While the office is often an executive’s focus because that is where most of the company employees spend their time, the warehouse is the heart of any industrial business. Warehouses are almost always in shell condition, and the tenant is responsible for the vast majority of construction, installation, and improvement. Your racking, machinery, and electrical distribution are specific to your business and generally not reusable by a future tenant. In most cases, landlords will not foot the bill here. Landlords will sometimes participate in upgrading roll-up doors, dock equipment, and sprinkler systems that have a useful life beyond your initial lease. Since you are primarily in charge of outfitting your warehouse, it pays to be prudent.
A manufacturing operation consists of machines and equipment that workers use to create finished goods. Manufacturing can be automotive, aerospace, industrial supply, apparel, food (which we will discuss separately later in this chapter), plastic mold injection, medical devices, and more. All manufacturing industries need to bring in raw materials, then process, assemble, package, store, and distribute their goods. They also have machines that require footings, installation, calibration, certi-fication, and wiring.
Before installing machinery, you need a precise warehouse layout design showing where each machine will be. I have seen companies move their machinery several times while they expanded and reworked their process. I have also seen aerospace manufacturers not touch a thing for twenty years. I always tell my clients Bob Barry’s mantra of “improve while you move”: every time you relocate your warehouse, you can improve your process and invest in your future.
Slab thickness is vital for manufacturing. It is important to know what kind of slab you have, its age, its thickness, and potentially the soil conditions underneath the slab. Larger stamps, presses, and printing machines require pouring footers and thicker concrete pads, replacing the standard concrete slab to provide an adequate foundation for heavy machinery.
After being moved, many machines will require calibration and certification. This calibration and certification takes time and talent, and an experienced project manager and industrial engineer can help you navigate this process.
The most common electrical work needed for industrial buildings has to do with machinery, equipment, forklifts, and office workstations. The main issues are the number of amps, type of voltage, distribution of electricity, backup generators, and transfer switches.
Electricity is one of the facets of industrial real estate that is most commonly misunderstood. Try asking ten team members the difference between 120/208 and 277/480 volts. Nine people will probably think you are speaking a foreign language, but there is usually one facility manager or engineer who understands electricity better than your electrician.
Amperage is the quantity of electricity available within the building. The most common question you will ask your broker, your team, and the landlord is “Does this building have enough power for my business?” You will need to hire a commercial electrician early in the process, because this is not considered the landlord’s responsibility. The tenant is in charge of making sure the electrical supply is adequate, because it is specific to the tenant’s business needs. Your first step is to create or update a spreadsheet that shows all of your machines’ electrical requirements. You can then have an intelligent discussion about what your usage looks like under expected operating conditions.
A shortage of power can kill a deal because the cost of upgrading power to the building is usually cost-prohibitive: in Southern California, it can cost $10,000 to power the smallest of the small warehouses and more than $200,000 for medium and large warehouses. But as the size of the building increases and the lease term gets longer, the relative price of an electrical upgrade decreases, and the prospect of adding power increases.
Bringing more power to the building is a question for the local electrical utility. Getting the utility involved means you are entering their bureaucracy. Power can enter the property overhead or underground. Underground power lines are great for the image of the property, but they can make it harder to add electricity to a building. In many cases, the power runs through the ground near the sidewalk and street, which means the electrical utility often cannot access the electrical lines unless it cuts the asphalt from the road, the concrete of the walkway, the parking lot, and the building.
After digging, workers must install the electric conduit, fill in the trenches, and restore the exterior surfaces and landscaping. Then the inside of the property will need new breaker boxes, panels, subpanels, fuses, switches, and conduits.
Bob Barry of JBA says it is important for companies in this situation to look far down the road. “When you go into a building, you might have a beautiful building you get very excited about, but it may have 600 or 800 amps, and you may need 1200, or even more. The power requirements are both potentially a cost issue and a timeline issue, because then the power departments—whether in San Diego, Orange County, or LA—have a tough timeline. It is awesome if they have a year or more to complete an upgrade, but sometimes it does not work out that way.”
Backup generators can prevent downtime and disruption in the event of power failure. Most businesses have them to satisfy industry regulations and licensing, although some have them simply to protect themselves.
