Overcoming Inertia in Industrial Real Estate Development
Finding an industrial real estate property for your business can be a daunting task, especially for smaller companies that have yet to experience the process of developing (or expanding) a site. The large scale of the facilities, variety of construction financing and land acquisition methods, complex risk mitigation & contract structures, and strict regulatory procedures can slow down decision-making. These complications can delay your project’s delivery, compounding the capacity and supply chain challenges that likely spurred you to pursue expansion in the first place.
These challenges create inertia that can keep a company from acting in its own best interests. For example, it is easier to resist change by continuing to work with the same outdated legacy processes, tools, and cost structures, but this ease quickly gives way to costly inefficiencies, inability to meet demand, and compromised quality, leading to missed opportunities and reduced revenues. The good news is that inertia can be overcome by partnering with an experienced industrial real estate developer.
A Unique Market
Industrial real estate developers build or repurpose buildings and land for industrial use, such as logistics/warehousing, manufacturing, and data storage. This market is unique due to the specialized features that its facilities and processes demand, such as reinforced floors, high ceilings, and advanced utility, storage, and technology systems, as well as their function within global supply chain and logistics systems.
“Beyond the complex process of industrial development, what is perhaps the most unique aspect of industrial real estate is simply the scale of the development when compared to asset classes such as residential or commercial construction,” says Curt Hargrove, President of Gray Development, an integrated real estate developer and design-builder. “For example, utility and infrastructure needs are greater, land size is significantly larger, and a robust employee base is needed to run a facility, which can be daunting for a new operation.
What Is Land Acquisition?
While scale may be the most apparent difference between residential and industrial market segments, it’s not the biggest challenge businesses face when looking to expand operations. Land acquisition, or the ways and means by which a developer identifies, assesses, and purchases or leases a parcel of land for development, is a complex process that requires expertise across a variety of disciplines.
Industrial site selection is increasingly affected by the growth of e-commerce, evolving infrastructure needs, and speed to market. Critical external factors include the availability of real estate, geographical proximity to consumer markets and trade/transportation hubs, distribution support, sufficient site utilities, and power grid capacity. Of course, the most important site-selection factor for most companies is the availability of skilled labor.
“If the labor market is sparse, companies must alternative find labor solutions,” says Hargrove. “Our knowledge of local, regional, and state incentives can be very powerful for driving a project forward. Incentives often transfer value onward to our customers as an “in-kind” gesture for the investment required for a company to relocate to a new community.”
Greenfield versus brownfield is another major decision. Should a company build a facility on an undeveloped greenfield site that is further away from utilities and town services, or should it prioritize proximity to infrastructure and community with a brownfield site that might have environmental remediation risks or permitting struggles?
Click here to learn more about the advantages and challenges of greenfield and brownfield sites.
Finding a partner with the capacity to navigate the challenges of land acquisition can prove invaluable for an industrial business looking to expand. A successful developer can assess site feasibility, negotiate with owners and local authorities, secure appropriate permits, and follow local, state, and federal regulations. More pointedly, a developer should identify the right site at the right time for the right business, leading to lower costs, faster completion, and a smoother project overall.
How Is Industrial Construction Financed?
Industrial businesses face multiple financial hurdles with a development project, including committing capital, negotiating contracts, managing debt and equity, risk management, and more.
An experienced developer can provide options beyond providing simple financing. Speculative builders deliver projects on much shorter timelines, fronting the initial costs of a build based on market conditions that indicate demand for a completed building shell that must then be upfitted for the customer. This allows for fast occupancy and a quicker start to operations. Alternatively, a build-to-suit approach involves greater collaboration between developers and the buyer. These projects typically have longer timelines than spec builds but deliver facilities that have been specifically fitted for the buyer’s operation.
Other contract structures are even more creative, such as a sale leaseback, in which the site owner sells an asset to the buyer, who then leases the asset back to the seller (usually for a longer term). This arrangement provides immediate liquid cash and continued use of the site for the seller and a revenue stream and equity-building opportunity for the buyer.
Industrial real estate developers also offer guidance and expertise with local regulations and Authority Having Jurisdiction (AHJs)—all of which can trigger inertia if the process becomes too complex. This is especially valuable where foreign direct investment is concerned and the buyer is unfamiliar with local requirements. “As an experienced real estate developer, Gray Development offers expert advice for these and other considerations, streamlining the entire process,” says Hargrove. “This includes creating a facility that is efficient in the short term but has the capacity for future growth, which is often critical for long-term success.”
Jump-Start with a Development Partner
An industrial real estate partner can counter inertia by providing solutions that neutralize project risk, add clarity to the construction process, and solve management worries. Depending on the project, it can take two to three years from the day a traditional industrial project is conceived to the day the customer moves in. “We can greatly accelerate the development timeline by helping the customer with zoning, entitlements, and ground and infrastructure preparation,” says Hargrove. “Under the guidance of an effective developer, a business can save considerable time and money and be producing revenue in as little as 9–12 months.”
Customers count on their industrial real estate development partners to streamline the entire site selection/construction process, including permitting and zoning regulations, environmental requirements, tax incentives, infrastructure and site preparation, and installing the latest technologies and communication systems. Other services that developers provide are high-precision, data-driven forecasting and budgeting, risk mitigation, and quality control.
Collaborate with Gray Development
A Gray Development-managed industrial real estate project hits all critical deadlines. Cross-disciplinary teams of architects and designers, engineers, construction managers, and tradespeople collaborate to design and build the project. Not only does Gray Development have all the necessary construction skills, but as an industrial real estate developer, it is also familiar with labor issues, taxes, utilities, and infrastructure costs.
“Bringing our high level of experience to a project is valuable,” says Hargrove. “Customers get the best value when we are involved early and can have influence on design and projects costs. As a smaller company, we are more agile and can react in real time, which speeds up decision making and shortens the timeline. We also provide creative financing when needed, such as build-to-suit lease structures, sale leasebacks, and extended payment options.”
Many of these services recently came to bear on an industrial project in Greenville, SC. Gray Development purchased 50 acres of land, completed zoning, performed site preparation per Department of Transportation requirements, and built a 400,000-square-foot speculation building. “Shortly afterward, Gray Development partnered with a new customer that wanted to locate in this area but had to move very quickly,” says Hargrove. “We had the customer moved in and operational in 90 days, instead of the typical two to three years it would have taken the customer to build from the ground up. The customer saved a significant amount of time and cost.”
Long-Term Partners
Industrial real estate property developers serve their customers long past their move-in celebrations or ribbon-cuttings. They provide their knowledge, expertise, and best practices to optimize and maintain these facilities—typically packaged as property management services—long into the future. Over the long term, they can monitor systems and address issues proactively, providing ongoing optimization and improvements.
In addition, hiring an experienced development partner to manage the project reduces stress on the customer, who can then focus fully on its core business operations, with minimal distraction and worry.
Partnering with an industrial real estate developer like Gray Development provides customers with a “one-stop shop” for total project delivery. “Our mission through Gray Development is always to decrease the total project costs, minimize our customers’ capital outlay, and provide fast occupancy of the quality facilities that we build,” says Hargrove.
