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New Day for Old Industrials

Facility reuse saves dollars and makes sense to both the seller and tenant, as well as to the economic developer.

David Marks, Senior Vice President, Tower Investments, LLC  (Feb/Mar 08)
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An Example
Let me offer an example: A small Southeastern town took what might have been a killing blow a few years back when the major employer pulled up stakes and moved manufacturing operations to China. Hundreds lost jobs, the local economy withered, and the general outlook for the area was bleak at best.

Still, the town had a lot going for it. The area had a proven work force, access to a major interstate, and an active and engaged economic development office - the essential trinity of attracting industry. Fast forward several years, and a new manufacturer moves to town. The company is wrapping up construction on a state-of-the-art manufacturing facility, hiring has commenced, and the final piece of the puzzle is yet to be solved: affordable distribution space to make the decision to keep operations in the United States worthwhile.

Ideally, the new manufacturer would have preferred to build a warehouse and distribution facility on the same site as its production operations. Being able to manufacturer goods, send them to the warehouse on a belt, and house everything under one roof was the logistical best-case-scenario. However, this would have been a costly move. New construction and land costs forced the company to consider smart alternatives.

That takes us back to the major employer who moved to China. When the company moved, it took jobs and revenue away - but it left behind a massive building. The aging reminder of better days was about to become the silver lining for the new manufacturer in town. The new manufacturer's site selection teams had been in touch with a developer who specializes in adaptive reuse to help find a feasible solution. The developer invested in the property, converted it from manufacturing to distribution/warehouse space, and solved the new employer's problem. While it wasn't on the same site, the new property was only a few miles away - still close to interstates and a radically more cost-effective solution than new construction.

The Key Components
This story had a happy ending, but that is not always the case for those investing in buildings with the intention of converting them. The risks can be high, and successful conversion is not a quick venture by anyone's clock. Still, there are key components to look for when considering a purchase for reuse:

• Location - The higher the demand for space, the closer the proximity to major transportation routes - interstate, rail, and air - and the more industry located in the area, the better.
• Local Resources - A friendly economic development office is essential for successful adaptive reuse. Red tape, politics, and public interest are major considerations in converting a property, and it is important to have people on the ground, in the area, who are pro-industry.
• Demand - A smart developer will have a responsive long-view approach to development, not an "if we build it, they will come" attitude. This means staying plugged in on the needs of site selectors, understanding industry trends, and keeping an ear to the ground about trends to come. By no means am I implying that there is no room for creative ideas and new solutions, but the goal of adaptive reuse is to meet existing needs, not to reinvent the wheel.
• Versatility - The more potential uses for a property, the better. Existing features such as working dock doors, solid infrastructure, good cubic footage, well-maintained inroads, and numerous entrances/exits are essential.

Clearly, for the simplicity of the concept, adaptive reuse is not a straightforward business move. There are many variables to consider, and flexibility is critical. That said, in the age of tearing down and rebuilding, it could be both profitable and satisfying to breathe new life into a property either on the verge of decline or on the brink of a fresh start.


David Marks is a senior vice president of Tower Investments, LLC, a national real estate and development company with more than 100 properties in 17 states and an industrial portfolio of 10 million square feet. Tower specializes in finding solutions to meet clients' unique requirements. To learn more, please visit www.towerinv.com.
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