Backup generators are gasoline-powered engines that switch on when the building electricity goes off. They can cost thousands to hundreds of thousands of dollars, depending on their size. It is generally cost-prohibitive to connect your whole building to your backup generator. Instead, prioritize by consulting the preliminary needs list you made of all of the power requirements of your existing machines and equipment. Separate the essential from the nonessential, understanding that your decisions will have design and cost implications.
Everything that needs to be connected must have its own dedicated outlet. This applies to lab equipment within climate controlled areas, as well as machinery and HVAC systems.
You have to decide if you really need your HVAC system to be backed up, whether it is practical, and/or whether you will have to design a new system. Some flex and R&D buildings, for example, have one large, shared HVAC system that cannot be readily separated or backed up in a cost-effective manner.
The generator’s location is your next practical consideration. It must be close to the power panels, and it will need a foundation and possibly an enclosure. Most companies place a backup generator outside the back of the warehouse, near the trash enclosure.
The second-most-common location for a backup generator is on the side of the building in what was once a landscaped area, in which case you will need to think about rerouting water supply and drainage, and then pouring a pad and possibly an enclosure. The foundation dimensions can be six feet by six feet to upward of ten feet by ten feet, so it is helpful to have that in mind when you are looking at the back and side of the building. Some buildings only have three-foot or four-foot width of landscaping from the building’s tilt-wall panel to the curb. Others do not have any room because they have a shared drive aisle, tight truck loading area, or no landscaping. When looking at the back of the building, you want to look at the grade-level and dock-high loading doors. This is to make sure the backup generator will not impede access and/or get in the way of your trucks or your neighbors.
The third-most-common place for a backup generator is in the parking lot. Taking a parking stall away from the parking lot may not be an issue, but in this case, you will need to trench through the parking lot, and you will have a longer length of concrete and asphalt to travel to get to the power panel.
Some cities will not require an enclosure, while others will mandate it and cite you for code enforcement issues if you do not have one. The more modern and newer the industrial neighborhood, the more likely it is that the city requires an enclosure. It is always worth taking this into consideration up front to minimize expense and maximize utility. No pun intended.
The size, type, installation, and location of your backup generator are likely to have implications that total hundreds of thousands of dollars, so it pays to have a thorough and intelligent conversation with your project team about this.
Fire suppression is a lump-sum category for all of the ways in which building fire and life safety systems work to prevent fires, give employees time to evacuate, and extinguish flames. Warehouses have different considerations than office space because they hold fewer people, have more cubic volume, and have different types of potentially flammable materials. At a minimum, your strategy should take into consideration the materials you are storing, how high you plan to store them, what kind of racking system you plan on using, the building’s existing fire suppression system, and exit doors.
Fire suppression experts refer to what you store as your “commodity class.” Each commodity class rating has different practical and financial implications. The higher the classification, the lower you must store your materials on your racking system and the higher the sprinkler rating requirements. Some classifications only allow for floor stacking.
The following are the fire authority’s commodity classifications:
- Class I commodities include non combustibles.
- Class II commodities include crates and boxes made of wood, and cardboard cartons.
- Class III commodities include wood, paper, and natural-
- Class IV commodities include Group A plastics, which
covers most types of consumer items, like toys, bottles, and
- Class V commodities include Group B plastics that are softer
and more pliable, like tubing and nylon materials. Group C plastics like PVC and melamine plastics are also included. Plastic-specific concerns revolve around how hard they are to ignite, the chemicals released when burned, and the speed at which they burn.
Sometimes the classification process is simple. When a company specializes in a limited number of products and stores them in a uniform manner, the fire authority can simply classify these commodities and compare them to the warehouse’s fire suppression system.
In other cases, the process is complicated. Take, for example, PODS, the portable storage containers used for residential moving. The PODS company may have hundreds of these units in their warehouse without knowing it. One POD might have ten surfboards, whereas another might have two double beds and a couch. PODS are frequently packed with TVs, mattresses, and couches, which happen to be among the most concerning of flammable items to fire authorities. You can imagine how difficult it would be for a fire marshal to classify the PODS warehouse. Fire marshals are becoming increasingly more conservative and are sorting them into higher commodity classes by default.
