Los Angeles Insider + SC RE News

I am happy to announce another edition of the Los Angeles Insider. To download the latest Insider, please click here. Now, here is the latest in Supply Chain Real Estate News…

Food and beverage firms have proposed over 90 cold storage projects totaling more than $1.6 billion. Second quarter will be the strongest in terms of construction starts with 44 projects breaking ground.

Alcoa is moving its headquarters back to Pittsburgh from New York City. The move will only involve 10 employees who will join an existing workforce of 205.

According to New York-based research firm Reis, Inc., demand for ecommerce and international trade has led to an additional 54.7 million square feet of new warehouse/distribution space in 2017.

Blackstone’s non-traded REIT, Blackstone Real Estate Income Trust, acquired a six million square-foot industrial portfolio from High Street Realty for $402 million. The properties are located in Atlanta, Chicago, Houston, Harrisburg, Dallas, and Orlando.

GM ceased its Venezuela operations as its manufacturing plant with 2,700 workers was seized by the Venezuelan government liked to a court case there.

Amazon is searching for 1,300 warehouse across Europe to fulfill its one-hour Prime Now delivery service. Amazon first introduced one-hour delivery in Europe in 2015.

Best Buy leased a 479,310 square foot distribution facility in the Los Angeles area city of Compton. Their lease follows UPS’ lease of a 521,816 square foot facility next door in September 2016.



Evaluating Real Estate Transactions

Last week I had the privilege of attending two CoreNet seminars in Dallas. These seminars focused on the financial evaluation of corporate real estate and real estate’s impact on a company’s financial statements. These seminars were excellent and thoughtful reviews of the way real estate professionals should evaluate and think about corporate real estate financially. In this post, I figured I would share some of my thoughts on the topic, including the many lessons learned, and rekindle the news portion of these posts. I hope you enjoy this one and, as always, your feedback is appreciated!

The primary objective of the supply chain real estate professional is to align their real estate portfolio with their company’s objectives. Alignment of real estate and overall business targets can be a complex process involving a wide variety of corporate stakeholders, including corporate finance, operations, and capital markets. This process can often be reduced to balancing efforts to reduce expenses and drive revenue.

How does one execute this balance? By using the universal language of companies…finance. Finance is forward looking and focuses on generating cash from operations, return on investment value, and forecasting metrics.

Discounted Cash Flows

Central to the idea of finance is the concept of the time value of money, which involves a cash flow over periods of time and an appropriate rate of risk to discount them, otherwise known as a discounted cash flow (DCF).

Creating Cash Flows

Cash flows should be estimated on the professional’s best projections (guess). Risk should be accounted for in the discount rate(s), where it can be adjusted over the entire investment or a particular phase of the investment. For example, if a company is considering the purchase of a property and they are believe the risk  at the disposition phase of their investment is high, they should adjust the discount rate for that phase so that all cash flows within that phase will be property adjusted for the risk.

For occupiers, a DCF with just real estate cash flows does not show the operational profitability of the real estate. Most supply chain real estate professionals will be familiar with a negative net present value (NPV) for a lease DCF. This is may be acceptable for comparing leases to determine the least negative net present value. However, the lease with the least negative net present value should not be interpreted is the best option for the company. In order to fully examine the real estate opportunity, operational cash flows and tax impacts should be incorporated.

DCFs can have multiple discount rates throughout the time frame of a DCF. For example, you can assign different discount rates for certain phases of a real estate hold such as the purchase, refinance, retrofit, and disposition of the asset.

Establishing the Appropriate Discount Rate(s)

The risk rate, commonly called the discount rate, should be based upon the most appropriate rate of risk for similar investments. For example, a lease with a company is very similar to owning a debt obligation with the company.  The company has promised, through a lease, to pay certain amounts over a period of time-just like a bond without the principal payment at the end of the term. Therefore, the appropriate discount rate for such a lease is most likely the company’s cost of borrowing.

Company’s typically should NOT use their weighted average cost of capital (WACC) as their discount rate for real estate DCFs, because it is not indicative of the risk inherent a real estate transaction. A company’s WACC is their market cost of capital (blend of their cost of debt and equity).

Risk can also rise and fall depending on whether the length of the real estate obligation matches the company’s planned period of use. For example, a higher discount rate may be appropriate if a company enters a real estate lease  or sublease with a planned period of use less than the lease or sublease term.

Common Metrics

Net Present Value (NPV)

Internal Rate of Return (IRR)

Modified Internal Rate of Return (MIRR)

Cash on Cash

Payback Period

Capitalization Rate

Impact on Financial Statements

If real estate cash flows examine the cash impacts of a company’s real estate, real estates impact on financial statements are the overall scorecard. For the supply chain real estate professional, understanding how real estate affects their company’s financial statements is required in order to properly evaluate their real estate portfolio and options.

Financial Statements

Financial statements typically exist in three forms; the income statement, the cash flow statement, and the balance sheet. It is important to understand that all three forms are connected but separate statements of a company’s financial well-being.

The income statement, which is also referred to as a profit and loss statement, shows the company’s revenue, expenses, and net profit over a period of time. On the income statement a company will record figures such as its sales, cost of goods sold, gross profit, and earnings per common share.

