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Due Diligence Concerns When Choosing Between an Existing Structure or Greenfield Construction

Acquiring an existing building shell to house manufacturing operations can seem like a real time- and money-saver to companies. But is it really?

Q4 2016
Abandoned structures and brownfield sites proliferate in cities across the nation. Sometimes these abandoned mills, factories, and speculative (spec) buildings have become such a burden to counties and economic development organizations that they are being given away for free — or at very low cost — to attract companies and jobs. Acquiring an existing building shell to house manufacturing operations can seem like a real time- and money-saver to companies. But is it really?

Existing buildings can provide companies with suitable solutions for their manufacturing operations. This approach can be faster and less expensive than building a new facility in many scenarios. However, many times, the cost of adapting existing features far outweighs the cost of investing in new construction on a greenfield site. Before committing to the purchase of an existing structure, owners should seek an independent consultant, in the form of an engineering/procurement/construction contractor (EPC) or architect, during the site assessment to conduct a thorough due diligence process and code analysis, as well as to address several aspects of the facility.

Assess the Building Structure
First, owners and their representatives should conduct a complete review of the physical structure, examining its configuration, capacities, structural integrity, utility systems, code compliance, environmental and site issues, etc. The goal is to thoroughly assess how the facility and property meet the company’s current and future process-specific operational requirements. For example, will manufacturing equipment fit inside the existing building envelope and around existing structural components? Often, an existing facility is only a fit if the original use or production capabilities of the building were similar to what is intended for them now. Many older structures are “lightweight” from a structural standpoint and have low floor and roof loads and ceiling heights that do not meet the requirements for today’s manufacturers. Existing structures will require compromises and, too often, these constraints may significantly outweigh the initial investment in a greenfield facility. Third-party firms that offer expertise in the project-planning phase can provide site and project assessment that draws upon databases of historical project information.

Some existing features, such as column size and location, will be obvious with a visual inspection. But equally important are physical components that are not as easily seen. A useful tool for documenting existing conditions is 3-D laser scanning. Field measurements performed with laser scanners capture very detailed geometric information in the form of “point cloud” data — that is, a large set of points on a coordinate system. That data can be quickly and accurately fed into a digital building information model (BIM) or other CAD platform. Once this point cloud depiction of as-built conditions is incorporated into the BIM model, it can be used to identify potential clashes with newly designed elements — or identify if the site is unviable from a cost or time point of view.

Make a Detailed Analysis
As-built drawings and sketches can’t capture the impact new manufacturing equipment will have on a facility. If detailed analyses aren’t performed early in the site assessment and feasibility study, clashes and conflicts are almost certain to appear later in the construction process, hampering progress and potentially causing great expense and delays in production. Raw data should be used to develop specific operational, process, and facility requirements.

The key to performing this level of detailed analysis is involving all of the stakeholders early on. For example:
  • Involve the team that will eventually own, run, and maintain the system in the planning, design, and implementation processes.
  • Develop an initial plant layout and general arrangement of equipment.
  • Address facility items, such as utility, electrical, sprinkler, and mechanical systems; floor and roof loads; ceiling heights; column spacing; inbound and outbound loading docks; storage and warehousing needs; and office needs.
  • Engage equipment providers or systems integrators early to consider how to position or arrange the equipment in the building. The equipment provider should work with owners and the EPC firm early in the planning process.
  • Address and coordinate the interfaces between the production equipment, material handling, utility systems, and the facility up front.
  • Consider production and traffic-flow congestion; it can limit the throughput of production equipment. Address access to the facility for workers, suppliers, and distributors.
  • Assess site and environmental conditions.
  • Review for compliance with applicable code and regulations (building codes, fire codes, zoning, etc.).
Just as collection of as-built data with a 3-D scanner provides critical information about existing conditions, a computer simulation of automated systems can provide proof-of-concept and design validation.

Develop a Realistic Timeline
Production goals drive every manufacturing project. Determining how fast the facility can be put into production determines its overall success and, ultimately, the feasibility of the site selection process. Therefore, an early — and accurate — determination of project scope, cost, and schedule is critical. An early definition of the scope, schedule, and cost enables the most efficient use of resources and money while reducing risks.

Robust preconstruction planning is just as critical for the delivery of a brownfield project as it is for a greenfield project. The early phase of a project provides owners with a formal approach for developing and executing capital projects. Additionally, an early definition of the scope, schedule, and cost enables the most efficient use of resources and money while reducing risks. Every project should also have an alignment document that encompasses the scope and organization of the project-by-project kickoff.

Third-party firms that offer expertise in the project-planning phase can provide site and project assessment that draws upon databases of historical project information. These repositories of information can be used to create detailed 3-D site models, providing instant feedback regarding location, cost, layout/retrofit, energy, lifecycle, site work, and scheduling. When the owner and project team have the ability to visualize and analyze the project, they are better able to make informed decisions.

Future-Proof the Project
Getting an existing facility renovated and in production can seem like the end game. But the key to the project’s long-term success is that it will fulfill its function for many years to come. To do that, it must be scalable for future expansion and growth. Many existing buildings are located near other buildings and adjacent land may not be available.

Scalability is yet another item that should be addressed during the pre-purchase planning stage. It’s important to not only assess the building structure for future expansion, but also utilities and infrastructure. The above considerations should be factored in with more obvious costs, such as site remediation, which will typically require another third-party firm to assess and manage.

Real-World Examples
The challenges associated with an existing facility can prove calamitous to a project from the very outset. Consider the following stories, which represent actual situations in which companies did not consult an EPC professional or architect before purchasing a property:
  • One company purchased a building with the intention of putting in a new production line. They installed the unit only to find out that there was not enough overhead clearance for the fire suppression system. The company had to invest additional capital and extend their schedule to retrofit the facility and their utility systems.
  • A manufacturer acquired a former warehouse building and needed to up fit the building for a manufacturing operation. The existing slab could not handle the new presses, and significant foundation upgrades were required. In addition, the electric power service required significant upgrades. The unforeseen upfit added time and cost to the project.
  • A European manufacturer purchased an existing speculative building. The manufacturer’s process depended heavily on humidity control; however, the existing precast concrete building was not insulated.
  • Another company purchased an existing building and planned to install an automation system. Unfortunately, the column spacing didn’t allow for the automation to be configured as it needed to be. Significant expense and time delays were incurred while the company reconfigured the system.
  • A company that desired a brownfield site looked at several different locations. They identified a favorite and made a recommendation to their corporate leadership to purchase the land and building. The corporate processes took too long and a different buyer purchased the property. The original company, now facing tighter timelines, moved on to their second-choice existing facility because they had to meet a production goal. This facility, however, was not as well suited to their process; it was too small and needed several upgrades. Consequently, the original budget of $60 million ballooned to $200+ million. The team did not meet its goals for production and was left with a facility that is less than ideal for their future operations as well as their current ones.
For these companies, beginning with a greenfield site would have kept the project on schedule, preserved capital, and resulted in a tailored facility that met their operational requirements. Prior to purchasing the existing facilities, an integrated approach would have revealed the poor fit between existing conditions, utility needs, and production equipment requirements for these companies.

Most derelict building shells on the landscape today were built for different industries and production methods than the operations of modern manufacturers. Companies considering existing facilities must undertake an extensive due diligence process and analysis and weigh the costs compared to new greenfield construction. While success stories using existing buildings do exist, the key is to make use of the tools and tests that are available during early planning stages to make informed decisions and the best use of capital.
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