CRE Midwest

Site selection issues become key drivers

As business owners look for every competitive advantage, site selection has become a key driver for evaluating critical cost decisions. What’s changing in the site selection process today is the mindset about how to help clients make those important decisions.

By Michael McKiernan

Principal/Managing Director-Avison Young

As business owners look for every competitive advantage, site selection has become a key driver for evaluating critical cost decisions.

What’s changing in the site selection process today is the mindset about how to help clients make those important decisions.

The traditional brokerage process involves identifying sites suitable for a client’s business and evaluating the real estate fundamentals of multiple buildings or parcels of land. While that approach has merits, it can lead to decisions based solely on real estate costs related to specific sites. In some ways, this type of approach is akin to looking for the lowest bidder for a construction project—the low rent might win the deal, but is it the best deal for the client?

What’s missing from that type of approach is a multi-faceted look at the overall operational goals and challenges.  Does the company need to restructure debt or be near a more skilled labor force? How can improving efficiency help the CFO achieve a projected profit margin?

A more comprehensive approach involves examining the client’s operational needs first and looking for the real estate solution that fits the company. The process shifts from a narrow focus on real estate and rental rates to one that evaluates every aspect of the client’s operations , including key cost drivers such as labor, transportation, incentives and operational efficiencies.

This wider financial view allows business owners to make real estate decisions in the proper context of their greater overall good for the company.  The decision to build a new distribution facility or relocate to a different building, for example, is then made in context of a company’s operational goals for debt load, profits, losses, strategic asset allocation and other factors.

Going even a step further in analyzing sites—existing or other structures—may be the ultimate form of client representation.

Adding value for a private equity firm

This type of comprehensive, consultative approach recently culminated in the ground breaking for an 813,000-square-foot build-to-suit in Rantoul, Ill. Avison Young oversaw a year-long site selection and facility planning process to assist a leading private equity firm with its efforts to help a client consolidate three supply chains into one.

The distribution, assembly and shared services center is being completed as a long-term build-to-suit-for-lease.

The goal was to increase corporate enterprise value and profitability while determining the best plan for the company’s aging distribution facilities. Further, the client wanted to integrate advanced technology and design elements capable of producing shorter lead times for customer orders. Part of the site selection strategy involved performing architectural/engineering models to ensure the company’s specialized manufacturing processes would fit into the design of the building.

The three main benefits of this consultative type of site selection approach are improvements in efficiency; a shortened project execution timeline from evaluation to transaction completion; and a true alignment of a company’s financial, operational and real estate facility goals.

After all, it’s not just about the real estate. It’s about making the real estate fit with the company’s operational goals.

Michael McKiernan is a principal and the managing director of Avison Young, Canada’s largest independently owned commercial real estate services company. He is responsible for the overall operation and direction of the Chicago office, overseeing the efforts of office, industrial, retail and investment teams. Brendan Kelly, a principal with Avison Young, represented the private equity firm in the Rantoul transaction and contributed to this article.