Choosing a site for a corporate relocation or expansion is like recruiting a new employee. You consider dozens of candidates, narrow your list down to three or four, then compare the finalists and, finally, choose one.
But whereas in employees you're looking for qualities like intelligence, creativity and motivation, in sites, you're more interested in good land prices, a qualified labor force and a good transportation infrastructure.
As a site-selection specialist, I've developed a system for streamlining the site-selection process and -- usually -- finding the ideal site to fit each project.
|
As a site-selection specialist, I've developed a system for streamlining the site-selection process and -- usually -- finding the ideal site to fit each project. |
When I approach a site search, I begin by creating an availability matrix, complete with a map showing each site under consideration. The matrix provides an easy comparison of each site based on the factors that follow.
Using the availability matrix, the division head with whom I'm working short-lists the choices.
The next step involves the "end-user," the representative of the people who will occupy the site in question. The end-user, the division head and I tour each site, then discuss each one's pros and cons and choose three finalists. The negotiation process that follows leads us to our final choice.
The availability matrix reflects every component of a site-selection process. Here I have categorized them into 10 subjects.
1. Land
When choosing an appropriate site, you need to consider the size of the land, its zoning and existing uses.
The size must accommodate not only the facilities, but also parking, visibility and accessibility.
Zoning is a key component of site selection and can easily become a deciding factor. Recently, Fox was considering a site in Denver's Platte River bottoms for a new television station. The land was zoned industrial/commercial, which was acceptable. But a Planned Unit Development (PUD) was required before construction could begin, and that was totally unacceptable.
ThePUD process can take anywhere from six months to a year and we didn'thave thatmuch time to spend, so we chose an alternative site.
2. Demographics
I can't possibly overstate the importance of demographics to the site selection process.
When I speak of demographics, I'm referring to an area's labor supply, work force composition (percentage of workers in different industries), major employers, average wage rates and average management wage rates.
The work force composition can tell you if the type of people you want to hire live in the area. Particularly if you're interested in attracting people with high-tech skills, you'll want to know if they're in very great supply.
Of course, if you're looking for special skills, you may also be interested in determining the scope and availability of local customized training programs.
There may not be a lot of people with the skills you're looking for in a particular area, but a good community college system can solve that problem. All you'll need then is a motivated, dependable work force and a state training program that is affordable for you, and accessible to your new hires and current employees.
3. Economic development advantages
No site selection analysis is complete without a look at an area's property, sales and income taxes, economic development incentives, enterprise zones, and unemployment and workers' compensation rates.
It's also important to know if the state in question is a right-to-work state (if all workers have the right to work in the state, regardless of their affiliation with any labor organization) and if it has a business-friendly reputation.
A critical component of the availability matrix is the cost analysis. The price of land could be lower for Site A than Site B, but a careful analysis may show that when you factor in such things as taxes, economic development incentives, utilities and enterprise zone benefits, Site B wins out in the price war.
4. Buildings
When considering the lease, sublease or purchase of an existing building, there are a host of factors to keep in mind.
What are the operating expenses, including taxes, utilities, insurance and maintenance costs? How many people will work in the building and will it accommodate all of them?
Are the parking accommodations adequate? What are the allowances, such as for improvements and moving costs? Are there expansion possibilities? What is the average drive time to the site from surrounding residential areas?
What is the extent of the transportation infrastructure? Is the site in proximity to an airport, rail service or water transportation? Is the site easy to access by road?
5. Terms of contract
The most important aspect of a lease is, of course, the contract.
What are the terms of the contract? What is the monthly, annual, and square-footage asking rate? Has there been a history of rate increases? What are the options of the contract, such as termination, expansion, renewal and purchase?
What is the effective rate, meaning the total monthly or annual cost, including rent, operating expenses and any rate concessions? What is the security deposit?
What is the rentable size versus the usable size?
The term "usable size" refers to the space the building's occupants will use for their own businesses. It doesn't include such public areas as hallways, rest rooms, closets and lobbies.
"Rentable size" refers to the "usable" space, plus all other space in the building, except vertical penetrations, such as elevator shafts and stairwells.
The difference in price between these two figures can be significant. Not all landlords specify which figure they're quoting you, so you must always ask. You also must research the building's operating history to determine your chances of facing a significant increase in operating expenses, due in some cases to changes in the proportion of rentable to usable space.
| Don't forget that when it comes to utilities, you can
always try to negotiate a better rate. The utility company serving a site you're considering may offer any number of economic development rates. |
Say Fox is renting 10 percent of a 500,000 square foot building. Its pro-rata share of the total space would then be 50,000 square feet and the rate should be based on that. If the building's total operating expenses are $1 million a year, Fox would be expected to pay $100,000 a year on top of its monthly rent.
However, let's say one single tenant who takes up an entire floor of the building decides to leave and the landlord replaces that tenant with multiple tenants.
The landlord would then have to add additional hallways and rest rooms, increasing the building's overall rentable space, along with each tenant's annual fee.
We never want to be caught by surprise with one of these price increases, so we have to estimate what rents are going to be in the future. It's a guess based on the building's operating history. The closer we come to a finite number, the better off we are.
6. Transportation
This can be a deciding factor, and has been in our company's own history.
A few years ago, Fox Animation Studios acquired a Dublin, Ireland, animation company in an effort to compete with Disney.
Fox decided to move the Dublin firm to the United States but was faced with one problem: What city in the U.S. would provide the desired quality of life for more than 100 Irish animators and their families, while at the same time making it possible for Fox to attract new animators?
