Tracey Hyatt Bosman, CEcD, and Michael P. McDermott, Strategic Consulting Practice, Grubb & Ellis (Nov 09)
For most executives, picking a location for a business is a task that appears only a few times over a career. The job of choosing the right community for an important operation is exciting, but also daunting. This checklist focuses on keeping the process as efficient as possible while keeping focused on a successful location.
Laying the Groundwork
Before you search actual markets and locations, look inward to understand your goals, geography, and project requirements. Invest the time to build consensus, assemble the right team, and gather pertinent data and projections.
Build the selection team. Be sure to include a cross-section of expertise, including financial, human resources, operations, and real estate.
• Designate one person as project lead with time to devote to that role. This person should be adept at managing large amounts of data. This needn't be the most senior person on the team, but the project will need senior-level attention.
• Decide on and engage outside professional assistance as required. Depending on the complexity of the business location decision and the availability of internal expertise, hiring outside assistance may ultimately result in a quicker, more effective, and less expensive process.
• Business location/site selection consultant
• Real estate broker
• Construction manager
Talk to peers from other companies who have recently chosen new locations.
Establish a timeframe for the process. Make sure it builds toward the desired "doors open" date.
Identify success drivers for the proposed location. Is labor availability the critical factor? Electric rates? (See Example 1 for more information.)
Define your project. You'll need this information as you move forward.
• Real estate options - lease, build, retrofit, purchase, co-locate, etc. Consider how coming Financial Accounting Standards Board (FASB) changes relative to operating leases might affect your selection.
• Job creation - How many jobs will your project create and/or retain? What does your ramp-up schedule look like?
• Investment - What do you plan to invest in real and personal property? What does your ramp-up schedule look like?
• Wages - What will you pay for key positions, and what do you estimate as your average wage?
• Externalities - Pollutants, environmental assessments
• Utilities - Water and electric usage, and telecommunications requirements
Determine the geographic scope of your search. Defining factors include:
• Supplier and customer locations
• Transportation requirements for people and/or cargo
• Time zones
• Weather patterns and risk of natural disaster
• Proximity to other internal functions
• International trade agreements
• Population/demographic constraints
• Language skills
Get ready to pitch your project - Build a compelling story. You want your ultimate host community to feel good about your project. Identify the positives you bring, be they good-paying jobs, cutting-edge technology, increased tax base, etc. Be honest about the negatives involved such as traffic congestion and environmental impact, and be willing to look for creative solutions to offset them.
Doing Your Homework
The goal of this first phase - location assessment - is a list of communities that fit the project. The ideal starting point for assembling the list of location-specific factors is the information gathered in the groundwork phase. Next, look at a broad list of possible communities and apply these criteria. The search could be as broad as an entire country, or it could be a comparison of 10 nearby markets.
Assemble information about each location that measures your ability to succeed there.
• Demographics - How does your industry fit into current demographic trends? Will the age of the population affect your business? Is the area growing or declining? Is the population base large enough to sustain your operation?
• Wages for your key positions
• Risk of natural disaster
• Existing industry base - Are there potential synergies with existing companies? Does the industry base create competition for a specific labor pool?
• Transportation infrastructure - Does the community have ample highway infrastructure for people and cargo movement? Is there access to alternate forms of transportation such as rail? What is the airport's domestic and international reach?
• Utility rate and availability
• Tax rates (income, property, sales, etc.)
• Government transparency (most applicable for multinational searches)
• Payroll costs (workers' comp, unemployment insurance)
•Occupation and skills assessment - Balance an ample labor force with necessary skills while controlling for cost.
• Language skills
• Client-specific needs - Keep perspective on how these factors weigh on the business location decision. Too much emphasis can eliminate stronger overall locations.
Analyze the data
• Compare location ranking for multiple weighting scenarios
• Test for sensitivity - When data changes, how much does it matter? For example, our call center clients ask that we analyze what happens to labor availability if a competing call center moves into the same market.
Once you've gathered data, weigh the importance of each attribute. The weighting should incorporate the thinking of the entire company, based on interviews with every affected department. In some cases, multiple versions of the weighting exercise are needed to address suitability for all parts of a company. Weightings that emphasize specific factors - such as utility cost or labor pool depth - allow for more objective decision-making. This method can uncover communities that rank high regardless of weighting and also identify locations that can best meet the needs of a specific situation.
