Selecting a suitable location and property for your distribution center or headquarters isn’t simply a matter of driving around a few neighborhoods and pointing out the buildings you like. Numerous factors must fall into place to make the process as painless and successful as possible. One thing’s almost certain, though: Time is the enemy when planning to relocate. So it’s important to develop and follow a strategic plan, which will keep you from wasting time, money, and other resources.
STEP 1 Build your dream team
As in any other business transaction, forming the team to get the job done is the most important decision your company will make. Ideally the relocation team will include your real estate director, your operations director, an attorney, a real estate broker, a financial analyst, and even a construction/project manager.
For best results, work with a real estate broker who solely represents tenants and not landlords or developers. In business transactions today, companies spend an inordinate amount of time ensuring that conflicts of interest do not exist in business transactions; working with a tenant-representative-only real estate broker can help you on that front. In addition, the real estate brokerage company should have an inhouse financial analyst whose assistance should be included at no charge to you as part of its services.
Along with the team outlined above, you may need to add several other key players to the team. The disciplines of labor, logistics, and computer software and hardware are so specialized that unless you already have these specialists, you’ll have to hire consultants to be a part of the team.
Step 2 Develop a strategic plan
In this day and age simply getting a real estate transaction done is no longer acceptable. The transaction has to be the absolute best deal that can be accomplished. As the saying goes, “The devil is in the details.” Transaction management and project management add value to an organization individually, but when woven together into one process as part of a carefully researched strategic plan, the results include both cost savings and increased efficiencies. In addition, the overall time line is reduced as a direct result of multiple activities taking place simultaneously.
STEP 3 Research and optimize operations
Sound research prior to beginning the search for a location is important to the overall success of the project. And while that may seem obvious to you, to many companies it apparently isn’t. Several locations can be found during a search, but finding the “right” location depends upon the accuracy of information given to establish the parameters for the new facility. Quality research will get you the right location.
For example, with a distribution center, you need to determine the size, shape, and features of the desired facility to optimize operations efficiency. You will need to analyze docking (for instance, the number of doors, the height, the capacity for cross docking, and the like); the square footage, layout, and interaction of office, break rooms, locker rooms, and restrooms; the floor thickness and flatness; racking systems; lighting; employee parking; truck staging; ceiling heights; and any other operational items needed to achieve optimum efficiency.
To start the search for the right headquarters building, consider space efficiency, corporate structure, office sizes, accessibility to certain management members by visitors and staff employees, all of which help to determine the size, shape, and features of a desired facility. Image might be a factor if you have lots of client visitors. The building should represent the company’s image and future vision. You will need to analyze the square footage based on the layout and interaction of management and support staff; the number of conference rooms; break room or cafeteria/vending areas; the mail room; a work production area; locations of copiers, scanners, fax machines, storage for supplies, company brochures, merchandise samples, restrooms, and smoking areas; lighting; computer networking; telephone systems; ceiling heights; hard-walled offices vs. versatile movable cubicle systems or movable wall systems; the size of furniture to be used; employee parking; deliveries; and employee amenities such as a workout room, lockers, showers, and an exterior dining patio.
Don’t forget to build in a growth factor for the expansion of the company. Add in the plan additional square footage based upon the projected growth in the company’s five-year business plan. Selecting a building for today’s needs will limit your future profitability.
A correctly sized building is one that accomplishes these goals: It is completed within the budget; it uses as much of the cubic space as efficiently and effectively as possible; and it is a generic building for exit strategy purposes in case something dramatically changes in the company’s business plan. Sometimes this cannot be accomplished due to special requirements. But if more companies took this approach, they would have more long-term options in case of changes in the economy or their business model.
Don’t select a building until you ensure that it is consistent with research findings. The research process is not about a real estate deal; it is about your company operating a building more effectively and efficiently.
STEP 4 Determine location
Of course, the number-one rule (or some say the first three rules) in real estate remains “location, location, location.” Remembering and following this rule will put you on the right track in the relocation of your building.
To start the search for the right location, first consider the marketplace and what it has to offer. Does the area being considered have an adequate labor pool? Some regions of the country are experiencing unemployment rates of less than 2%. What wage rates will make or break your profitability?
For a distribution center, you need to evaluate freight carriers and routes. Where are your supplies or products coming from and how? Where are most of your products going to be shipped and how? It’s important to remember traffic flow and ease of access for any type of carrier whether you use trucking, rail, ship, or a combination of thereof.
