In the March 2005 issue, we discussed the importance
of establishing the optimal distribution center network. I am sure it was
one of your favorites. As a refresher, network analysis is an analytical
modeling process intended to quantify the number of facilities that a
company needs, and in which locations, to satisfy its customer service
requirements at the lowest logistics cost.
Because there are so many variables to consider during
the network modeling process, it is not feasible to evaluate locations down
to the site or building level. Network modeling typically compares general
locations, down to a 50- to 100-mile radius, based on transportation and
facility costs (fixed and variable). Once the quantity and general
locations of distribution center(s) have been defined, two paths can be
taken; a site selection project or a real estate search.
For large distribution centers requiring a significant
capital investment and a large number of employees, it makes sense to
undertake an in-depth site selection project. We will discuss this process
in our next article. For most, the capital investment and labor
requirements are not large enough to justify a site selection project.
Therefore, a real estate search is a logical next step in these instances.
Although I am not a real estate professional, my
career has afforded me the opportunity to work on a daily basis with some
of the most talented and committed industrial real estate brokers in the
industry. The reason I say this is to set the stage for this article ...
find a talented industrial real estate broker to assist you with your real
estate transaction. Although some companies will choose to “self
perform” the real estate process, most companies can benefit greatly
from a broker’s knowledge of market trends, industrial development
activities, construction and lease costs, labor costs and availability and
other operating factors which go into this decision-making process. The
local knowledge brought by a broker is critical.
Allow me to repeat something you just read: Find a
talented industrial real estate broker. How do you do this? One way is to
put together a Request for Information to well-known brokerage companies
and go through an intensive interview process. Another method is to ask
your network of contacts if anyone knows of a talented broker who can
assist you. Whatever method you choose, it is important that you create a
framework for evaluating your broker. Cushman & Wakefield, a leading
global real estate service provider, recently polled several of its top
clients in an effort to better understand what clients expect to see from
their real estate service providers in the coming years. Its 2004
Achievement Conference Voice of the Client Panel provided some of the
answers (see sidebar).
Once you have selected a broker who meets the
attributes listed above, you should look to your broker to provide tactical
implementation services for this stage of the project. With their market
knowledge, the broker should survey the market for potential occupancy
scenarios. This should include, but not be limited to, conducting
exhaustive market surveys, leveraging external resources and relationships,
analyzing forecasted opportunities, and presenting specific
The broker also will be instrumental in selecting and
inspecting the most qualified sites or existing facilities. Specifically,
the broker should review available location; inspect alternatives; and
examine zoning/permit factors, tax implications, environmental and utility
regulations. The broker should gather this information and participate in
the financial analysis, examine infrastructures/technical issues,
investigate ownership and recommend the most qualified sites or properties.
As the choice of sites or facilities narrows, the
broker is instrumental during negotiations. This process begins by
submitting request-for-proposal documents to candidate landlords. The
broker should take the lead in analyzing responses for operational and
financial considerations, narrowing the list of alternatives, tailoring
real estate negotiating strategies, selecting the final property, drawing
up final terms and conditions, and reviewing and negotiating the final
agreement with the landlord or land owner. The financial considerations can
be the most critical element in many organizations. The broker should
provide financial structuring options including lease, buy, sale/leaseback
and debt financing and their associated cost implications.
After the property is under contract, the services
from your broker should not cease. The broker should provide ongoing
service and maintenance. This service should come in the form of preparing
lease abstracts, monitoring lease provisions and requirements, reviewing
yearly escalation calculations and general conditions, and assessing and
refining methodologies for cost containment.
You can see that the right decision goes well beyond
“the deal.” The right broker should be a service provider and
trusted adviser. BI
Ned Bauhof’s “beverage team” has
executed more than 100 projects in 85 locations in 10 countries. Ned is a
principal with York, Pa.-based St. Onge Co., a material handling and
logistics consulting firm specializing in the planning, engineering and
implementation of advanced material handling, information and control
systems supporting logistics, manufacturing and distribution since 1983 (www.stonge.com). Ned can be reached at 717/840-8181 or by email at
Finding a qualified broker
According to Cushman & Wakefield, a leading global
real estate service provider, clients expect their real estate
professionals to have the following qualities:
The ability to integrate the broker into the
company’s platform and workflow.
A broker who will share best practices.
A broker who will learn about the company and
its business inside and out.
A broker who will sit side by side with the
company at the strategy table.
A broker who helps drive
A broker who works with the corporate real
estate department to get and maintain a seat at the table in order to
interface with the com- pany’s business and departmental leaders.
A broker who helps the corporate real estate
department to integrate more closely with the Mergers &
Acquisitions department (to get to the table
earlier in order to anticipate/guide the deals, when appropriate).
A broker with
demonstrable integrity and good values.
A broker who is flexible and agile, helping the
company to change and adjust as the industry and market demands.
A broker who is not entirely
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