Off-the shelf community rankings and canned analyses don't reflect the specifics of your company - so your analysis should be customized. Yet for each type of business, key variables appear, e.g., labor cost and accessibility for a manufacturing operation. The accompanying matrix (Exhibit 1) assesses six common project types against frequently used decision-making variables.
Performing the Site Work
Once you have a short list of target communities, it's time to start looking for available real estate.
search channels in your targeted communities (real estate brokers,
economic developers, etc.) of your requirements. Be clear and direct
with the information you request and the format in which you request
it. This will make life easier going forward. Be sure to ask about:
• Utility availability, redundancy, and cost
• Access to site/building
• Environmental issues and restrictions
• Zoning and neighboring land uses
• Site/building history
• Technology amenities such as fiber or uninterrupted power supply
• Whether the site/building is in an incentive zone
• Flood zones
earlier analysis. For example, earlier in the process you considered
the demographics of whole communities. Now you can refine those
statistics to consider the demographics surrounding a specific site.
Select two to three sites/buildings in each community.
short-listed sites/buildings. A picture may be worth a thousand words,
but you'll need a lot more than that to make an informed decision.
financial pro formas on at least your top three sites/buildings. Be
sure to include sites/buildings in at least two different communities.
Even if there is a clear leader at this point, it's advisable to have a
Plan B. By now you should be able to include some estimates of
potential economic development incentives in your pro formas.
that some projects are constrained by the availability of specialized
facilities. Plug-and-play call centers, data centers, and mega sites
are examples. For these projects, it may be necessary to reverse the
sequence, starting with site identification rather than market
evaluation, or melding the two.
Run It Like Clockwork
this point, you're ready to enter serious negotiations. One could write
pages of checklists for this part of the selection process, both for
the real estate negotiations and the incentives negotiations. Instead,
here are a couple of key concepts to keep in mind:
coordinate all activities. Timing is everything at this stage. Real
estate negotiations must be coordinated with economic development
incentives negotiations. Incentives frequently have a "but for" clause
attached to them, e.g., you have to attest that "but for" the
incentives, you would not put your investment in a given location. If
you have already locked down the real estate, it will be very difficult
to make the "but for" case.
Conduct your own market research.
Have a good knowledge of average real estate prices in the area. Seek
out "comps," i.e., details on recent, similar property transactions.
Knowledge is power - and leverage. Likewise, learn what you can about
economic development incentive packages awarded in the past to projects
similar to yours.
Preparing for Challenges
invariably emerge. Whether they derail or delay a project is a matter
of planning. Being alert to potential challenges may help you avoid or
minimize their impact. Considering the following points before
encountering an obstacle can help keep a project on track:
consensus on the management team. Despite your best laid plans,
internal team conflicts may occur due to personal biases or the sense
that the process has begun to favor one group's needs over another's.
This is when you can point to the careful work done in the planning
stage and remind everyone of the overall goals of the project and the
objectivity of the analysis process.
Stay focused over time.
During most projects, there comes a time when management is distracted
with other issues and not able to move forward as quickly as planned.
Be realistic when forecasting the amount of time your internal team can
devote to the project, and expect the unexpected.
confidentiality. Rumors move fast and can distract your work force, tip
your hand to competitors, and damage relations with your host
community. Use a project code name instead of the company name, and
remain anonymous for as long as possible. Using an outside consultant
enables you to stretch this period of anonymity, but at some point you
will need to reveal your identity to move the project forward. Stay in
touch with your legal counsel throughout the process and be ready to
put an NDA (non-disclosure agreement) in place when you need to share
Things will change - Adjust course as
needed. Favored locations outside the project scope, changes in the
competitive landscape, and financial changes are common examples.
Consider each of these challenges separately, and determine whether
altering the scope adds value or is merely a distraction.
location is perfect. Top ranked cities may be geographically remote,
lack the lowest electricity rate, or possess other undesirable
attributes. The key to success is being able to quantify the trade-offs
and understand their impact on your operation.