When Select Brands decided to establish a facility in the Southeast to manufacture shelf-stable flexible retort pouches and trays, it chose a vacant food packaging and distribution facility in Greenville, S.C. The Springfield, Mo.,-based company is a packager of precooked rice products, pasta and meat dishes, macaroni and cheese, stews, and soups.
Was available real estate the main reason the company chose Greenville? Of course not.
Like the vast majority of site location decisions, the quality and availability of the local work force, as well as a strong distribution network, were the primary factors behind the decision to locate in the Greenville-Spartanburg region. However, finding the right facility — immediately available and at the right price — probably made the decision a lot easier.
“This new plant will enable us to increase support for our existing business, while giving us a substantial capacity increase that will enable us to enhance our efforts to enter new markets,” said Brant Hoover, chief financial officer for Select Brands. “As we considered our options, we came to the conclusion that this is an excellent place to do business. The Greenville Area Development Corp. and the South Carolina Department of Commerce were very helpful throughout the site location process.”
Clearly, real estate decisions are made after a company — for strategic reasons — decides upon a particular region or area of the country. However, once a company narrows its focus to a particular region or metro, factors such as real estate availability and cost enter the picture, often in a decisive way.
If you are a real estate investor or broker, this article is not for you. In fact, it’s probably going to make you mad. On the other hand, if your company is looking for a place to expand or relocate its operations, and an existing building at reasonable price is near the top of your “want” list, you will definitely want to read on.
This article is about real estate opportunity — not for investment, but rather for use. Over the years, our readers consistently have told us that when they are in a hurry to have a facility up and running as quickly as possible (which is almost always the case), there is no substitute for an adequate stock of available buildings. In fact, depending upon the urgency, not having a decent stock of existing facilities will cause them to simply bypass a particular city.
Clearly, this is important to our readers so, for the sixth year in a row, Expansion Management is presenting its list of the best real estate markets in the United States — from the perspective of the buyer, not the seller.
Looking Behind the Numbers
As in years past, the primary sources of data for the Top 40 Real Estate Markets ranking are The National Real Estate Index (NREI), which is produced by Global Real Analytics (www.nrei.info); Grubb & Ellis’ Office Market Trends and Industrial Market Trends (www.grubb-ellis.com); and RSMeans’ Construction Cost Index (CCI), a product line of Reed Construction Data (www.rsmeans.com).
These rankings are created from the perspective of the business executive looking for maximum choice at the lowest price. Therefore, high vacancy rates and low lease, purchase and build rates are considered good, while the opposite (low vacancy rates and high costs) is considered bad.
Why do we look at real estate from this perspective?
First of all, existing real estate is important because most companies, once they have made the strategic decision to expand or relocate, want to do so as quickly as possible. Existing buildings are the best solution to this need. To us, high vacancy rates translate directly into a wider range of buildings from which to choose.
Lower costs — whether you decide to lease, by outright or build it yourself — are a major consideration in any business transaction (and any personal transaction, too, for that matter). Everything has its price, but the lower the better.
And if your company either can’t find the right building or simply chooses to build your own facility, we have also factored in new construction costs for each of these metros.
We have also broken down each metro’s real estate “market” into three distinct segments: the downtown central business district (CBD), the suburban office market and the industrial/warehouse market. Obviously, depending upon your company’s facility needs, you would want to look at that particular market segment.
Finally, these rankings were created based upon data received from the above-mentioned sources (NREI, Grubb & Ellis and RSMeans). For the most up-to-date and detailed information on a specific metro area, you should consult those companies.
Use as a transition facility
If your company needs to be up and running almost immediately but cannot find a suitable building that will meet its long-term needs, a compromise solution might be to find a place that will allow you to begin operations now while you build a new facility.
That’s exactly what Dell Computer did. When it announced its selection in July of Oklahoma City for a new customer contact center for customers based in the United States, it chose a temporary facility in the city’s Hertz Financial Center. The company plans to build a permanent facility next year in the 10-county Oklahoma City metro.
Dell, which is headquartered in Round Rock, Texas, has offices and manufacturing facilities in 41 countries. In the United States, Dell has manufacturing facilities in Central Texas and Middle Tennessee, as well as sales and support offices in Round Rock and Waco, Texas; Nashville, Tenn.; Roseburg, Ore.; and Twin Falls, Idaho.
Initially, Dell expects to hire about 250 sales agents and managers and will work with the Oklahoma Employment Security Commission to recruit local people for the jobs. Dell will look for individuals with sales experience and will provide, in partnership with the Oklahoma Department of Career & Technology Education, 120 hours of training to prepare them for their role as managers, and customer advisers and advocates.
