WHERE SHOULD WE LOCATE? KEY CONSIDERATIONS FOR REAL ESTATE SITE SELECTION

WHERE SHOULD WE LOCATE? KEY CONSIDERATIONS FOR REAL ESTATE SITE SELECTION

By Denita Schreier, CCIFP, CMA
Executive Vice President

Whether planning your first-ever location or simply an additional location, knowing where to locate is a critical component of future success – not just for the construction project that results, but also for the long-term success of your operation. As the saying goes, when it comes to selecting the right property, the three most important considerations are location, location, and location!

Baseline Criteria for Real Estate Site Selection

To truly understand the ideal location, you first need to define the key parameters that are most desirable for your operation. Some examples include:

• Desired Acreage & Land Acquisition Costs
• Projected Utility Availability & Costs
• Site Logistical Requirements (like rail)
• Transportation Proximity (highways, airports)
• Projected Labor Availability & Costs

 

There’s a lot to unpack here, yet compiling this data is crucial to ensure that you are locating your facility at the best location. Depending upon the type of operation you’re planning, there might be additional parameters to consider.

For instance, if you are in manufacturing, what will be the costs of bringing in raw materials and sending out finished goods? Do you need to be located near a supplier or distributor? Furthermore, do the sites being evaluated have the wastewater capacity you need, or are there variables with zoning and pollution or energy usage? Does it make sense to locate near your largest client?

If you are locating a new building that is hospitality-related, what are the market conditions? Does the nearest highway generate enough capacity to drive hotel room-nights? Is there a robust business environment or sporting venues driving guests into hotel rooms? Or is the market already over-saturated? Is there an opportunity to bring a new brand into a marketplace?

Taxes & Incentives

Your pro-forma needs to consider the cost of doing business at each location being considered. Although the federal taxes may be pretty consistent from location-to-location, there could be great variances in the state and local/municipal taxes.

State and local incentives should also be considered. These may come in the form of outright financial incentives, incentives that reduce your tax burden like job-creation tax credits, or having the state or local government entity take on the cost of providing access roads, highway interchanges, rail siding extensions, etc.

Tax reductions and other incentives are critical to your capital stack to make the project a reality.

Additional Considerations

Beyond the baseline considerations as well as the taxes and other financial incentives, there are many other considerations that may be critical to making your location a success. Some of these include:

• Construction subcontractor base in the area – are there multiple subs per trade in the general locality to secure competitive scope coverage? Will talent need to be imported from outside of the area?
• Ease of permitting within each municipality – will it be expedited or perhaps have a negative impact on the project schedule?
• Soil conditions – has the soil been tested at each site and is there a report available to help determine potential issues with environmental conditions, weight-bearing issues, water drainage, or other potential issues? Soil remediation can be very expensive, and may even outweigh favorable financial incentives.
• If utilities aren’t available for a site being considered, what is the financial and schedule impact to the project to bring in the utilities? Or is there an opportunity for a third-party to extend utilities to the site, like a local development authority?
• Does the zoning for the site being considered allow for the type of operation? If not, is there an opportunity to easily gain a variance, or will it be a long, expensive process with no guarantee of success?
• Is the neighborhood conducive to accommodate the business? Are there in-place street cuts and signal lights? If the project moves forward at a given site, what will the potential impacts on traffic look like? Again, the type of operation will drive this consideration as tractor-trailers bring a very different impact than car traffic.
• What does your long-term business model look like? Do you envision future expansion opportunities or changes in how product may be delivered? If so, will the site accommodate these potential future changes, or will you be land-locked and forced to relocate?
• Beyond the labor availability baseline, what does the labor force truly look like? There may seem to be a lot of potential labor, but what does the unemployment rate look like? Is the area more service-oriented or manufacturing-oriented? What are the projected costs for each of the labor classifications you’re looking to fill? You may find a site that meets the physical requirements perfectly, but the lack of labor or cost of labor may make the location very unattractive.
• Are there any additional regulatory considerations that could positively or negatively impact the site being considered?

 

Construction and Material Costs

Next, it is important to consider the cost to acquire and renovate an existing building or construct a new one. Depending upon geographic location, availability and workload of subcontractors, and access to construction materials, costs can vary considerably, so it is critical that any analysis consider this.

Collecting the Data Is Just the Beginning

There are a lot of considerations when it comes to site selection, but as the data is collected it still needs to be interpreted and compared.

What are the individual impacts of each specific item? How do they compare against one-another in terms of upfront costs as well as ongoing operational costs (like cost of labor or utilities)? Which sites offer the most attractive incentives?

Once this data is compared an analyzed, it becomes easier to understand the true return on investment at each site under consideration.

Looking for a development partner to guide you through this challenging process? JCW Development has the in-house expertise and depth of experience to help you better understand not only the implications of each site under consideration, but also to bring ideal sites to you to locate your next project. Reach out to me at dschreier@jcwdev.net to discuss how JCW Development can make your next project a reality.