A cash flow statement shows the impact on cash over a period of time. It has three parts including the cash from operating activities, investing activities, and financing activities.

Finally, the balance sheet details the company’s assets, liabilities and stockholder’s equity. Unlike the income statement and cash flow statement, the balance sheet is a snapshot in time. Typically the balance sheet will be produced at the end of a fiscal year.

There are several basic accounting principals which apply to financial statements. One primary accounting principal is the adherence to certain accounting oversight or guidelines such as FASB, IASB, GAAP, and IFRS. Other basic accounting principals include periodicity, cash or accrued measurement, reporting, materiality, substance versus form, and depreciation. From these principals we are able to understand how financial statements are constructed and reported.


Real Estate Impacts on Financial Statements

The impact of real estate on financial statements is determined by the accounting oversight and guidelines followed by the company. Companies generally will use FASB, IASB, GAAP, or IFRS depending on the location of where their stock is traded or their headquarters is otherwise domiciled. The impacts of the following real estate transactions are, unless otherwise noted, specified by FASB and GAAP.


Income Statement

Cash Flow

Balance Sheet

Purchase Operating interest expense; other occupancy expense; real estate depreciation Acquisition outlays; debt acquisition Cash; Property Plant and Equipment (PP&E); Mortgage notes payable
Sale Operating mortgage expense; other occupancy expense (real estate taxes and insurance); Depreciation; discontinued operations Divestiture activity: PP&E elimination; Financing activity: loan payoff Cash; PP&E; Mortgages payable
Sale / Leaseback Rent; Operating mortgage expense; Other occupancy expense; Depreciation; Discontinued operations Divestiture activity: PP&E reduction; Financing activity: loan payoff Cash; PP&E: real estate; Mortgages payable
Operating Lease Rent; Other occupancy expense; Depreciation of tenant improvements (TIs); Depreciation of equipment Depreciation; Capital expenditures (for TIs) PP&E
Capital (Finance) Lease Interest expense; Asset depreciation Depreciation; Acquisition outlays; Financing activity Total Capital Lease Property; Total Capital Lease Obligation

The different between an operating and capital (finance) lease is important for accounting purposes. The Statement of Financial Accounting Standards No. 13 (FAS 13) explains the process for determining whether a lease is an operating lease or a capital (finance) lease. A capital (finance) lease  is  a lease which fits any of the following criteria:

  • Automatic Transfer of Ownership
  • Bargain Purchase Option
  • Term > 75% of the Useful Life of Building
  • PV Rent > 90% of Fair Market Value

An operating lease would not fit any of those criteria. The impact of whether an operating or capital (finance) lease can be profound on financial statements, particularly the Balance Sheet. The affect of a capital (finance) lease on financial statements is:

  • It is on the Balance Sheet (similar to a purchase with 100% financing)
  • Ratios using assets and liabilities are affected (ROA, ROE, DCR)
  • Depreciation + interest expenses exceed rent at the beginning
  • Generally unfavorable accounting

It is not that a capital (finance) lease is good or bad. The important thing for a supply chain real estate professional is to communicate with their Finance Department when they are considering a lease to make sure the lease is defined as an operating or capital lease and it aligns with the company’s financial objectives.

Lastly, in order to your company’s financial objectives it is important to know if your company is income statement or balance sheet driven. An easy way to determine if a company is balance or income statement driven is to look at how many charts detail income sheet or balance sheet metrics in an annual report.

If your company is income statement driven, it will focus on earnings and expenses in order to understand if the company is profitable. Growth companies often are income statement driven as investors will often care more about how much the company has grown and limited expenses over the prior year than their return on existing assets. Metrics such as Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), EBIT, Earnings per Share (EPS), and Price to Earnings (P/E) are based on the income statement.

Conversely, if your company is balance sheet driven, it will often focus on returns on its assets and liquidity. Balance sheet driven companies are often mature, established companies whose investors care about obtaining a return on existing assets at the end of a financial period. . Metrics such as Return on Assets (ROA), Current Ratio (CR), and Quick Ratio (QR) are based on the balance sheet.

Upcoming Changes in Lease Accounting

On February 25, 2016 FASB issued Topic 842 which stated that all operating leases will be capitalized (on Balance Sheet) starting in fiscal years following December 15, 2018. Practically, companies will need to capitalize the prior two fiscal years in order to provide a coherent accounting history. The current operating and capital (finance) leases will be re-categorized into Type A Finance Leases and Type B Operating Leases. Both will be on the balance sheet, but treated differently.

Under Topic 842, Type A and Type B leases are treated as follows on the Income Statement and Balance Sheet:

  • Income Statement: Type A lease has no impact on rent but does have an interest plus amortization expense. Type B lease will have a single lease cost expense in the form of straight line rent.
  • Balance Sheet: Type A lease will have an asset depreciation in the form of straight-line amortization and liability determined by the effective interest method. Type B lease will also be on the balance sheet in the form of asset depreciation but the impact will be balanced out by increasing amortization balances to straight-line rent less interest.

Capitalizing both types of leases involves determining the term, which is the non-cancellable period, options are included if reasonably certain, variable lease payments, operating expenses, and discount of the Lessee’s incremental borrowing rate.

