Local Partnership Drives Major ESOP Leaseback
Shortly after the annual Bender Commercial Real Estate Services Market Outlook last year, JDS Industries CEO Scott Sletten approached the firm with a potential deal of his own.
“I’m not someone who deals with a lot of commercial real estate, but I find it interesting, and they’re very well thought of and respected in the community as one of the more sophisticated brokers,” Sletten said.
“They’re very well thought of and respected in the community as one of the more sophisticated brokers.”
As he contemplated the future of his own business, which recently announced its ownership transition to an ESOP, the need to sell a key piece of real estate became clear.
While JDS leases nearly all its warehouse space nationwide, Sletten owned its 320,000-square-foot headquarters in Sioux Falls at 1800 E. 57th St. N. Selling it would provide liquidity for JDS, which is a wholesale supplier of awards, recognition, personalization and signage products that has grown to become the industry leader, as it converted to the employee stock ownership plan.
“It’s an incredible operation, and this is the mothership,” said Reggie Kuipers, president of Bender Commercial Real Estate Services, who listed the building.
“The company uses a hub-and-spoke model, so most of the product comes through Sioux Falls, and they ship it out to the different warehouses.”
Working in partnership with a national broker in a Chicago office, Bender tackled potential local and regional buyers while the broader broker looked at national ones.
“We created the marketing package and just started to source and call and email throughout the summer,” Kuipers said. “By early August, we had a first round of offers and then a second round in mid-September.”
While Sletten initially thought the building might attract more interest from national real estate investment trusts, locals were the ones who began stepping up.
“They knew the building and had more confidence in it,” Sletten said. “National REITs were more nervous. What happens if we move out? What do they do with a big building in a small community? But locally, people get it. They know we’re not going anywhere.”
That’s where Bender’s local relationships came into play in a big way. Kuipers said he sensed from the beginning that it would be a local or regional buyer.
“The feedback was that it’s a really large building in a small market,” he said. “But locally, people know the strength of JDS and its position in the industry and the strength of the local team. We were excited to tour many times and help them get to learn the story even better.”
After reviewing multiple offers, it was narrowed to the final two — and both were local buyers. Sioux Falls-based Elgethun Capital ultimately became the building’s new owner, with a purchase price of $33.25 million, and the ESOP signed a 20-year lease on it. The deal also allows for JDS to expand on 12 acres it owns adjacent to the building.
“It was really good to see local interest in this,” Kuipers said. “It shows this community is just growing up. Sioux Falls has both the horse and the jockey in this deal — a local firm investing in a local business with a model that presents plenty of opportunities for future growth. For me, the best deals are where you can work with a mom-and-pop business that grew up, and with JDS, it was just class-act leadership all around, so it was a pleasure to work with them.”
For Sletten, “it was a really interesting process,” he said. “Bender has done a lot of these types of deals locally, they know how to do it and have connections with interested and qualified parties. They did a great job, and it was really good to work with them.”
