Office and warehouse acquisition Featured

7:00pm EDT December 31, 2006

As the cost of getting your company up and running continues to rise, choosing the right location for your building is even more important today than in previous years. Whether you’re moving into an existing structure or having a new one built to suit, finding the right location before any type of construction begins is imperative.

“My team is focused on corporate real estate acquisitions for lease or own throughout the U.S.,” says John Porter, executive vice president at CB Richard Ellis in Atlanta. “Specifically, acquisition of warehouse/office locations for retailers, consumer products companies and big manufacturers.”

Smart Business talked to Porter about how a good professional search team can make all the difference in finding the right location.

How does the process of finding the right location begin?

Typically, a company will define its basic real estate need, including square footage and general location. For example, we recently represented a large retailer that had a West Coast real estate requirement. The client needed roughly 500,000 square feet in a certain area to serve their clients better. We helped the client identify its critical decision factors — called factors of influence — completed an in-depth real estate and labor analysis evaluating potential locations based on the factors of influence, and helped the company understand the best location for its distribution center. We then negotiated all of the business terms and agreements.

In a real estate market such as Los Angeles, 1.5 billion square feet of buildings exists. This translates into a large and complicated market with numerous influential factors such as labor, incentives and transportation. It also involves determining what the market will look like in five to 10 years.

What kind of economic impact do these distribution centers have on the companies?

One of the primary impacts is the pure cost of items such as mechanization, equipment or other items inside the building. Many times, a client will spend as much on the box as it does inside. A common occurrence is a $50 million box warehouse with another $50 million expenditure inside the building. A company’s new distribution center can quickly approach $80 million to $100 million by the time all is said and done.

Additionally, the client might have up to five distribution centers being built at the same time. As a result, the economic impact of a good move is almost incalculable. Our goal is to help them make well-educated and informed decisions, and as such, we’ve grown our area of expertise in identifying, measuring and analyzing factors of influence in the site selection process and then negotiating and acquiring the optimal distribution center. Our services have a strong value add because we leverage our knowledge to bring costs down and eliminate mistakes.

Is it better to take over an existing building or build your own?

It depends on the client. Our business is made up of about half existing buildings and half green fields. Often, clients will consider different cities than the one in which they are located, or their supply chain demands that they acquire a distribution center in another section of the country. One of the primary issues facing companies expanding their supply chains is finding land, which is becoming more and more difficult to have entitled and ready to go. Depending on the size of the requirement, building or leasing an existing building from a developer or owner is often a more viable option.

Determining whether to lease or purchase an existing building is a formula and an operational equation. Many years ago, a client would hire a local broker, someone engaged to find a building. Today, real estate brokers provide many more services above and beyond finding a building. They are advisers, strategists, negotiators and partners with their clients. They can see the trends that are happening in supply chain distribution and in real estate. They see what their competitors and clients are doing and advise them as to the potential effect those actions may have.

Do transportation concerns come into play?

As a matter of pure economics, the closer a company is to its customers, the lower the transportation costs. Being part of a global economy means that we don’t grow our own food or make our own clothes. The result: massive amounts of goods shipped from all over the world to our ports daily. If the supply chains are disrupted, even for a day or two, we will encounter huge problems.

Over the last few years, outsourcing to China and India has become common. Many people consider outsourcing a negative; however, outsourcing is a positive as our economy changes and grows with new opportunities for companies all over the world.

Finding the right location is critical. Sites aren’t as abundant as they used to be, and a greater stress exists today on our infrastructure. If a company builds a $100 million building in the wrong location, the building cannot be moved to a better location without serious financial implications. The deal is done and the company has to live with the decision.

JOHN PORTER is an executive vice president at CB Richard Ellis. Reach him at (404) 923-1410 or john.porter@cbre.com.