“Oklahoma City has offered support for the project by partnering in the recruiting and training of our employees to expedite the opening of the facility,” said Ro Parra, senior vice president for Dell Americas.
Shell Buildings Sometimes Fill the Bill
Sometimes, a shell building will best meet your companies needs. These “buildings” are a bare bones version of what you’re looking for that sometimes consists of as little as a pad and utility hook-ups on a site that is already zoned for your particular commercial or industrial application.
The idea behind shell buildings is to save you the often considerable time involved in getting the permitting and basic utility infrastructure extended to a site, without tying your hands to a particular floor layout, door size or other particulars that might make an existing building otherwise unsuitable.
Network Appliance, a pioneer in the development of electronic data storage systems and technologies, announced in July its decision to expand its operations in the Research Triangle Park (RTP) of North Carolina. The company anticipates purchasing three shell buildings owned by Cisco Systems in the RTP and should initiate incremental hiring later this year.
The jobs will primarily focus on research and development but will also include sales and customer support positions.
The average salary for the positions is projected to be at least $115,000. The Sunnyvale, Calif.,-based company employs 2,800 employees worldwide and currently has offices in Durham, N.C.
Network Appliance is taking advantage of North Carolina’s Job Development Investment Grant initiative, which awards up to 25 grants annually to strategically important new and expanding businesses and industrial projects.
“We are delighted that the Economic Investment Committee of North Carolina has chosen us for the JDIG grant,” said Tom Mendoza, president of Network Appliance. “Our company has been in the RTP area since 1999 [and] this grant will enable us to undertake this project and continue to build and develop strong local ties with our business partners and customers and reap the benefits of a highly talented work force.”
For each year in which the company meets the required performance targets, the state will provide a grant equal to 65 percent of the state personal income withholding taxes derived from the creation of new jobs.
If the company creates the jobs called for under the agreement and sustains them for 10 years, the agreement could yield maximum benefits to the company of as much as $8.9 million over the life of the grant.
Sometimes You Want to Build From Scratch
Sometimes, it just makes sense to expand in your current location, especially if you have enough land adjacent to your existing facility.
That’s exactly what Saxon Capital Inc., a Richmond, Va.,-based mortgage lending and servicing company, decided to do last month. The company announced in September that it would build a 115,000 square foot building next to its existing facility in suburban Henrico County.
The $17 million investment will result in 234 new jobs over three years at the facility, which also serves as the Saxon’s headquarters.
Virginia successfully competed with California and Texas for the project.
“When it came time to expand, the deciding factors were Henrico County’s positive business environment and superb work force,” said Michael L. Sawyer, CEO of Saxon. “Virginia’s commitment to helping Saxon with incentives for recruiting and training new employees also makes Henrico County a smart choice.”
As an added benefit for Saxon, Richmond’s new construction costs are considerably below the national average.
Locating on a Former Military Installation
Another good place to look for existing facilities at a reasonable price would be the many former military installations closed down since the end of the Cold War. These old military bases offer a variety of industrial and office facilities and are almost always surrounded by a significant transportation infrastructure.
One such company that took advantage of this opportunity was Lenoco Technologies. The telecommunications systems integration provider announced in April that it would invest about $4.8 million, retain 16 current jobs and create more than 80 new positions during the next five years at its new corporate headquarters and telecommunications systems integration facility at Fort Benjamin Harrison, a former U.S. Army facility, in Lawrence, Ind.
State and local officials were instrumental in making the deal a reality.
“Lenoco Technologies greatly appreciates the commitment of the city of Lawrence, Marion County and the state of Indiana to support the continued growth of our company,” said Timothy O’Connell, president and CEO of the company.
For local officials, finding tenants for these former bases is a major goal.
“We are honored that Lenoco Technologies has chosen Lawrence and Fort Benjamin Harrison as the location for its new corporate headquarters and telecommunications systems integration facility,” said Deborah Cantwell, mayor of Lawrence. “Our goal is to continue to transform Lawrence as a community to provide the highest quality of life anywhere, allowing companies to attract talented professionals to live and work in the area. We look forward to attracting and retaining more professionals in the field of technology to Lawrence.”
The company will receive about $1 million in state and local support for the project.
So, what does all this really mean? Does it mean that real estate considerations trump all else? Of course not, no more so than incentives or quality of life or taxes or any other single category would.
What it does mean is that there is no reason for you to enter the real estate phase of your site location process blind. You should know which metros have much higher stocks of existing buildings. You should also know going in which metros have the highest lease and purchase costs. And, finally, you should know that new construction costs vary from city to city, as well as where you should look to find all of this information.
That has always been our goal when presenting you our annual listing of the Top 40 Real Estate Markets.
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