While most supply chain real estate professionals will not need to calculate the accounting impact of either type of lease, the important points to know are:

  • All leases will be capitalized and on the balance sheet
  • Type B lease will have a balancing effect on the balance sheet
  • Lease term will have a significant impact on the income statement and balance sheet

Supply Chain Real Estate News

Winco Foods opened a 800,000 square foot distribution center in Denton, Texas last week. The grocery store chain will employ 165 associates and can expand the distribution center by 130,000 square feet.

Amazon pre-leased a 1M square foot distribution center to be built by Goodman North America. Amazon will take occupancy in 2018.

A San Francisco startup is using warehouse space in San Francisco Bay to grow produce. Big wigs from Amazon and Google are betting on its success.

Dollar General announced last week that they acquired 103 acres in Florida, New York for $1.545 million. They plan to build a $91M distribution center which will employ 430 associates.

UPS broke ground last week on a $275M regional operations hub in Salt Lake City. The 840,000 SF facility is said to be one of its largest in its network.




Lighting for Today’s Industrial Property

Lighting is a critical component of today’s supply chain real estate. The use of light, whether artificial or natural, affects the costs, labor, compliance and environmental elements of an industrial operation. Therefore, facility decision makers and designers should have a keen awareness of how light is employed in their facilities. This post reviews the importance of light, the most common types of lights, and the use of lights in industrial properties.

Why is Lighting Important

The choice of lighting type and location can have a significant impact on overall operating costs. In non-climate controlled warehouses, lighting is the primary electricity use accounting for 34% of total electricity use and an average of $0.12 per square foot per year in US warehouses.[1] [2] For example, a 500,000 square foot warehouse at $0.12 per square foot per year in lighting energy costs will equate to $60,000 per year or $600,000 on a 10 year lease. In addition to the electricity costs, acquisition of equipment and maintenance is also a concern.

Light is also an important consideration in maintaining workplace productivity and employee satisfaction. Lighting has been shown to have an impact on the ability for individual workers to perform tasks, with poor lighting having a significant adverse effect on productivity, physical, and mental well-being. [3]

Lighting is also important to government agencies and regulators. Due to energy efficiency and safety concerns, U.S. federal, state, and local agencies have instituted guidelines and requirements for the use of certain luminaires, or complete lighting units, in non-residential real estate. For example, the California Title 24 California Code of Regulations regulates nonresidential indoor lighting in order to limit the energy used by lighting in a building. [4] OSHA also has minimum lighting levels for certain tasks, such as driving industrial trucks or forklifts.

Lastly, lighting is important for the overall environmental impact of an operation. It is now common for companies to track their impact on the environment through metrics such as corporate sustainability. The use of energy efficient lighting can be an integral part of efforts to lower a company’s carbon footprint, a key element in sustainability.

Types of Industrial Lighting

Industrial lighting generally falls into four different categories of artificial light sources and natural lights. Within each category are subcategories typically describing the application environment in which the light would be used. The table below describes each category by its energy efficiency in lumens per watt, average lifetime of the bulbs, and its general use. Warehouse lighting above storage areas are typically separated into high and low bay lighting. High bay lighting is used in 20′ to 40′ mounting heights where low bay lighting is used in 15′ to 25′ mounting heights.[5]

Category Energy Efficiency Lifetime
Incandescent 4-17 lm/w 2-20,000 hours
High-intensity discharge 50-200 lm/w 1,800-4,500 hours
Fluorescent 52-100 lm/w 8,000-20,000 hours
LED 10-110 lm/w 50,000-100,000 hours

Table reference for energy efficiency and lifetime: [6]

Incandescent light bulb

Image source: http://www.energy.ca.gov

Incandescent lighting is the oldest lighting technology of the four categories above and the most inefficient, converting less than 5% of the energy they use into visible light.[7] With the advent of fluorescent lighting sales in the late 1930’s, the use of incandescent lighting has declined.

Metal Halide HID

Image source: http://www.zoro.com

High-intensity discharge or HID lamps are a type of electrical gas-discharge lamp which produces light by producing an electric arc between tungsten electrodes housed within a translucent tube. This tube is filled with gas and metal salts which typically give the lamp a name. Types of HID lamps include mercury-vapor, metal-halide (MH) lamps, ceramic MH lamps, sodium-vapor lamps, and xenon short-arc lamps.

T5 fluorescent lamp

Image source: http://www.zoro.com

A fluorescent lamp or tube is a low pressure mercury-vapor gas-discharge lamp that uses fluorescence to produce visible light. It is much more efficient than incandescent lamps and has largely replaced incandescent lighting in industrial uses. Modern uses of fluorescent lamps in industrial properties include the T8 and more recent T5 fluorescent lamps. T8 and T5 are just codes to indicate that the bulb is tubular, hence the T, and the diameter of the bulb. T5 bulbs are 40% smaller than T8 bulbs, measuring 5/8″ in diameter versus 1″ for T8s. T5 bulbs are more efficient and have better lumens per watt than T8 bulbs, but they are also more expensive.