For a headquarters location, look at traffic flow from residential areas and area amenities. If the relocation will be near the current location, the broker should be able to plot a map with the location of each employee’s home address. Key employee addresses can be stressed for consideration. The map will help show areas of concentration of employees and path of travel for consideration on drive time and ease of accessibility. The broker should also be able to give you a map of amenities in the area, such as restaurants, hotels, banks, retail areas, and fitness facilities. Easy access to these types of amenities will be of great value in keeping your employees happy and enjoying their workplace.
In regard to image, keep in mind that generally the more “image” a property has the pricier it becomes. Image equals cost. You will need to analyze whether image or economics should be the driving factor.
Adequate parking for any property is essential. Employee morale will quickly deteriorate if workers have to hunt for a space to go to work every day. Besides, the hunt can steal minutes from employee productivity, which will add up over time. Inadequate parking can also leave a client or other visitor with a negative impression if he has to keep circling to find a space. You will need to calculate the total number of spaces required for immediate and future needs. Consider assigning spaces for key employees, visitors, quick deliveries, etc., and add that to the plan if necessary. Designated parking will need to be negotiated with the property’s landlord and may not necessarily be given or may be at a premium, so you’ll have to evaluate how important it is in the overall real estate goal.
Once the facility parameters and geographic (north, south, east, and west) boundaries for the location are established, the real estate broker will begin a search. Hopefully, you will be presented with numerous options that meet all of your criteria.
An absence of suitable existing facilities will slow or can even stop the process. If suitable existing facilities are not available in the primary marketplace selected, you will have to review the secondary markets for your needs. You may need to plan on having a build-to-suit facility, which increases the relocation time line.
In all distribution center requirements exceeding 100,000 sq. ft., we highly recommend that you at least consider a build-to-suit. A build-to-suit can usually be delivered for the same cost as or less money than an existing building. It’s like buying a car — if you can buy a new one for the same price or less than a used one, why not buy a new one?
A build-to-suit means that you won’t be shoehorned into an existing building but rather will establish the sizing of the building for the correct internal components first and then “wrap” the building around a well-conceived material handling system and its components.
STEP 5 Conduct financial analysis
Once your team has located properties that meet your company’s needs, your real estate broker will solicit proposals from the properties’ owners. Be sure to have a highly skilled and experienced CPA/financial analyst complete a financial analysis of these offers.
The analysis must include a quantitative and qualitative matrix that allows you to compare all the buildings under consideration by using the handful of your most important parameters. By way of example, sometimes the location of the building and access to a stable labor pool may be more heavily weighted than the lowest rent that is offered in the market. Every company looks at the numbers differently, as they are all in different business sectors and may be public, private, or family owned.
Most important, consider all aspects of tax, accounting, incentives, and potential deal structures. If you are a publicly traded company, making decisions today is especially difficult. Not only do you have to consider the golden rule in real estate location, but you must also consider all the new reporting regulations. Therefore, proper financial analysis is critical.
STEP 6 Make the decision
Critical review of the financial analysis will guide you to the final decision. When making the final decision, ensure that the location and the building meet at least the most critical parameters established by the research your team has conducted.
Again, when looking to relocate, keep in mind the basics: Formulating the most competent team possible will make the process go smoother and faster. A strategic plan provides an “insurance policy” for maximizing success. Well-managed time lines increase the speed of the process without sacrificing quality. And when making the final decision, ensure that the location and building meet the parameters established by the research.
Jim McLaughlin and Valerie Hirtz are a tenant-representative broker team at Cushman & Wakefield in Irvine, CA.
The Ideal Strategic Plan
STAGE 1 Advisory
Input from the “dream team”
STAGE 2 Strategic planning
Determine facility parameters
Determine top three locations
STAGE 3 Project implementation
Locate facility options
Conduct financial analysis of options
Accomplish relocation with little or no down time
Note: Planning takes time. Take your operational “go live” goal date and work backward in the process to develop the appropriate time lines for each part of the process
POINTS TO BUILD IN YOUR PLAN
Adequate advance planning
Recognition of unique/specialized real estate requirements
Inclusion of real estate professionals up front
Realistic time horizons
Deadly Sins to Avoid
The relocation process can be complicated enough; you can make it worse if you fall victim to these five common mistakes:
- Lack of preparation
- Absence of research
- Mismanaged schedules
- Communication failures
- Hesitation in decision making