Solyndra: The Sun King

Solyndra’s former Fremont manufacturing plant was designed for the ages

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN APRIL 2012

| By Sharon Simonson |

[dropcap]W[/dropcap]hen the former Solyndra LLC headquarters and primary manufacturing plant in Fremont sells—and it is now on the market—we might all be surprised by how little it garners in payment. Manufacturing facilities are known to be notoriously singular, built to serve their owners to a large degree; their usefulness to others can be limited. The Solyndra plant’s market value will come down to the massive facility’s design and how well it can be adapted to other uses, experts say.

The 412,000 square-foot building has a book value of $300 million, according to Jones Lang LaSalle, the real estate financial and professional services firm that the Solyndra bankruptcy court has approved to market and sell the plant. It is one of three in Fremont on and near Kato Road that Solyndra occupied, but it is the only one the solar-system company conceived, constructed and owned.

Solyndra focused exclusively on commercial real estate, estimating in March 2010 that there were 120 billion square feet of commercial rooftop worldwide suitable for its products, “a vast and underutilized resource for the generation of … solar electricity,” as the company perceived it. Production in the 287,500 square-foot manufacturing space began in late November 2010; it ceased nine months later. Solyndra sought bankruptcy protection in September.

But luck may be turning Solyndra’s way—or, perhaps more accurately, the way of the American taxpayers, who guaranteed a $535 million Solyndra loan to help build the plant. The company invested for the long haul at 47488 Kato Road. “Solyndra expected to manage and expand the facility and to use it indefinitely,” Shahzad Mahmud, a mechanical engineer and vice president of facilities for Solyndra, said in an email. Mahmud selected the plant site and oversaw its design and construction, including installation of production equipment and the plant’s startup. The company designed on the premise that the solar industry would evolve, probably quickly, and the plant had to evolve with it, he said.

[pullquote_right] “It is a manufacturing jewel box. Nothing on the market that we have found looks like it.” Bart Lammersen, managing director, Jones Lang LaSalle[/pullquote_right]Its qualities set it apart even from manufacturing plants built a decade ago. Increased production does not require an increase in the overall building footprint. The mechanical and electrical systems can be enlarged without interrupting production or changing infrastructure. A second, 15-acre site immediately behind the existing plant is entitled for another nearly 330,000 square feet of factory floor.

Inside, about midway up the factory’s 35-foot walls, the structure is outfitted with a walkable, concrete mezzanine that travels the perimeter of the 700-foot by 400-foot production facility. Most factory mezzanines are not walkable, Mahmud said. This one is, for maintenance purposes and to provide storage space. The electrical switchgear, ventilation equipment, air-handling units and electrical distribution systems are all on the mezzanine level, which conserves factory floor and allows factory equipment and production lines below to migrate easily because electrical access is flexible.

Putting mechanical equipment on the mezzanine also freed space on the roof, which allowed a Solyndra installation large enough to produce 1.2 megawatts of electricity. The mezzanine also provides roughly 50,000 square feet of usable space hardy enough to support a data center and helps to square the building against earthquakes. The plant is engineered to return to immediate occupancy after a quake, similar to the performance of a hospital.

Solyndra’s production required a manufacturing floor with a Class 100,000 clean-room standard, Mahmud said. That means air is purified to a level of no more than 100,000 particles of 0.5 microns or larger per cubic foot of air. A typical office has about a million such particles per cubic foot of air, in comparison. But the Solyndra clean room could be converted relatively easily to a Class 1,000 and even a Class 100 clean room, Mahmud said.

“It is a manufacturing jewel box,” said Bart Lammersen, a managing director in Jones Lang’s Palo Alto office. “Nothing on the market that we have found looks like it.” Lammersen is marketing the building along with Greg Matter, a JLL vice president on its supply chain and logistics solutions team, and Jason Ovadia, a senior vice president and industrial real estate specialist. “Most of the interest so far is from the clean-tech and solar industry, the semiconductor industry and the disc-drive, hard-drive type of manufacturer,” Matter said. The property went on the market Feb. 22.