High bay LED fixture


Image source: http://www.1000bulbs.com

Finally, light emitting diode or LED lighting creates light through electroluminescence via a two-lead semiconductor. LEDs were first produced in 1962 and now are used in a wide variety of applications, including increasing use in industrial properties due to their significant energy efficiency.

Use of Lighting in Industrial Properties

A well-designed lighting system is a critical component of a successful industrial operation. Since specific tasks within an industrial operation are varied, the appropriate lighting requirements for each task must be considered. First, the quantity of illumination must be sufficient for the task or process. Second, there must be enough light to create a safe operational environment. Third, listed or approved lighting equipment should be used. Fourth, a lighting fixture layout should be created which is sustainable and promotes safety. Last, the energy, economic, and operating characteristics of the lighting system should considered.[8]

The quality of light is measured in several different ways. Illuminance is the amount of light falling on a surface and is typically measured in lumens. The amount of lumens is expressed as either lux (lx) or footcandle (fc) measurements, where lux is the lumens per square meter and footcandles lumens per square foot. In addition, the color of light can be measured in terms of temperature (kelvin) and a color rendering index, and described in terms of the color seen by the eye.

Calculating lumens is typically done with a light meter, such as the one below. It is important to note that the measurement of light at a point is dependent on the distance between the lamp and the point where the light level is calculated. In addition, light can be measured in vertical and even horizontal planes.


Source: http://www.omega.com/pptst/HHLM1337.html

Generally, the more active the area, the higher the light requirement. For example, lighting in storage areas may not require as much light as shipping and receiving areas. According to the Illuminating Engineering Society of North America’s Lighting Handbook, inactive or infrequent areas of us should have 50 lx or 5 fc while active or frequently areas of use should have 100 lx or 10 fc. In addition, areas where employees commonly read large labels may require 100 lx or 10 fc and for small labels 300 lx or 30 fc.[9]

In summary, lighting is an important part of any industrial operation’s productivity, safety, and efficiency. Light impacts the operating costs, labor, compliance and environmental components of the supply chain and therefore should be a concern of any responsible supply chain manager.



[1] “Managing Energy Costs in Warehouses.” Managing Energy Costs in Warehouses | Business Energy Advisor. N.p., n.d. Web. 08 Feb. 2017. <https://bizenergyadvisor.com/warehouses&gt;.

[2] “Program for Improving Energy Economy and Efficiency in ECE Region.” Ambio 5.4 (1976): 195. Web.

[3] “How Lighting Affects the Productivity of Your Workers.” How Lighting Affects the Productivity of Your Workers – Blog | MBA@UNC. University of North Carolina at Chapel Hill, 01 June 2015. Web. 08 Feb. 2017. <https://onlinemba.unc.edu/blog/how-lighting-affects-productivity/&gt;.

[4] “Table of Contents.” Ornithological Monographs 76.1 (2013): n. pag. Title 24 California Code of Regulations. State of California. Web. 9 Feb. 2017. <http://www.energy.ca.gov/2015publications/CEC-400-2015-033/chapters/chapter_05_indoor_lighting.pdf&gt;.

[5]“Warehouse / Industrial Light Fixtures.” Industrial Light Fixtures | Warehouse-Lighting.com. N.p., n.d. Web. 08 Feb. 2017.

[6]“Architectural Lighting Design.” Wikipedia. Wikimedia Foundation, n.d. Web. 08 Feb. 2017.

[7] Keefe, T.J. (2007). “The Nature of Light”. Archived from the original on 2012-04-23. Retrieved 2007-11-05.

[8] Nov 1, 2004 ByJoseph R. KnisleyLighting Consultant166 Articles. “Designing Lighting for a Warehouse.” N.p., n.d. Web. 08 Feb. 2017. <http://ecmweb.com/content/designing-lighting-warehouse&gt;.

[9] “Lighting and Illumination.” Journal of the A.I.E.E. 43.8 (1924): 750-53. June 2004. Web. http://old1.teamster.org/sh/FactSheets/illumination.pdf

Economic Bliss

In this post I thought I would share my takeaways from a presentation given by Chris Thornberg of Beacon Economics this past Wednesday at the City of Santa Fe Springs City Hall. Many of you in Southern California are no doubt familiar with Chris and I found his themes to be fairly consistent with years previous, with notable exceptions.

The first exception to the last few years is, of course, the election of Donald Trump as President (inaugurated today, in fact). Chris made a point of emphasizing that the election has made economic forecasting even more challenging than it was before, simply because no one knows how many of President Trump’s promises will actually come to fruition.

As for the other points of emphasis, they are as follows:

  • Economy is not as bad as the media says it is (no kidding!)
  • No chance for recession in next two years barring a significant shock
  • Consumers drive the US economy
  • GDP growth is a healthy 2%
    • GDP does not count “free” activities which happen more due to e-commerce
  • Employment, labor, standard of living all good
  • Wealth inequality, not income inequality, is a concern
  • Be careful believing the results of statistics
    • Census Cash uses adjusted gross income from tax returns (not a good metric for real income group analysis!)
  • Inflation is not a problem. Expect to see 2-3 interest rate increases in 2017
  • Entitlements are the problem no one wants to talk about but we should
    • 30 years entitlements could be the US entire budget
  • California
    • 1 out of ever 6 jobs in the US are created in California
    • Housing shortage is the problem, not pricing. Need to encourage governments to promote development-not discourage

In the supply chain real estate world, it is easy to see Chris’ points. The health of the US economy is expressing itself in historically high levels of demand for industrial real estate. Consumers are buying more and more goods online, changing the brick and mortar retail market to a final mile e-commerce one. In certain areas, this demand for supply chain real estate has led to unhealthy levels of supply (much like the California housing market). In some markets, there is less than 1% vacancy creating significant barriers to entry and rapidly rising real estate costs.


