relocating their business to other potential locations in Washington and Oregon where food-processing activities are reflected in lower property values."

Today, it's not clear where the port and Northwest Packing stand in relation to one another.

The port still wants to move the company to a fair-market rate, Wagner said. Yet it sees flexibility around how and when that must happen.

"We're still talking through it," she said.