Site Selection for Land-Intensive Occupiers in Infill Areas

Key Concepts

  • Industrial properties with 30% or less improvement square feet compared to land square feet (“low coverage”) are increasingly scarce in metropolitan areas of the United States
  • Land-intensive industrial uses, which typically use low coverage industrial properties, can be challenging to entitle and therefore understanding zoning is critical to a project’s success
  • Successful site selection for land-intensive industrial occupiers typically involves a proactive approach to finding and securing suitable properties
  • The ability to compare the relevant internal and external data with a robust property search and indentification process exponentially increases the effectiveness of the site search

Availability of Low Coverage Properties

Finding available infill properties for land-intensive industrial occupiers is typically much more challenging than office, warehouse or manufacturing uses. Throughout most primary, secondary, and even tiertiary US industrial markets, low coverage properties are increasingly an endangered product type. With no more than 30% of their land area covered by improvements, low coverage properties have been developed into “higher and better” uses, subject to strict zoning regulations, and even turned into other property types.

Due to these challenges, site selection for land-intensive industrial occupiers must be designed differently to increase the odds of success. A successful site selection strategy for such occupiers incorporates the relevant internal and external sources of information with a proactive approach to investigate, target, and secure properties which align with company objectives.

The Proactive Site Selection Process

The site selection process involves multiple steps which ultimately lead to a desired site at the best cost/benefit ratio possible. Generally these steps are assembling project stakeholders, defining requirements, researching the market, analyzing potential options, negotiating, and acquisition. All these steps are important but I won’t be discussing all of them here. If you are interested, there are plenty of site selection articles in industry publications which discuss the site selection process in detail.

In any site selection search that has limited property availability in a desired area, such as the infill low coverage sites considered here, companies cannot follow the same playbook as a search for suburban office building or a dry warehouse and expect great results. Instead, I think there are two key areas where land-intensive companies should focus their resources.

First, firms should use internal and external data with GIS mapping platforms, such as Esri, to identify the areas in which they would consider a new location. GIS mapping technology can easily show customer locations, competitor locations, available properties, average real estate costs, zoning, labor, drive times, and more. A much better conversation can take place when stakeholders can see all the relevant information required to make location decisions.

Furthermore, it is especially effective to use GIS mapping when searching for properties that are difficult to find. Rather than just focusing on the location of currently available properties, via GIS mapping the stakeholders can determine:

A) the areas they would consider a location (“Areas of Consideration”)

B) zoning overlays within the Areas of Consideration which will allow their use (“Entitled Areas of Consideration”)

C) all properties within the Entitled Areas of Consideration which meet their minimum physical requirements (“Set of All Amenable Properties within the Entitled Areas of Consideration”)

D) all available properties, if any, within the Set of All Amenable Properties within the Entitled Areas of Consideration

E) then layer in additional data as needed.

The second key area I would recommend firms focus is actively marketing their requirement to owners of property within the Set of All Amenable Properties within the Entitled Areas of Consideration (Item C above), investor/developers, and brokers. This practice increases the odds of finding one or more suitable sites and can also create negotiating leverage with the owners of any sites currently on the market. The marketing can be done without divulging the company name, if helpful only indicating the basic requirements and creditworthiness to further entice landlords or sellers.

Marketing the requirement to owners is the inverse of what is typically done by an owner marketing its property. Similar to an effective property marketing program, a marketing program for an occupier can be structured in the same manner with marketing materials and scheduled follow ups being made to prospective landlords or sellers.

Another benefit of actively pursuing the key areas above is the trust it can build within the organization. Many site selection leaders experience the doubt expressed by others when available properties are difficult to find. By virtually exploring all the possible properties via GIS mapping and proactively marketing to those property owners, these leaders are able to show other stakeholders that no opportunities are being left “uncovered” and the organization is doing all it can to find a suitable site. This can engender trust in the site selection process internally and help prevent the dreaded “I see available properties everywhere. Why can you find one?” response many of us have heard.

First Principles

Today I was thinking about first principals and what first principals exist in my business as an industrial real estate resource and representative. A first principal is basically a concept which cannot be divided further. In other words, it is a foundational concept and leads to other concepts which are based upon something that cannot be further deduced.

