Making Lemonade out of Lemons
Tobacco warehouse properties offer unique development opportunities

Tobacco has historically been an important art of the Kentucky economy and culture. Burley tobacco, comprising nearly 90 percent of total production, is grown in 119 of Kentucky’s 120 counties. Despite the current volatility in the tobacco market, production levels are still higher than what was produced some 20 to 25 years ago. Still, the future of tobacco in Kentucky’s agricultural economy is less certain today.

Because of rapid changes in the tobacco industry and weakening business for warehousemen and auctioneers, many owners of tobacco warehouse properties have had to reassess the future for their real estate. In many areas, tobacco warehouse properties now sit vacant and in disrepair.

This has created opportunities, however, for astute real estate developers and local authorities. Typically, due to the age of most tobacco warehouse properties and the outward growth of cities, the sites are centrally located and highly visible. In addition, the properties are legally zoned for industrial and/or business uses (if zoned at all) or could be rezoned to a commercial use. In many cases, the value of the land as vacant exceeds the value as improved. By razing the existing improvements, these properties are ideal for redevelopment to alternative uses.

This was the case for two of Lexington’s former tobacco warehouse properties along South Broadway. At 1086 S. Broadway, a 206,000-s.f. tobacco warehouse was razed, creating a 4.742 acre tract used in the development of a mixed use retail center. At 867 S. Broadway, a 187,000-s.f. concrete block tobacco warehouse, built in 1966, was recently razed creating a 4.42 acre parcel. The wholesale and warehouse business zoned site will likely be rezoned to a higher commercial use. The reported purchase price was $2 million, or $452,488 per acre.

Dry storage use is also above average in demand. In Winchester, developers converted a former tobacco warehouse into a very successful dry storage operation known as Winchester Warehouse Company. In this case, the owners have leased about 330,000-s.f. of warehouse space to several area manufacturing firms that need additional storage and provide for on-site security and material handling. The effect of the change in use has significantly increased the value of that income-producing property.

Development authorities are also using former tobacco warehouse properties to help lure new industry to their communities. In Maysville, the Maysville-Mason County Industrial Development Authority (MMCIDA) recently acquired the former Independent Warehouse property at the corner of Union Street and Forest Avenue. The Maysville incubator program will give a prospective start-up company free rent for a period of one year as incentive to locate or expand in the area. The MMCIDA has received a commitment from a Whittier, Calif., chipmaker supplier known as Chipmakers Tooling & Supply. The projected annual employment is about 30 to 40 full-time positions over the next 10 years.

Changes in the Kentucky tobacco industry and a strong economy are creating opportunities for surplus warehouse facilities. The market for these properties is smoking. With thought and initiative, a vacancy could be an owner’s “diamond in the rough.”

Steve Rohlfing is principal appraiser for Realty Research Corp.


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