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Neighbors boom, El Paso’s flat - El Paso Inc.: Local News

Neighbors boom, El Paso’s flat

Industrial sector expected to improve next year

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Posted: Sunday, August 11, 2013 6:00 pm

El Paso’s industrial real estate market has done poorly this year, pulled down by plant closings and layoffs.

And when there is growth, it is often happening south of the border in Juárez – where the manufacturing sector is booming – or across the state line in Santa Teresa, N.M.

When El Paso-based Mid-West Textile Co. expanded its operations three years ago, it did so in Juárez, opening a new plant there with the help of outsourcing firm Tecma Group.

The cost of doing business is lower in Juárez, and, just as important, the company has more flexibility operating from two locations in two countries, company president Jim Maxfield said.

“We’re in a labor intensive business, and we are competing with people out of India and Pakistan and China that do the same processing,” Maxfield said.

Founded in El Paso in 1986, the company purchases used clothing from thrift stores including Goodwill and the Salvation Army, sorts it into 600 different grades, and then markets it throughout the world.

The company is growing steadily now, Maxfield said, and employs 350 people in El Paso and nearly 400 in Juárez.

Next door to Mid-West Textile, W Silver Recycling has outgrown its sprawling facility on the eastern edge of Downtown. So the nearly 100-year-old company is preparing to grow its operations, but like its neighbor, not in El Paso.

W Silver plans to expand into nearby Santa Teresa, N.M. – lured by Union Pacific’s massive, $400-million rail yard set to open next year, according to W Silver president Lane Gaddy. The rail yard is expected to lower freight costs and speed rail service.

Juárez boom

Global real estate firm CBRE recorded more leasing activity in the 2nd quarter in Juárez than at any point in the last five years, according Christian Perez Giese, a senior vice president with CBRE in El Paso.

“Juárez had been coming out of the recession in bits and pieces over the last three years, and then starting in December somebody hit the accelerator,” Giese said.

El Paso-based TECMA Group, which operates 15 plants in Juárez, had nine auto-related clients file bankruptcy when the U.S. economy sunk into recession in 2008, according to Tecma CEO Alan Russell.

But business has rebounded, and the company recently leased the last of the 1.2-million-square feet of space it operates in Juárez, Russell said. The company’s revenue returned to pre-recession levels last year.

“Out of our 30 clients, I can’t think of one that hasn’t added employment over the last 12 months,” Russell said.

Tecma employs 4,000 people, producing everything from manikins and dog toys to textiles and furniture in its maquilas in Juárez.

Overall, CBRE reported 1.2-million-square feet of net absorption in Juárez’s industrial real estate market in the 2nd quarter, which is the highest recorded since CBRE began keeping data, Giese said. Net absorption is the difference between the space that is leased and space that is vacated.

El Paso slow

Meanwhile, industrial real estate activity in El Paso has been negative so far this year, despite the manufacturing boom in Juárez and in Santa Teresa, according to a report recently published by CBRE, formerly CB Richard Ellis Group.

“The issue is when we do have some positive growth, it’s offset by some big negative news,” said Giese.

Possibly the biggest negative news came from Leviton Manufacturing Company. The Long Island-based manufacturer of electrical wiring equipment that employs more than 6,500 people worldwide, announced earlier this year it is closing its El Paso plant after almost 20 years here.

More than 400 people are expected to lose their job by the end of the year as the company winds down operations at its 100,000-square-foot facility on the Westside.

It has laid off more than 138 people in El Paso since February, according to Workforce Solutions Upper Rio Grande, an employment agency that has been helping former employees find jobs.

But those jobs have been hard to find since the El Paso manufacturing sector isn’t expanding, said Workforce Solutions CEO Lorenzo Reyes. The agency, he said, has secured funding to send employees who can’t find work back to school.

Boeing announced earlier this year it would lay off 160 workers in El Paso and close two buildings in the Northeast by the end of the year.

Hoover said it would shrink its workforce by 450 people, and State Farm announced plans to lay off all but 50 of its employees in the company’s Northwest Corporate Center, according to the CBRE report.

Most recently, Xerox announced it would lay off 490 employees at a call center in East El Paso.

The vacancy rate citywide for industrial real estate was 14.2 percent for the second quarter of this year, ending in June, which is historically high, Giese said. Overall, the leasing rate was $19.90 per square foot.

Better next year?

However, CBRE expects the El Paso market to rebound heading into next year, as the surging maquiladora sector in Juárez drives up demand for warehousing on this side of the border and as more outside investors show interest in the El Paso market.

Despite the poor start to the year, the El Paso industrial real estate market continues to transition out of the recession, according to the CBRE report.

“There’s actually a good amount of activity, but the positive gains are happening in smaller chunks,” Giese said.

All of the new leases of industrial space in the El Paso region in the second quarter were smaller than 75,000-square-feet, according to the report. The largest new deal was 72,000-square-feet of warehouse space leased to KFS Logistics on the Eastside.

As manufacturing picks up in Juárez, Giese said, he expects the demand for warehouse space on this side of the border to pick up as well.

“The market dynamics could change pretty quickly here,” he said.

Russell with TECMA said the company expanded into a third, 110,000-square-foot building in El Paso last year to support its growing business in Juárez.

“We were able to fill it almost immediately,” he said, “and that is all tied to our Mexico business.”

Rolando Pablos is the CEO of the newly formed Borderplex Alliance, an El Paso-based regional economic development group. He said he intends to dust off an old plan formed in 2008 to build on the recovery of the North American auto industry and boom in Juárez.

The automotive industry, he said, is one of the region’s most important sectors, employing an estimated 90,000 people.

“We want to attract a producer of major components (engines, transmissions, chassis, etc.) and then from there pursue a final assembly plant,” Pablos said.

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Email El Paso Inc. reporter Robert Gray at rsgray@elpasoinc.com or call (915) 534-4422 ext. 105.

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