I think one first principal for my business is the notion of service to individuals not organizations. When I represent XYZ Company, I am really representing and furthering the interests of the individual stakeholders at XYZ Company. This way of thinking helps me focus on building a personal relationship with the client where I understand their particular ideas, needs, and wants-not just the company’s objectives.

While it is great to have a reference board of the companies I represent, I really should have one that has just names of the people I work with at those companies. To me, they are a first principal for my business.

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.

 

DC Metrics

As part of my research for the Global Logistics Specialist designation from California State University Long Beach, I have learned about certain metrics used by supply chain professionals in order to measure how their operations helping them meet their company’s objectives.  These metrics are commonly in the form of what are called key performance indicators, or KPIs for short.  For most experts, all KPIs are metrics but not all metrics are KPIs.  In order for a metric to be a KPI it must measure how well a company is meeting its objectives.  For example, a metric measuring cost of inventory in transit would be a KPI to a company trying to reduce their inventory holding costs.

For logistics professionals, it is beneficial to have awareness of how real estate might impact your company’s objectives and, if possible, its KPIs.  With an understanding of how the real estate impacts the KPIs, the logistics professional  will be able to more accurately determine what type of property will help them achieve their company’s objectives.

Using the standard metrics and definitions provided by WERC, MESA, and SCE[1], I have added the real estate components which might impact the following:

Warehousing Metrics Table 5.11.16

Supply Chain+ Real Estate Week in Review

Here are the stories I thought were interesting, categorized by topic and subtopic and in alphabetic order by topic.  Just click on the hyperlink to open the story.

Amazon

Barrons on Amazon’s freight deal and where will they stop 

Transport Topics on Amazon leasing 20 more jets

Journal of Commerce speeding up fulfillment

Ports

Food Logistics on concerns that the east coast ports are not ready for the Panama Canal

An opinion piece in the Daily Bulletin by John Husing, an Inland Empire economist working with the POLB, on the economic case for an Inland Empire inland port 

Journal of Commerce on Congress pushing for west coast labor talks between ILWU and PMA

The Maritime Executive on the FMC convening a port congestion panel

Journal of Commerce on the Port of Savannah helping shippers weigh containers for free

Wall Street Journal on the loss of US import share on the west coast

Business Insider on the impact of the new Panama Canal

Wall Street Journal on CMA pulling the plug on big ships for west coast ports

Railroads

Journal of Commerce on intermodal growth looking to accelerate

Shippers

Food Logistics on Target’s investment in technology to boost its food transparency

Food Logistics on Target cracking down on its suppliers to improve its supply chain

Transport Topics on shippers feeling the rate increases by railroads

SOLAS

Journal of Commerce on exporters and container lines pushing to win the SOLAS game

Journal of Commerce on railroads accepting containers without VGM

Supply Chain Real Estate

NREI 17 Top Performing Industrial Markets in US

Costar on 1Q 2016 Industrial Property Sales

Area Development on Sale-Leasebacks

Technology

Material Handling News on hypermodal systems and the internet of things in logistics

Trade

Politico on Rep. McConnell’s pessimistic view on passing TPP this year

Trucking

Journal of Commerce on shippers concerns that ELDs regulations will constrict capacity

Transport Topics on Roadrunner’s net income down 77% in the 1Q

Food Logistics on weak long haul demand reducing class 8 truck orders

Journal of Commerce on California offering amnesty to drayage companies who “properly” categorize drivers

Journal of Commerce on drayage companies lack of interest in amnesty from California

Transport Topics on zero-emission electric drayage trucks coming to California

San Bernardino Sun on the rising call for dedicated truck lanes in Southern California

Transport Topics on freight rates remaining under pressure

Transport Topics on lawmakers urging the head of the FMCSA to delay safety fitness determination rulemaking

Journal of Commerce on TL carriers struggling to reduce capacity

1 WERC, MESA, and SCE

New Format + Latest News in SCRE

I am excited to announce that after experimenting with post formats, I have decided to proceed with a new blog format which I think delivers timely information in a succinct and easy to follow structure.  Moving forward, the blog will be separated into two sections.

The first section will consist of a single topic which directly relates to supply chain and real estate.  Here I will cover, in as depth a manner as necessary, some of the latest trends and technologies I am seeing and hearing about.