The Solyndra factory “compares extremely favorably” to like manufacturing plants nationwide, said Doug Barrett, a principal and senior vice president at Seattle’s ATREG Inc., a global advisory to semiconductor companies such as Intel Corp., LSI Corp. and Freescale Semiconductor Inc. Dallas chip maker Texas Instruments Inc. hired ATREG recently to sell semiconductor plants in Japan and Houston.

The global semiconductor and advanced-technology manufacturing sectors are reviving after a number of tough years, Barrett said. While the United States and California have lost such manufacturing, two trends are pushing companies to rethink their strategies: global supply-chain weaknesses that became evident after the Japanese earthquake and tsunami, and worries about intellectual-property infringement.

Of the two, worries about IP loss are perhaps most relevant to California. U.S. locations, though more expensive, could make sense for high-value, lower-production volume speciality foundries because of the country’s strong IP protection. “It is too early to tell, but we think there is a good chance some plants may return to the United States over time,” Barrett said.

The trend is illustrated by the sale earlier this year of an Oregon semiconductor manufacturing plant to Sunnyvale’s Alpha & Omega Semiconductor Ltd., and the acquisition last year by Germany’s Telefunken Semiconductors GmbH & Co. of a semiconductor wafer fabrication plant near Sacramento, Barrett said. ATREG was involved in both transactions.

Barrett does not expect a semiconductor company to buy the Solyndra space because the plant does not have semiconductor equipment on the floor. He believes potential buyers are advanced-technology manufacturers such as light-emitting diode makers, solar-cell and photovoltaic panel manufacturers; or makers of microelectromechanical systems: microscopic machines that are embedded on chips to perform certain functions such as triggering the deployment of car airbags.

Lots of folks are tracking the sale’s outcome. Donn H. Byrne Jr., director of the appraisal and property tax division for Colliers International in the South Bay, said when the New United Motor Manufacturing Inc. plant in Fremont shuttered two years ago, the effect on commercial property was pronounced. Colliers appraised the Nummi factory for Palo Alto-based Tesla at the time.

Number one, despite the plant’s size, the equipment inside and a $923 million taxable value, the Nummi plant had very little economic value. Tesla Motors Inc. paid $42 million for the plant and 207 acres, about 55 percent of the land at the site, according to public records. It also agreed to assume the liability for an ongoing environmental cleanup above a $30 million threshold.

“The cost to salvage the steel and the other equipment inside the facility ended up costing more than the salvage value of the materials,” Byrne said. Landlords in the vicinity also got whacked as Nummi suppliers that had filled Alameda County buildings closed in turn. The re-opening of the Solyndra plant by another large-scale manufacturing operation would be the “home-run buyer, a buyer that is actually going to use it,” he said. Then, the region could see the same evolution in reverse, with suppliers filling now vacant locations.

After Nummi closed, the city of Fremont got federal money to study an 850-acre industrial area near the new Warm Springs BART Station and the Solyndra plant, said Kelly Kline, the city’s economic development director. The station is scheduled to open in 2015, but perhaps more importantly, the 10-mile extension from Fremont south through Milpitas and into San Jose’s Berryessa district is expected to open roughly a year later. “This is a game-changer for Fremont because for the first time, we will have a hard-rail connection from the south,” Kline said. The city is already connected to the east via the ACE train.

“We really see this area as being job-focused, transit-oriented development,” she said. Solyndra was “painful,” but the city has identified 35 other clean-tech firms working in sectors from efficient lighting to fuel cells. “We want this to be a center for clean-tech companies. They are attracted to Fremont because there are other companies here they are linked to, and they like our real estate.” Of course, the Solyndra plant stands out among the stock.

Jones Lang has no set sales horizon. “We will take offers as they come in,” Lammersen said.

Photos courtesy of Chad Ziemendorf

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