Ten Commandments of Build To Suit Projects0

Posted by Thomas Miller, CCIM

build to suit signNow that the economy is coming back to life, we are seeing companies buying up the remaining killer deals that still exist on vacant buildings. These opportunities are being closed at rates that are a slight fraction of replacement costs – in some instances, 25% of replacement estimates. However, these vacancies are rapidly becoming recorded into history where they’ll be remembered with the comment, “Can you believe when we could have bought a building for (insert low price here)!” Soon, these days will end. In some areas, they already have.

Enter the new era of new construction. New construction is an earmark of the latter stages of the recovery phase of the real estate boom-bust cycle and continues into the expansion and oversupply phases as well. That means once it has started, we anticipate seeing new construction stick around for a while. It’s an option for those businesses that cannot locate a proper facility to lease or simply choose to own their real estate.

Building from scratch opens opportunities for the business and also exposes them to some perils. Opportunities are the ability to design exactly what they need, the perfect facility for them to maximize their efficiency. And therein lies one of the biggest perils – getting caught up with designing your perfect new home with little to no attention to asset disposition.

Miller Industrial Properties BTSThis is but one of the minefield missteps that line the path of the firm building a new facility. There are issues of design – who do we hire? What’s our budget? Who’s overseeing that budget? Can we afford green features and what is the payout for this or that feature?

With numerous dozens of successful built-to-suit projects under my belt, allow me to share the Ten Rules of Build To Suit for a manufacturing or distribution facility:

1. Do not hire an architect.
2. Do not hire an architect.
3. Consult with and engage an experienced build to suit expert in the project pre-planning phase.
4. Develop a performance-based specification.
5. Interview and select the correct and proper bidder mix.
6. Monitor the bidding process closely.
7. Use bidders’ creativity and resources to maximize owners’ benefits.
8. Be sure the proposals are as apples to apples as possible.
9. Consider value, not simply bottom line price.
10. Rely on your BTS expert to guide you through the all-important contract negotiation phase.

Some quick translations to the commandments above:

• “Do not hire an architect.” Architects provide plenty of valuable design expertise in many projects. However, distribution/manufacturing project designs are best served to under the strict supervision of a budget-minded contractor.

• An “experienced built to suit expert” is one who is long on provable experience of similar successful projects.

• “Performance-based specification” is a strict description of exactly what you want – not how to build it.

• A “proper mix of bidders” is defined as a properly-sized group of firms with proven capabilities and competitiveness.

• “Use bidders’ creativity…” Understand that proper specifications allow bidders latitude to use the cost savings ideas they have, yet still provide the solution to the owners’ needs.

• “Apples to apples” may seem like an obvious description, but only your experienced BTS expert can interpret a bidder’s exact specifications to know if this is really an apples to apples proposal.

• “Consider the value” seems obvious again, but a building operating cycle cost needs to be looked into to really see which features pay off and which do not.

• “Contract negotiations…” Be clear that several contract formats can benefit the owner in several areas. Your BTS expert can provide guidance and suggestions.

The bottom line? It’s simple. Allowing your BTS expert to tap the deep resources of the build-to-suit process saves time, money and anguish.

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About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

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