The second section will consist of an aggregation of links to information which I have found over the past week to be interesting and thought provoking.  The links will be categorized to make navigation simple.

The reason I have decided on this format is two-fold.  One, selfishly I am using this blog to learn more about topics pertaining to my everyday business.  Therefore, don’t expect too much discussion on the banalities of industrial real estate here.  I wouldn’t be honest if I wrote about those.

Secondly, I do care about making this blog accessible and encouraging readers, including myself, to use it as a resource.  There are a number of great resources which cover supply chain issues or real estate issues.  I want to combine the two effectively.

Since I have blabbered on about the structure of this blog, which adds no value to your day at this point, I thought I would include the section with the past week’s SCRE links below.  Enjoy and please let me know your thoughts!

SCRE Links

Distribution Centers

From the Journal of Commerce: One reason for falling freight traffic may be the high levels of inventory

From Industrial Distribution: Werner Electric Supply uses custom pick module and warehouse design to double sales

From the Wall Street Journal: Warehouses Getting More Complex

Trade

From the Harvard Business Review: What politicians won’t talk say about manufacturing and trade

Ports

From the Journal of Commerce: POLB head says competition getting fiercer

From Modern Materials Handling: Panjiva reports lower US bound water shipments in March

From the LA Times: Ports of Los Angeles and Long Beach are losing market share to the east coast

From the Journal of Commerce: Real estate driving shippers to Savannah

Shipping

From the Journal of Commerce: Survey says…more shippers shifting to rail

Industrial Real Estate Market

From RE Business Online: US approaches historically low levels

 Lease Accounting

From Cushman & Wakefield: In Lease Accounting Changes: CRE to take Center Stage

From PwC: Overhaul of Lease Accounting

Current Events in Supply Chain + Real Estate

This week I thought I would follow up on some of the topics discuss here recently and also provide some links to events having a substantial impact in the supply chain world.

Last week I focused an entire post on SOLAS.  As a follow up, the rule and whether or not the shipping industry will/can comply with its mandate heated up this week.  One article in the Journal of Commerce cited a CargoSmart survey of shippers where the majority of shippers were not prepared to comply with the weight verification regulation.

While SOLAS has been the focus of the shipping industry, the trucking industry is dealing with its own set of regulations.  Even though it won’t be in effect until December 2017, the Electronic Logging Device requirement (ELD) is already causing changes in the industry. There is an expectation from some that this regulation will impact small and medium trucking companies the most, leading to reduced capacity in the industry as these small and medium companies go out of business. Some trucking firms, such as Swift, are stating that shippers are not inviting firms to bid on projects unless they have a plan in place to comply with ELD.

Supply chain real estate was in the news this month as major industrial real estate brokerages released their 1Q 2016 numbers.  Across most markets in the US, they supply of industrial real estate, especially distribution centers, is increasingly limited.  According to my firm, Cushman & Wakefield, the national industrial vacancy is at its lowest level in the past 30 years and is 240 basis points lower than its 10-year historical average.

Lastly, the interaction of technology and real estate is of increasing importance to logistics firms.  Just today the Wall Street Journal published an article citing the increasing technological changes in warehouses.  As supply chain real estate advisors, we are working with companies and vendors to determine how we can provide a real estate solution which will meet the technology requirements throughout the expected occupancy term.  Due to the infrastructure inconsistencies, such as internet bandwidth, antiquated and obsolete internal wiring, and insufficient power supplies, it is important for companies to understand what limitations they may have to support these new technologies in certain locations.

Move to Cushman & Wakefield

In order to better serve my clients, I have moved from Newmark Grubb Knight Frank to Cushman & Wakefield as of May 27th.  Cushman & Wakefield is the world’s largest private commercial real estate brokerage company and I am excited about the opportunity to leverage its resources in my business.  I will be working in the Long Beach and Torrance offices.  Please contact me anytime if I can be of assistance.

