Optimize Your Commercial
Real Estate Investment

• Business Expansion
• Facilities Relocation
• Business Consolidation
• Labor Force Analysis
• Commute Shed Analyses
• Municipal Incentives Negotiation
• Supply Chain Analysis

A problem can exist when individuals in the company’s real estate department don’t usually understand such factors as labor and transportation, as well as access to infrastructure. The real estate department is more likely to respond to a sales pitch that a particular location is only “a few miles from a major highway,” without exploring whether that location has easy access to the highway interchange or if the local roads are extremely congested at peak hours.

Some senior executives ignore the expertise of their supply-chain departments and defer to outsiders who are motivated by subjective considerations. A company salesman may advise his chief executive, “We need to have direct air service to Chicago, so our plant must be very close to a major airport.” The problem is that these criteria are not based on an understanding of the supply-chain cost structure and may only apply to a few select customers that are not a large portion of the company’s volume.

The five-phase program is designed to maximize the benefits to the company, while minimizing the risks of making a mistake in this deceptively complex and critical site selection process.

Phase 1:  Gather the team (including the objective local real estate professional), work on getting the appropriate data, and set the goals for the decision-making process. It is only after this is complete that you can run the site location model to determine the mathematical low-cost location for the facility.

Phase 2:  Make an initial screening of locations that meet your requirements. Rate communities in a specific geographic area on each key requirement: labor attributes, cost structure, operating environment, etc. Use a scale of 1–10 for each element. List the top four or five candidates and analyze their benefits based on such variables as number of customers overall and average distances to customers and expected delivery time.  
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Phase 3:  Create a “qualitative-cost matrix” for each location on your list, showing the trade-offs.   You use this matrix to create a shorter list of locations.

Phase 4:  Conduct field visits to the remaining locations on your list. Assess them for potential site-building operations, incentive possibilities, the labor market, and supply-chain infrastructure and costs.  Distribute requests for proposals for construction or leasing and analyze the proposals you receive.  Present your analysis and recommendations to senior management.
 
Phase 5:  Prepare letters of intent to property owners.  This phase prioritizes and finalizes the negotiation process relative to the final two or three locations.  While the internal negotiations are being conducted, you are also negotiating with landlords for leases and/or purchase of a site through your letters of intent.   This ensures the preservation of viable alternatives to utilize during the negotiation process. There has to be some level of competition to ensure the maximum level of incentives for your project. There is a little “poker playing” here, i.e., you may know where the “best” site is already, but you never reveal this.  The location team then meets to make the final choice based on all the components — operational costs, supply-chain costs, qualitative elements, and economic incentives.

This five-phase process should take your company from defining for itself the key business success attributes, through translation to location attributes and the vetting of potential markets and locations against these, yielding an optimal place and site to do business. Attributes and their weightings vary across business types, but this replicable analytical process will provide a consistent roadmap and discipline to ensure a successful outcome.