Due Diligence in Today’s Site Selection World
You’ve made your list — now check it twice for ownership issues and site suitability, as well as workforce and financial considerations.
The site selection decision can be overwhelming for a company that takes this process on themselves since there is a vast amount of data and information readily available today. If not hiring a consultant to sift through the information, it will be important for the team to focus on key areas during their decision. While this is not an all-inclusive list, below are some of the key areas for companies to concentrate on and conduct thorough due diligence when selecting a new location.
Ensuring a property is truly available seems easy enough, but ownership hurdles often throw wrenches into the site selection process. Not surprisingly, if a property is not already owned or under option by an economic development organization, county, etc., the asking price tends to increase when a prospect comes to town. If a property is being marketed, hopefully the economic developers and/or brokers have already worked with the landowner to establish a price, but this is not always the case. From my experience, local property owners’ real estate savviness and temperaments vary greatly, so understanding communication protocol and having the right team can make the transaction go more smoothly.
Even when a property is available, there is always a risk that there could be an old easement or lien on the property that causes title or development issues. Those properties that have already conducted title searches and/or have title insurance will be less risky compared to those which do not have as much information. Just because there is an “available” sign on a piece of dirt does not mean that the property transaction will be simple so understanding the ownership entity, approval process for a sale or lease, and price, and ensuring clear title are important factors in determining the true availability of a property.
Property Developability/Building Suitability
There is no perfect site or building. Apparently, this statement is news for some companies that are taking on a site selection search. Clients can be somewhat surprised at the lack of properties that meet their preferences in terms of location, size, buildable acreage, transportation access, topography, utility infrastructure, startup schedule, etc. Evaluating environmental factors such as floodplain, wetlands, soils, threatened and endangered species, and historical structures is critical in determining a property’s developability. Understanding the developable acreage and any potential environmental hazards allows a company to determine if its layout works on a property or not. While some of the issues that show up in environmental studies, such as the presence of wetlands, can be overcome, the mitigation for these issues is often expensive and time-consuming, which can be detrimental to a company’s budget and startup schedule. Properties that have studies — such as Phase I Environmental Site Assessments and wetlands delineations — already on hand have an advantage compared to other properties that have not been studied and could present unknown issues.
In addition to a property’s developability/up-fit potential, utilities should be properly vetted, particularly for complex manufacturing projects. Ideally, the company team consists of members that fully understand the project’s process and corresponding utility needs. Meeting with the utility providers early in the site selection process allows the technical team members to understand if the project’s needs can be met at a particular property or if the property should be eliminated. Those technical team members will also want to explore any permitting needs required for the facility’s process. In some locations, permitting can be an extensive and timely process that could delay a project’s schedule.
While a company may have identified a few properties that suit its project, it must also research the workforce thoroughly. Oftentimes when people think of due diligence in relation to properties, they only think of the environmental studies. While these studies are crucial steps in the due diligence process, these are only the tip of the iceberg. It’s imperative to evaluate all the technical characteristics of a site or building to make sure it makes sense for the project — both financially and in terms of schedule.
While a company may have identified a few properties that suit its project, it must also research the workforce thoroughly. This includes not only finding the number of people to fill the positions, but also the right skill sets in order for the operation to be successful. Data sources provide helpful numbers on the availability of workforce, but it is necessary to dig in deeper than just the number of people in an area. For our projects, we conduct confidential interviews with several existing employers in the area and then, in order to respect confidentiality, aggregate the information to provide feedback to our clients.
These employer interviews can be extremely helpful to understanding the qualitative side of workforce. The numbers may tell you one thing, but interviews can clue you in on commuting patterns, turnover, absenteeism, drug/alcohol abuse issues, wages, and much more. With today’s competitive environment, a company must complete its homework to understand who the competitors for labor will be in a location and what wages and benefits will be required to stay competitive, minimize turnover, and operate the facility successfully.
States and communities may dangle large incentive numbers at a company, but the company must understand how these incentives work and make sure it can meet the obligations required to capture each of them. Incentives/Costs
Lastly, the team must conduct financial due diligence by evaluating the true operational costs and value of incentives at each of the finalist locations. States and communities may dangle large incentive numbers at a company, but the company must understand how these incentives work and make sure it can meet the obligations required to capture each of them. Not all incentives offered may be truly realizable for a particular project, so the company must work with its financial team to decipher which incentives actually make sense for it and impact the bottom line.
While the four areas above are key aspects of the site selection process, these are not the only items that should be evaluated; a myriad of other factors that need to be thoroughly vetted also come into play. Assembling the correct internal team (engineers, logistics, finance/tax, human resources, etc.) and external team (legal, consultants, etc.) can help ensure that the company has the right players in the decision-making process. A site selection decision covers all of these areas so having input from these experts during the process can ensure that the proper due diligence is being conducted. Communities and states are largely in sales mode, so it is imperative that companies conduct their own due diligence to examine the various factors in order to make an informed location decision best suited for their projects. Taking the time up front to clarify any potential issues will help the project’s bottom line and startup schedule.
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