Bays and Column Spacing

As part of my final project for the Global Logistics Specialist program at California State Long Beach (GLS Website), my team and I determined the cubic capacity and utilization for an entire network of fictitious warehouses run by a fictitious retailer. We found that the bay and column spacing within a warehouse can have a significant impact on key performance indicators (KPIs) for warehouse occupiers in ways that are not always obvious. In this post I discuss bays and column spacing in a warehouse and why they are important for supply chain real estate participants to consider when a) designing a new warehouse location and/or b) perhaps re-designing an existing warehouse.

The definition of bays and column spacing are similar but not always identical. I define bay areas as the floor areas in the warehouse not occupied by columns, walls or other permanent impediments. The length and width dimensions attributed to bay areas and column spacing are typically the same, with some notable exceptions. Bay areas can have different names in different areas of the warehouse. For example, a speed bay is an area adjacent to the loading areas ideally measuring at least 60′ from the dock to the first column. Used to move goods in a quick and efficient manner, any storage done within a speed bay is usually short-term.

Typical column spacing is the most common storage area between the columns, usually measured by the distance between the columns lengthwise and by depth away from the loading areas in a one sided or flow-through building. For example, if you were peering through the middle loading door of a building with 52′ x 50′ typical column spacing, 52′ would be the width between each column and 50′ would be the depth to the next column away from you. Atypical bays would include any areas along the non-loading walls.

So why are bays and column spacing important to supply chain practitioners? One reason is that they impact a warehouse’s space utilization. Improper column spacing can lead to wasting significant square footage areas and storage capacities due to less overall storage positions. Depending on a number of factors such as pallet size, minimum aisle width, and material handling equipment, a 52′ column spacing and a 56′ column spacing will likely result in very different levels of square footage utilization and storage capacities.  Warehouse occupiers should calculate their optimal column spacing within a warehouse prior to occupancy in a new facility or as part of an audit to determine how well they are utilizing their storage capacity in an existing warehouse. According to Tompkins International, a formula for calculating optimal column spacing is:

[(Depth of Rack * 2) + Flue + Aisle Width] / # of Sections of Rack between Columns

The “Flue” is the space between the row of back to back racking, which is called the longitudinal flue.

Column spacing is also important because it influences the choice of material handling equipment. In order to utilize the available square foot and cubic capacities in a warehouse, certain material handling equipment are required. For example, according to Tompkins a 54′ column spacing allows for a 10′ aisle with typical 48″ racking. Since most counterbalanced forklifts will require a 12-15′ aisle, 54′ column spacing would require narrow aisle material handling equipment in order to maximize the usable square feet and cubic capacity. Therefore, racking decisions may require weighing the potential increased material handling costs with the cost of square foot and storage capacity.


A survey of new warehouses in Southern California show a variety of column spacing dimensions being used, mostly depending on the clear height being offered. For potential e-commerce fulfillment centers, required column spacing is a minimum of 56′-60′ to allow for the large order picking equipment common in the industry and required minimum clearance is 36’+ to allow for multi-level mezzanines/equipment. Two new developments at the Brickyard in Compton and Pacific Industrial/Clarion’s Imperial Distribution Center in Brea have 36′ clearance heights with 56′ x 50′ typical bays.

For new buildings in Southern California with 32′ clear, the typical bay is 52′ wide with varying depths. Western Realco’s new buildings at 4150 N. Palm Street in Fullerton and 3300 E. Birch Street in Brea have 52′ x 60′ typical column spacing. At Pacific Point East @ Douglas Park in Long Beach, Sares Regis has 52′ x 50′ typical column spacing as does Duke’s new warehouse in Lynwood.

source: The Brickyard South Bay website

Supply chain participants should be aware of how bay areas and column spacing in their warehouses impact their KPIs. If you need help evaluating new or existing warehouses in your supply chain, including evaluating existing column spacing, please feel free to reach out to me.


“SPEED BAY.” SPEED BAY. BOMA International, 2016. Web. 01 Dec. 2016.

Holste, Cliff. “Distribution Center Design: Designing from the Inside Out.” Distribution Center Design: Designing from the Inside Out. Supply Chain Digest, 11 Mar. 2008. Web. 01 Dec. 2016.

Johnson, Wendy. “The Importance of Optimal Column Spacing.” Tompkins International. Tompkins International, 30 July 2015. Web. 01 Dec. 2016.

“How to Optimize Your Existing Warehouse Space | Washington and California,.” Raymond Handling. Raymond Handling Concepts Corporation, 13 Aug. 2014. Web. 01 Dec. 2016.

