Commercial Real Estate
Industrial acquisitions
How to gain leverage in the industrial real estate market
By Chelan David
Smart Business St. Louis | October 2008
Ed Lampitt
Vice president, principal
Colliers Turley Martin Tucker
One of the biggest mistakes that companies make when searching for a
suitable industrial facility is waiting too long to start the process. The closer
you are to your lease expiration date or
purchase of a new facility, the less leverage you will have with your landlord.
Even if you wish to stay in your existing
location, considering all possible alternatives is a must. Properly evaluating alternatives requires a strategic plan with a
qualified adviser.
“I would suggest the process begin anywhere between nine and 18 months in
advance of the targeted occupancy date.
This timeline varies based on the complexity of the deal,” says Ed Lampitt, vice
president and principal for Colliers Turley
Martin Tucker.
Smart Business spoke with Lampitt
about industrial real estate, the importance of a supply chain analysis and how
to find a quality tenant representative.
What is the current environment for industrial real estate like in the St. Louis area?
2008 can be wrapped up in one word:
uncertainty. In short, everyone is uncertain about how the election and oil prices
will impact the economy. Corporate
America is struggling to forecast future
real estate requirements and real estate
investors are concerned about the
changes in the capital markets. All of the
uncertainty in the economy is slowing
things down. It is like trying to punch
someone under water. As hard as you try,
you can’t generate any momentum. All
that being said, St. Louis has performed
very well, with more than 1.7 million
square feet of positive absorption through
the first half of 2008.
What factors make capturing prime industrial space so difficult?
Construction pricing is a real problem.
The overall price of construction is
increasing at historical rates. Contractors
and their suppliers are having a hard time
holding numbers for more than 30 days.
This makes it very difficult to forecast
what deal you’re going to be able to make.
It is important to find a building as close to
what you need as possible so changes to
the space are minimized.
Another factor is fuel pricing. Companies
are continuously analyzing how transportation costs are affecting their supply
chains, how this will affect where their
facilities are located and, ultimately, how
they’re going to serve their customers.
Why is it important to develop a strategic
real estate plan when searching for a suitable location?
It starts long before you start searching
for an actual building. Corporations are
spending more time on the front end analyzing the entire supply chain, not just one
portion of it. You can not evaluate facilities in a vacuum. Manufacturing, transportation, inventory control and facilities
are part of one discussion. Large corporations have been doing this for a while. The
trend we are seeing now is advanced supply chain analysis with small and mid-sized companies. Everybody is trying to
better understand what is happening in
transportation in order to help determine
where they should locate their facilities.
Anymore, transportation is 50 to 60 percent of the decision-making process.
Once you get to the real estate portion,
timing is so important. For instance, if you
have your plan in place, you can look at a
build-to-suit rather than just taking speculative space. This will provide you with
more options, more flexibility and better
economic terms.
What is the biggest mistake companies make
as far as lease renewals go?
The biggest mistake is when a company
renews without scouring the market to
make sure it is getting a favorable market
deal. This holds true even if you are not
expanding, don’t feel a need to move, or
don’t want to spend extra money to set up
a new operation. It is important that the
market thinks you are willing to move to
drive the best economics.
Also, sometimes companies base their
decisions on what they are currently paying and that is often a mistake. Typically
the market has changed since their last
lease expiration. That is where market
information becomes so vital. It is strongly encouraged that companies engage a
brokerage company to help understand
how they compare to the market.
How should a company go about finding a
quality tenant rep?
Time and time again, I am amazed companies rarely go through the interview
process when selecting a broker. This is
one of the most important decisions a company can make and it should take the time
to evaluate who its adviser should be.
Interview a couple of referred companies
(or brokers) and let the best team win.
Lastly, instead of hiring just a broker,
companies are hiring firms that can provide additional services. Often, real savings
can be achieved in state economic incentives, construction management, supply
chain services, etc. Considerable time and
money can be saved in arenas outside the
actual real estate negotiation. Remember,
companies, at most, move every five to 10
years; tenant reps do it every day.
ED LAMPITT is a vice president and principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0383 or elampitt@ctmt.com.
