By David Marks, Tower Investments, LLC
In today’s competitive real estate marketplace, it is rare to encounter sound solutions to development problems which benefit all parties, as well as the environment. One such trend has emerged naturally from the epic shift of American manufacturing operations overseas: converting cast-aside manufacturing facilities into viable distribution or warehouse hubs.
The number of vacant industrial facilities continues to rise across the country, along with industry demand for affordable stateside distribution space. Today’s manufacturers require multiple locations to support their business models — gone are the days of one-house operations, warehousing and distribution. In recent years, a shortage of viable land and increasing construction costs have left companies in need of multiple locations with few budget-friendly solutions.
Rather than constructing new buildings, savvy developers are acquiring abandoned or neglected industrials, primarily located in small to midsized inland markets, converting them and passing along the savings to tenants. In doing so, they provide smart solutions for site selection consultants, while also contributing to area industrial revitalization with minimal impact to the environment.
Aside from the obvious financial benefits of repurposing manufacturing facilities — which amounts to a fraction of the cost compared to the process of constructing entirely new buildings — and the inherent versatility in these converted spaces, this development trend also circumvents a problem recently amplified by manufacturers moving overseas: the growing presence of brownfields.
A brownfield is an abandoned, idled or underutilized property whose expansion, redevelopment or reuse may be complicated due to the presence or potential presence of a hazardous substance, pollutant or contaminant. As much as $2 trillion of real estate in the United States may be undervalued due to the presence of contaminants. More alarmingly, environmental hazards are estimated to be present at 20 to 50 percent of all industrial real estate properties, which corresponds with the duration of time they sit unmanaged, collapsing steadily into disrepair.
Many brownfield sites sit idle for decades because the cost of cleaning them to safe standards exceeds the lands’ worth post-redevelopment. Regulatory uncertainties also make it difficult, risky and impractical for entrepreneurs to invest in brownfield redevelopment. Therefore, the early recognition of viable space in these abandoned properties essentially operates as a preventative mechanism against them spiraling into unproductive and hazardous brownfields. Previously ignored, these commercial and industrial sites are instead being rehabilitated into productive space, providing economic stimulation to local economies while simultaneously adhering to a code of environmental responsibility.
This redevelopment strategy of rehabilitation also proves to be an attractive development trend as concern over urban sprawl increases. Adaptive reuse of industrial facilities eases the need for metropolitan expansion; it allows a city or community to grow by making better use of the space it already occupies. Therefore, reviving a would-be industrial relic not only decreases negative impact on the environment, but it also alleviates the stress associated with urban sprawl.
As with any business endeavor, a correct combination of key factors is required to yield a successful product; a successful industrial conversion is no different. Location, versatility, existing features and local talent — including a strong workforce and an active economic development presence — are all necessary ingredients to transforming a once-dying property into a profitable enterprise attractive to site selectors.
While these key features unite viable facilities, the solutions repurposed industrials offer tenants should be as wide-ranging as the products they will one day house. Developers must realize that they must view a project as unique from start to finish if they expect it to succeed. This applies to every facet, from locating the building to negotiating tenant.
Let me provide one prime example of a successful industrial conversion. Before undergoing renovation, the building stood deserted for four years in the middle of one Mid-South’s town thriving industrial park. Located along a main transcontinental Interstate, the 630,000-square-foot property possessed enviable features including numerous exterior docks, wide column spacing and soaring ceilings — a clear plus for cubic-foot-seeking distributors. The developer acquired the property at a fraction of the replacement cost and earned a profit by removing the built-in conveying system and selling it as scrap metal.
Originally a single-use manufacturing facility, the developer capitalized on the building’s promising existing features and converted it to a multi-tenant distribution hub to meet the demands of manufacturers seeking off-site distribution space. Prior to close, the developer had already secured two tenants. Within six months, the building had five tenants and was at 90 percent occupancy. Once tenants were identified, the developer made the necessary structural improvements to make each space fully functional for each individual tenant.
The tenants benefitted from the flexibility of space, the level of customization and the nonrestrictive lease terms available. The developer benefitted from taking a risk on a nonfunctioning and neglected facility, which it successfully converted into a thriving hub. And finally, the town benefitted by preserving local jobs and tax revenue, and reviving a dying facility which had uncomfortable potential for turning into a dangerous, dilapidated brownfield.
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 each client’s unique requirements.