Fallsway Equipment Company. “Warehouse Operation | Finding Your Aisle Dimensions.” Fallsway Equipment Company. Fallsway Equipment Company, 12 June 2014. Web. 01 Dec. 2016.

Foster, Margarita. “The View From E.CON: E-commerce Real Estate Evolves | NAIOP.” The View From E.CON: E-commerce Real Estate Evolves | NAIOP. NAIOP, 2015. Web. 01 Dec. 2016.

Fire Sprinkler Systems and Industrial Real Estate

As a supply chain real estate practitioner, I always encourage my clients to engage the services of a qualified fire sprinkler consultant or similarly qualified employee when they evaluate the suitability of a real estate option. While experts should be consulted, actors in the supply chain should take the time to understand the basics regarding today’s fire sprinkler systems and potential pitfalls that could arise from false assumptions. In this post I briefly cover the history of the fire sprinkler system and its evolution to the current ESFR system. I also explain why an ESFR fire sprinkler system may not insure the full use of high rack storage.

According to “The Station House”, a newsletter produced by Tyco (link here), the history of fire suppression sprinkler systems goes back to the 1800’s with the founding of the Providence Steam and Gas Company in 1850, which would later become the Grinnell Company.  In an effort to address the mill fires in New England, Providence tested various perforated pipe installations with actuators.

Through the next 100 years, we start to see a resemblance to modern sprinkler systems beginning in 1953, when the National Fire Protection Association issued the NFPA Pamphlet 13, which is the first code to recognize today’s standard sprinkler system. From the 1950’s to the early 1970’s, Ordinary Hazard systems were in standard use under the NFPA code. In the early 1970’s, the NFPA revised their standards to permit hydraulically calculated systems, which would eventually replace Ordinary Hazard systems in most warehouses by the 1980’s. Calculated systems are commonly shown in a volume per minute over an area calculation. Common examples are .33/3000, .45/3000, and .60/2000 calculated systems where the first number is the gallons per minute and the second the square footage.

Beginning in the 1980’s, the first fire sprinkler system was developed to address high rack storage without in-rack sprinkling. The Early Suppression Fast Response sprinkler, or ESFR, was both a concept and a type of sprinkler. The concept was to have a sprinkler capable of extinguishing fires in a high rack storage scenario. This contrasts with prior sprinkler systems, which were designed mostly to control fires until help arrived. In 1988, the first Factory Mutual (insurance company) approved ESFR sprinkler was introduced by Grinnell. Since that time, the ESFR sprinkler system has become the standard in protection for high rack storage.

One key component of the ESFR sprinkler system is the ESFR sprinkler head. Recent changes to the NFPA codes and today’s high rack storage heights require certain types of ESFR sprinkler heads to be used. These sprinkler heads are usually rated by what is called a “K factor”, or the coefficient of discharge. The larger the K factor, the more water it can discharge at a given pressure. K-14, K-17, K-16.8, K-22, K-25, and K28 are some examples of ESFR sprinkler head K factors.

The type of sprinkler heads and water pressure in an ESFR system is important to understanding high pile storage capacity for a given user. I have heard of several horror stories where companies have moved into a high cube warehouse with an ESFR system, only to learn that the sprinkler heads did not allow their desired use of the cube within the warehouse. In these events, typically the tenant will have to foot the bill to change out the heads-not an inexpensive proposition. In addition, changes to the sprinkler head may impact the required pressure-possibly requiring a modification to the pipe system. Again, not inexpensive.

In conclusion, fire sprinkler systems have evolved from little more than a perforated pipe to a highly technical engineered system capable of extinguishing the most combustible materials capable of being stored. Since fire codes and fire systems require professional interpretation and expertise, it is imperative that supply chain companies work with experts to mitigate any risk to their desired storage plans.



Trailer Spots per Acre

I was asked recently how many 53′ truck trailers could be stored on one acre of land and though I would share my answer, based on conversations with my clients and within my company. The first point to make about determining the storage capacity of land or any other two or three dimensional object is that it wholly depends on the configuration. A 30′ x 1452′ acre will have a significantly different storage capacity than a 209′ x 209′ acre. Assuming the acre is functional in shape, meaning closer to a square than a bowling alley, estimates typically range from 34-40 trailers per acre with no truck cab.

The second point to make is that as the land increases in size, the number of trailers that can typically be stored per acre goes up. For example, my team is marketing  an 8 acre land parcel and a space engineering firm created a layout with 394 trailer parking spots for a total of 49 trailers per acre, with 23 trailers spots double stacked.

Real Estate

  • Wal-Mart recently purchased 169 acres of industrial land just south of Denver International Airport in Colorado. Wal-Mart did not disclose what it planned to develop on the site however speculation has centered on a large e-commerce facility similar to the the five existing e-commerce facilities they operate in the U.S.
  • Global refrigerated warehouse capacity grew 600 million cubic meters this year according to the Global Cold Chain Alliance. However, most agree this is not enough to support the ever-increasing worldwide demand for fresh food. Capacity is expected to increase in developing countries as disposable income levels rise.


Calculating Dock Position Requirements

One of the most important facility requirements for any logistics operation is the amount of dock high positions an industrial building provides. Often overlooked, dock high positions can have a significant impact on whether an operation is able to meet its key performance indicator objectives and contribute to the overall success of a company.