T +1 (562) 276-1405

H +1 (714) 771-2063

M +1 (310) 874-7934

E Chuck.Berger@cushwake.com

Environmental Surveys as a Pre-Marketing Requirement #CRE #Industrial #phase1

As an industrial real estate broker for over 12 years, I have learned a few key tasks every seller of industrial real estate should undertake prior to marketing their property.  Near the top of the list is having a qualified environmental consultant complete an environmental site assessment, commonly referred to as a Phase I.  The reasons are numerous but the biggies are:

  • Reveals seller’s potential environmental exposure, if any, prior to identifying a buyer.  A seller can deal with any potential environmental concerns prior to entering into an escrow, avoiding potentially costly delays and escrow terminations.
  • Gives the seller control of the environmental review process from the beginning of marketing its property.  In most transactions, the first recent environmental review of a property being sold will be when the buyer’s consultant conducts an environmental site assessment while in escrow.  In this scenario, the buyer, not the seller, has control of the process and the seller will be in a reactionary position to whatever concerns or recommendations are made by the buyer’s consultant.
  • Makes the property more marketable and can lead to a higher sale prices in a shorter amount of time.  Perhaps nothing turns away potential buyer faster than an environmental concern.  A recent environmental site assessment showing no recommendations for further inquiry can put buyers at ease that they most likely will not encounter an environmental issue in their own investigations, saving them time and money.  In some instances, an all-cash buyer may accept the seller’s environmental site assessment and therefore save the cost of conducting one themselves.

This list can also apply to a landlord as well.  In fact, many Fortune 500 companies now require a recent environmental site assessment be performed prior to executing a lease.

Seller’s may take issue with the cost of conducting an environmental site assessment or its necessity since the buyer or its bank will often conduct one anyway.  However, in my opinion this viewpoint often does not consider the points above.  Unless the seller has conducted a recent environmental site assessment, it should always consider the performance of an environmental site assessment of their property before marketing to be a worthwhile investment and in the seller’s interest.

First Quarter 2014 Mid-Counties Industrial Market Report #CRE #Industrial

Everything you ever wanted to know about the current Mid-Counties Industrial RE market in Mid-Counties 1Q 2014 Industrial Market Report.

Site and Efficiency

Embed from Getty Images

According to the Merriam-Webster dictionary, efficiency is defined as “the ability to do something or produce something without wasting materials, time, or energy” 1.  Efficiency has an obvious importance to industry.  However, its level of importance to corporations can vary in respect to growth and other corporate priorities.   Recent studies have indicated that U.S. corporations are planning on investing capital to improve efficiency in their home countries and services to their current customers 2.

In employing such investments, industrial firms should strongly consider the role of its real estate site selection and improved performance.  In considering a specific site, the following categories and answers to key questions can have a significant impact on the operational efficiency of an industrial firm:

  • Location-How is the site’s access to highways, airports, incentive zones, customers, and suppliers?
  • Labor-Is there available labor? How favorable are the wages, organized labor rates?  What is the average education level?
  • Building and site layout-Does the building configuration and bay spacing meet standards for flow or manufacturing processes?  Does the site allow for present and future distribution and parking requirements?  Is there a potential to expand the building on the site?
  • Amenities-Does the clearance height and sprinkler system allow product to be stored in an efficient manner?  Is the electrical infrastructure currently sufficient and expandable to meet future requirements?  Does the building have fiber installed or available to the building?
  • Building tenancy-Single tenant versus multi-tenant?  Does the security of a single tenant building outweigh the flexibility of a multi-tenant building?
  • Number of Building(s)-Is it important to have a single building with no labor competitors nearby?  Would a campus/park environment be preferred for expansion options in the future?
  • Utility-How reliable is the energy supply to the building?  How do the energy rates compare to other sites?  Can the utility supply to the building be increased to meet future demand?  At what cost?
  • Tax and Incentives-What are the insurance rates?  Are the any employee training programs nearby?  What is the workers compensation insurance structure?  Are there any relocation incentives offered?  What is the municipal and state tax structure?

These categories and questions are by no means exhaustive and each individual firm will have its own priorities when it selects a site.  What is universal is the promise of increased efficiency when industrial firms make rational site selection decisions.


  1.  “Efficiency”.  Merriam-Webster.  Merriam-Webster, n.d. Web. 05 Apr. 2014 
  2.  “HBR Blog Network.” Harvard Business Review. N.p., n.d. Web. 07 Apr. 2014;  CFO SignalsTM: 2014 Q1 Results.” Deloitte. N.p., n.d. Web. 06 Apr. 2014