Every review of an existing facility /asset should begin by asking the following: What was the facility's original purpose? What is the intent of the next potential tenant?
Gregory Camp, FCL Builders’ VP of Project Development, recently contributed to the Cold Storage panel at Bisnow’s State of the Storage Assets: Cold, Self, and Industrial Outdoor event at the W Hotel in Atlanta. Trends from the ever-changing industry landscape drove much of the discussion, so we asked Greg to expand upon a few of the issues that generated continued conversations on the event floor and beyond.
FCL: Are the tides turning between speculative cold storage projects and build-to-suit? If so, where are we now, and where is the industry heading?
Gregory Camp: We live in uncertain economic times, so naturally, investment capital is reacting to that uncertainty. While cold speculative facilities have come a long way in creating preemptive engineered tenant solutions and VE (value engineering) tenant improvement packages, that model can take time for all participating stakeholders to deliver. The typical cold speculative buildout has been in the 250K-350K footprint allowing for multiple tenant options, so when demand is up, this is an attractive opportunity. When uncertainty hits the market, demand tends to drop and vacancy risk enters the spec market.
So when vacancies fill the market, what types of projects reduce overall risk?
Investors are primarily looking at build-to-suit opportunities in today’s climate. This shifts the focus from “who could lease a property” to who’s in the market right now. Build-to-suit offers the investor a dedicated client approach with a long-term commitment for the investment. Facilities are custom-designed to fit the tenants’ needs and expedited in their delivery to grab the market investment owners are looking for in today’s environment. Speed to market is critical.
With so much new inventory entering the market, much of which we assume uses the very latest building materials and modern engineering, what’s the fate of aging inventory – structures in prime locations, with “good bones”. Can these assets be modernized, or must they be leveled?
On one hand, aging inventory is partly responsible for the elevated growth in cold storage development over the last few years. Newer, build-to-suit facilities are extremely efficient and in high demand. On the other hand, existing assets that are still on books require creative ways to keep them competitive. In this space, every GC partner is required to have a high “value proposition” to be competitive in the market.
How does a GC set themselves apart in a competitive field?
Developers have heightened expectations for the retrofit GC. It’s not enough to provide a great project delivered under budget and without change orders. The new expectation is to provide additional resources to the developer to attract potential clients and create a collaborative agreement. A bid with a value proposition partner is a bid with additional merit for award.
Every review of an existing facility /asset should begin by asking the following: What was the facility’s original purpose? What is the intent of the next potential tenant? There’s a tremendous difference between a cold facility that stored ice cream vs produce. Asset conversion starts with the question why?
What does it take to redevelop and reimagine a cold storage facility in today’s market?
Once the intent of use is determined, the GC’s work really begins. We drive value by helping the developer assess a myriad of granular-level details to support their re-investment.
-Can the existing refrigeration system accommodate the new tenants’ needs?
-What is the impact of Freon phase out and what systems should be considered with a retrofit? Packaged solutions are available with sustainable freons, what about low-charge NH3 and Transcritical Co2?
-How do we update the facility to be more energy efficient?
-How do we design to accommodate multiple tenants? Demising walls, dock considerations, number of pallet positions, etc.
With so many considerations to make, when does the GC enter the picture on cold storage redevelopment projects?
If development is a track and field relay race, people often think construction takes the baton to build the facility in the final lap, long after development parcels are considered, zoning and permitting is reviewed, land is acquired, and architects and engineers fine tune the blueprints. Today, projects are much more collaborative. GC’s can impact overall value by being involved from the very beginning. FCL pairs national experts in cold storage with local teams that have trusted relationships with local municipalities, suppliers, and subcontractor talent.
Increasingly, we’re seeing a large spike in inquiries to convert dry warehousing into cold space. (Box-n-Box). Partnering with a qualified GC with deep understanding of these specialty conversions is critical to keeping investment costs down while delivering a high performance project on time, and on budget.
Ultimately, a relationship with a reliable GC partner can help streamline the developer’s investment strategy by providing a value proposition resource that is critical to converting aging assets into success.
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