Determining the minimum number of dock positions needed for a facility involves an understanding of the internal and external factors which affect the amount of dock high positions required. The internal factors can include the amount of trucks serviced by the docks over a period of time (average and peak), the time to load and unload each trailer per dock, staging and cross-docking requirements, work hours over a period of time, employee breaks, drop trailer requirements, trash / bailing requirements, shifts, and shipping preferences. External factors can include time of truck arrivals and departures, the reliability of carriers, whether carriers will back haul drop trailers, types of trailers used by carriers, and truck driver capabilities. A comprehensive understanding of these and any other internal and external factors will result in more precise understandings of an operation’s dock high requirements.

In general, the minimum number of dock high positions are calculated based upon a formula involving their use, the amount of time they can be used, and a safety factor. Below are three examples of manual calculations using some of the internal and external factors above.

  1. Number of Truck Positions Needed = ((Number of Trucks per Year x Hours it takes to Load / Unload a Truck) / Work Hours per Year) x Safety Factor [1]
    1. Inputs
      1. 7,000 trucks per year
      2. 2.5 hours for loading / unloading
      3. 2080 work hours per year
      4. Safety factor of 25%
    2. Calculation
      1. (7,000 trucks per year x 2.5 hours for loading / unloading) / 2080 work hours per year) = 8.4 x 1.25 safety factor = 10.5 docks or 11 dock high positions needed at a minimum
  2. Number of Truck Positions Needed = Number of Trucks per Hour x Turnaround Time per Hour [2]
    1. Inputs
      1. 20 trucks per day
      2. 8 hour work day
      3. 150 minute turnaround time
    2. Calculation
      1. (20 trucks per day / 8 hour work day) = 2.5 trucks per hour x (150 minute turnaround time / 60 minutes per hour = 2.5 turnaround time) = 6.25 dock positions needed or 7 positions needed
      2. If all trucks arrive in AM, then work day would be shortened to 4 hours and the dock requirements would be 12.5 or 13 positions needed
  3. ((Peak trucks per day) x (Average dock time per truck) x (Safety factor of 1.5 to 2)) / Number of hours in work day [3]
    1. Inputs
      1. 20 trucks per day
      2. 2.5 hours per truck
      3. 8 hour work day
    2. Calculation
      1. ((20 trucks per day) x (2.5 hours per truck) x (1.5 safety factor)) / 8 hour work day = 9.375 docks required or 10 docks needed

These three calculations show that depending on the formula used, roughly the same inputs will yield slightly to drastically different minimum dock requirements. Where formulas 1 and 3 resulted in 11 and 10 positions required, formula 2 resulted in only 7. Not surprisingly, formula 2 did not employ a safety factor. Safety factors are used to account for unforeseen variability such as disruptions in deliveries or labor.

Companies may also employ manual simulations of dock requirements.  These simulations include the detailed logging of docks used by the various types of vehicles that deliver or ship to a facility.  These simulations can show how to improve dock assignments or delivery schedules for better dock utilization and determining of minimum docks required.[4]

The use of technology in determining the minimum number of dock positions required may make the use of the manual calculations above obsolete. Warehouse management systems or WMS may include dock requirements based upon much more detailed inputs and trends.  However, the manual calculations formulas above help to show the importance of understanding the external and internal factors involved with determining the minimum number of dock positions for a given operation.


Real Estate

Chinese car maker BAIC has disclosed plans to build an assembly plant in Mexico after opening a dealership in Mexico last month. Among Chinese car makers in general, there is growing interest in Mexico as a potentially strong export market. Last year Chinese car makers exported over 330,000 vehicles to Mexico.

Amazon has announced that it will build its 10th fulfillment center in California, agreeing to locate an 855,000 square foot facility near Sacramento International Airport.  The fulfillment center will bring a reported 1,000 warehouse jobs to the area.

PortFresh Logistics is constructing a 100,000 square foot cold storage facility at the Port of Savannah. The facility, which will primarily serve the importers of South American produce, will create 40 jobs upon its opening with an expectation of 75 full-time jobs by 2021.

Newegg, a web-only retailer of technology products, has opened what it calls a Hybrid Centre in Ontario, Canada. The 81,000 square foot facility will include a showroom where customers can view some of its latest offerings.  Newegg also has a Hybrid Centre next to its Los Angeles headquarters.

UPS has applied for Miami-Dade County incentives to build a $65 million sorting facility in the northwest part of the County. In the deal UPS would reportedly receive $877,180 in county funds in exchange for creating 25 jobs and retaining 2,005 existing jobs.

Wal-Mart opened its new $100 million grocery distribution center in Mebane, North Carolina.  The center will employ more than 550 and distribute food to more than 55 Wal-Mart stores in North Carolina and Virginia.

Prologis, the global leader in logistics real estate, reported record second quarter 2016 results.  Rents on lease renewals jumped 17.8%  while rents overal rose 7.9 percent.  These led to second quarter net earnings per share of $0.52 compared to $0.27 in the second quarter of 2017.

