High power electricity poles in urban area connected to smart grid. Energy supply, distribution of energy, transmitting energy, energy transmission, high voltage supply concept photo.

During the Cold War, the United States and the Soviet Union undertook perhaps the most important task in the history of humanity; keeping each other from blowing up the world. Looking back, it’s amazing they succeeded. Two completely different political systems, leaders with no love loss for each other, and several “close calls” that could have led to nuclear winter.

During the 1980’s when I grew up, U.S. President Ronald Reagan and Soviet leader Mikhail Gorbachev negotiated the end of the Cold War through diplomacy and mutual respect. A key part of their success was their ability to work towards a common objective, despite a strong mutual distrust of any information they disclosed to each other.

It was during this time the saying “Trust, but Verify” was made internationally famous by President Reagan, who heard it as the translation of the Russian proverb Doveryai, no proveryai from American writer Suzanne Massie. He used it repeatedly to describe the Soviets and any information they provided, particularly in negotiations involving nuclear weapons, because he thought his counterparts would relate to it. The saying encapsulates the paradox that although a source may be deemed reliable, the information they provide is often not.

This paradox exists not only in nuclear arms negotiations but also in industrial real estate. In order to efficiently evaluate real estate opportunities, industrial companies need to use outside sources of information to gather the data necessary to begin targeting viable options.

While such outside sources can and should be deemed reliable, any information critical to the success of a project should be verified. Even the most trustworthy source can unknowingly communicate incorrect or incomplete information.

Why Verify?

When information is obtained from secondary sources, the odds of the information being incorrect or incomplete is higher than from primary sources. Listing agents, for example, often convey building and property information derived from historical marketing materials, a secondary source. The further the source of information gets from being a primary source, the higher the odds the information will be incorrect or incomplete.

Information can also change over time. Even if information is obtained from a primary source in the past, such information can and often changes. A tenant representative can believe, based on their past experience reading the zoning code, that a property is properly zoned for a tenant’s use, only to find out the zoning code had recently changed and the property no longer is entitled for the tenant’s use.

What Should be Verified?

Industrial companies usually do not have the ability to verify all of the information being provided by outside sources in a real estate project. Nor is verifying all that information desirable. The choice becomes, what information should they verify?

Any information that relates to the ability of the industrial company to operate in a property as they desire should be verified. Such information could include:

  • Entitlements: Does the company have the right to operate in the property under current governmental regulations?
  • Property Features: Are there features or amenities that are required in order for the company to operate successfully?
  • Availability: When will the property be available or is it uncertain? Is the property currently vacant?
  • Labor: What type of labor pool exists and what wages are typical for the prospective job descriptions?
  • Operating Expenses: In addition to base rent, what additional expenses will be incurred? These can range from CAMs to total landed costs including all anticipated costs of an operation.
  • Incentives: What incentives are available and how can they be obtained?

Industrial companies can hire qualified industrial real estate advisors to help them prioritize and verify any information important to a project’s success. A quality industrial real estate advisor will always be willing to help their clients verify any information relating to the success of a real estate project.

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