We looked at housing costs, residential rental rates, right-to-work status, state and property income taxes, climate, location and local amenities.
We eventually narrowed our search to sites in Spokane, Wash., California, Nevada, Arizona, New Mexico, Texas and Colorado.
At one point, Spokane was our top choice, largely because its climate was similar to Dublin's, but in the final analysis, the deciding factor ended up being transportation.
We needed a site that was within a two-hour flight of Los Angeles and relatively easy to access. Phoenix was our choice.
Air transportation is, of course, only one part of this issue.
Land transportation surrounding a site is important, as are proximity to rail service and the availability of water transportation.
Location is another aspect of the transportation issue that's important to consider. A regional distribution center will naturally want a location that's central to its market area, for example.
7. Utilities
Utility costs became the deciding factor in a site selection process we conducted in Toronto.
We had short-listed our choices down to two existing buildings. While the rental rate on Building A was higher then Building B's, the hydro (electricity) costs for Building A were low enough that the building's total costs (rental rate plus operating expenses) were lower than Building B's. We, of course, went with Building A.
Don't forget that when it comes to utilities, you can always try to negotiate a better rate. The utility company serving a site you're considering may offer any number of economic development rates. Particularly now, as deregulation is spreading across the nation's electric industry, companies are more than willing to do what it takes to get and keep your business.
As a matter of fact, many utility companies offer site-selection services. Ask what the scope of the services are and be sure to ascertain that the services will be conducted on a confidential basis.
8. Alternative sites
It's wise to never narrow your prospects down to just one.
You must have a backup and I like to have two backups. I never stop looking.
When we have narrowed our search to three sites, I draft a letter proposal to each site's representatives, outlining the business points and what we think the property is worth to us.
Each proposal contains the key phrase: "Concurrently, I am forwarding this document to senior executives and therefore must reserve their right to comment."
This guarantees that the proposal will not be construed as a letter of intent and allows me to modify the proposal letter.
Each letter proposal also asks the site representatives to draft a formal agreement if they agree with our terms and conditions. I prefer to have the seller draft the formal agreement because it's easier to edit a pre-written document than create one from
scratch.
By retaining three possible sites until the end of the negotiation process, we are able to compare the nuts and bolts of each final agreement and make an informed decision. Once we've made our final choice, we send our acceptance letter and complete the formal paperwork.
9. Quality of life
Every person who's going to work in a facility you help locate is going to have to live in that general area, so you've got to determine if it's a nice place to live.
How are the housing costs and rental rates? What's the climate like? Are there local sporting events, cultural offerings and recreational activities?
Quality of life is not typically the deciding factor in a site selection process, largely because it's subjective, but it's an important component.
Had quality of life been the sole factor when we relocated the Dublin animators, we would have chosen Spokane. The rain keeps everything green and the town seemed to be the closest thing to Dublin of all our choices.
But when it came right down to it, it would have been inconvenient to travel between Los Angeles and Spokane and we just couldn't sacrifice that convenience.
But the quality of life issue is becoming increasingly important to a lot of people, so it is something to consider if you want to attract the best employees to a new site.
10. Multiple agents
I never go with an exclusive broker.
If you've got three or four people out there looking for you, you're covering the market faster and more efficiently. I typically go into a market and hire several local brokers, but occasionally I'll also bring in a national expert.
The ideal broker to me is the one who knows what I refer to as the three L's of real estate (no, not location, location, location). It's Listen, listen, listen.
I want to work with a broker who will listen to what I'm looking for and approach me only with sites that fit my exact parameters. This saves us both a tremendous amount of time and frustration.
John F. Anderson is Vice President of Real Estate, News America, Incorporated, a regional subsidiary of The News Corporation and the parent company of Fox Filmed Entertainment Group, Fox Television Group., and their related entities.
| Cost Control: Learning From the Experts
When it comes to real estate, cost control is a critical, if not complex, factor.
Expansion Management Magazine contacted experts in the real estate field to determine how executives can keep their projects in the black.
John F. Anderson, vice president of real estate for News America Inc., Los Angeles, an entertainment company which owns the Fox Group (television and film), and Ronald Bowman, senior vice president of CB Richard Ellis, New York, the world's largest real estate firm, each offered these 10 pointers.
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Create an accurate budget and estimate for the project.
According to Anderson, this is the most important step.
-
Create a comprehensive and competent project team.
You should have designated representatives covering all aspects of the site selection and development process, from engineering to moving.
-
Create a schedule you can live with.
"The shorter the schedule, the higher your costs will
generally be," cautions Anderson.
Conversely, the longer the schedule, the lower your costs should be.
-
Conduct your transactions on an undisclosed basis as
much and as often as possible to avoid market cost
manipulation.
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Learn what you can expect from brokers.
"Today, brokers are required to be a lot smarter and do a lot more, because buyers are smarter and require more," Bowman says.
-
When considering net present value and future value, pay close attention to non-traditional cost factors.
"You have to consider a lot more than just getting the cheapest purchase price and the best interest rate for construction," notes Bowman. "For this reason, you need to find a broker who can help you with one-time costs and future costs."
-
Weigh the present and future values of project management (what you want to build) and facilities management (how you are going to "live there").
For example, you may need to arrange for an upgrade of power (as might be the case if you move from an urban area to a rural area).
"If you can show the utility company that you will be a large user, and if they want the future value of your usage, they may be willing to pay for the cost of the upgrade," Bowman said.
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At the outset of the project, negotiate with a broker on a reduced commission.
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Take advantage of opportunities to combine costs.
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Consider all of the available financial tools.
-- William Atkinson
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