Many of China’s logistics property companies have disclosed plans to go public amidst the e-commerce boom there.  Groups such as China Logistics Property and GLP have already gone public and otheres, such as e-Shang Warehouse Services, plan to list soon.

Gap said they will add more than 100 jobs and invest $3.1 million in uprades and technology to increase its e-commerce capabilities in its Gallatin, Tennessee facility.

Retailers are adding more distribution centers closer to major population centers in an effort to provide more efficient customer service.  Customers increasing demand to receive orders faster and cheaper has pushed many of the so-called inland ports to grow much faster than average US industrial markets.

General Mills announced the layoff of 1400 jobs, including 550 in United States as part of a rework of its supply chain.  General Mills plans on selling a plant in southern New Jersey and sell another in northern Ohio.




[1] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.
[2] 4Front Engineered Solutions, Inc. “Dock Planning Standards.” (n.d.): 10. Web. 31 July 2016.
[3] Gross & Associates. “Calculating Dock Door Requirements.” (n.d.): n. pag. Web. 31 July 2016.
[4] Mulcahy, David E. Warehouse Distribution and Operations Handbook. New York: McGraw-Hill, 1994. 4.18-.20. Print.

Omnichannel No Longer?

In this week’s edition is a widely cited Forbes interview with the new CIO of Target, Mike McNamara. I thought an interesting part of the interview discussed omnichannel, which for a long time was significant buzz-word within retail. McNamara’s position is that it is a “tired” word and thinking about two separate channels no longer makes sense-it is really one digital channel. Given the recent news about Wal-Mart and others, it does seem that the brick and mortar + e-commerce retailers of last year are quickly becoming the digital platforms of tomorrow.

Material Handling

A robotic arm with a suction cup, two-finger gripper, and 3D camera won a warehouse bot competition put on by Amazon.  Bots competed to see which could pick up and put down items on a shelf. (BBC)

The new Target CIO has cited supply chain innovation as one of his two top priorities.  Mike McNamara, formerly the CIO of Tesco, whose first priority is “digital”, said Target’s supply chain is a network which makes all of the inventory available to customers anytime and shipping decisions based on economic or shorter lead times. (Forbes)

According to the appropriately named research firm Research and Markets, the global material handling market is projected to rise from $115.342 billion in 2015 to $148.542 billion in 2021.  The Asia Pacific region was cited as the fastest growing market in the near future. (Yahoo Finance)

Real Estate

PREMIER Design + Build’s EVP Brian Paul gave an interview with GlobeSt.com discussing the redevelopment of industrial properties. Paul cited the importance of designing redevelopment to maximize efficiency. (GlobeSt)

REI opened a new fulfillment center in Goodyear, Arizona.  This is the third fulfillment center for REI, the others being in Washington and Pennsylvania, and will service 60 of its stores. (The Republic)

Prologis completed 16 build-to-suit development projects in the 1H of 2016. These projects encompassed over 6.8 million square foot and were located in both the US and abroad. (Yahoo Finance)

XPO exercised an option to purchase the 552,330 square foot building they occupied in Phoenix for $30.4 million ($55.04 PSF).  XPO had been leasing the property from Lincoln Property Company since 2013. (Phoenix Business Journal)

Amazon India has announced the addition of six more fulfillment centers in India.  Amazon previously had 10 fulfillment center in  India. (India Times)


GE and Microsoft have joined to bring GE’s Predix platform-as-a-service offering to the Microsoft Azure cloud. Predix is an operating system and platform for building applications connecting industrial assets, infrastructure, and operations. (Computerworld)

Business Insider created a video showing Under Armour’s new manufacturing facility. The video details some of Under Armour’s R&D and manufacturing within the facility. (Business Insider)







Happy 4th of July

The amount of news this past week seemed to have been shortened by the 4th of July celebrations.  Nevertheless, there were still many new developments in the world of supply chain real estate.  I hope all of you had a wonderful weekend.

Real Estate

  • General Motors has reportedly narrowed the field of potential purchasers to four for its 250 acre plant in Janesville, Wisconsin.  Majestic Realty, Industrial Realty Group, Commercial Development Company, and Hilco Redevelopment were all named as the possible suitors. (Beloit Daily News)
  • Radial, Inc. (formerly Ebay Enterprise and GSI Commerce Solutions) sold its 900,000+ SF of Louisville, Kentucky facilities for $52.3M to Black Creek Group, a Denver-based industrial investment firm.  (Louisville Business First)
  • Rents for multi-tenant industrial space grew faster than any other property type in 2015.  Fueled by e-commerce demand, industrial availabilities have declined to their lowest level since 2001. (JOC)

Material Handling

  • Technological advancements are steadily reducing the need for humans within the warehouse.  However, most companies  are not ready to go to exclusively “lights out” facilities. (DC Velocity)
  • The internet of things (IoT) is holding substantial promise in the retail sectors.  From how items are connected in the store to the supply chain, IoT may revolutionize the retail experience by creating a network of customers, suppliers, assets, and external entities. (CIO)
  • Honeywell has agreed to acquire Intelligrated, a designer, manufacturer, and installer of material handling technologies and software for $1.5B.  Intellegrated will become part of Honeywell’s Automation and Control Solutions business. (Modern Materials Handling)