When it comes to fire sprinklers, most experts will tell you to look at the fire riser first, the big red pipe in the back inside wall of the warehouse, and look for the sprinkler calculations on the silver tag. Sprinkler calculations will give you a gallon per minute numerator over a square footage denominator. Standard calculations are “unrated” for older systems: .45/2,500, .66/3,000, and ESFR, which stands for early suppression, fast response. A certain amount of water flows out of the sprinkler heads to disperse water over a specific size diameter of square feet, but it is not uncommon to find that there is no recognizable sprinkler calculation present. The system might predate the rating system, the tag may have fallen off, the rating may be illegible, or someone may have painted over it.
Less commonly known factors that can play a pivotal role in your ability to operate your business are the thickness of the water lines, the sprinkler water pipe pattern, the water pressure coming into the building, and the quantity and location of the fire riser(s).
If you have a mismatch between your commodity class and the existing fire suppression system in a building you are considering leasing, you have a few choices as to how to rectify the situation:
- You can negotiate with the landlord for a fire sprinkler system upgrade. Your company might need the update to do business today, but it is the landlord’s building, and it will be better equipped to lease to future companies like yours.
- You can fund your own fire sprinkler upgrade depending on its value to your company and the expense of the upgrade.
- You can speak with your material handling vendor and see if there is a different way to arrange your inventory to comply with the existing building conditions. Sometimes, in-rack sprinklers can provide a solution without needing a full
Each fire sprinkler upgrade is unique. It may involve replacing the sprinkler heads, replacing the sprinkler pipes with thicker gauge pipes, changing the pipe pattern from branch line to grid pattern, and/or installing a pump to increase the water pressure.
This is not cheap: on a 100,000-square-foot industrial building in Orange County, California, the total cost would typically range between $250,000 and $300,000.
Check on all of this information before you lease the building, because the best time to perform this upgrade is before you move in. It is possible to perform this upgrade in sections of the building after moving in, but this is less than ideal. The size of the sections in a phased installation depends on how many risers there are, how the existing system is set up, and the new system design.
If you do not know what kind of system you have, there are no markings on the fire riser, and there are no plans for the building, you are not the first to be in this situation. Incomplete information is more common than you might think, mostly because buildings have different owners over time, each owner has different tenants, and rarely are all of the plans transferred between these parties.
In this case, first try calling the city and asking them for any building plans, including sprinkler design and calculations. Expect to encounter a wide variety of records. Some cities have high-quality digital files, while others have old microfiche systems, and some cities do not have any building plans, due to floods or fires. In the event of the worst-case scenario, you can hire a fire sprinkler engineer to test the system and calculate the sprinkler’s capabilities.
You may also want to consider if there are older existing fire curtains within the building that can or need to be removed and the regulations for the distance and path of travel for fire exits. I have found that if you take an older manufacturing building and try to upgrade its fire systems to suit distribution needs, there may be more considerations than normal.
Here is where it pays to have material handling and high-pile permit experts to guide you. High-pile permit consultants are part of a cottage industry: ex-firefighters who provide consulting for companies and help them obtain high-pile permits. The reason that ex-firefighters are in this industry is because they used to perform the inspections and deal with the city, but from the other side of the counter. Their specialty is assisting companies in classifying their commodity class, ensuring their existing warehouse sprinkler system is sufficient to store goods above twelve feet, and securing the high-pile permits necessary to get the company’s certificate of occupancy from the city. I have found they are worth hiring in complex, high-value, and time-sensitive projects.
Chances are there will be some changing of the dock equipment during the lease of a new building or during a lease extension on an existing building. There are always improvements to be made, operational factors to consider, and plain old wear and tear to deal with. In our discussion of dock equipment, we will include bumpers, levelers, plates, and ramps.
At a minimum for dock equipment, you need a rubber dock bumper that will keep your trailer or container from physically hitting the concrete dock or tilt-wall panel when it is being backed up into the loading area. Bumpers come in different shapes and sizes. The negotiation of a lease is the perfect time to have the landlord replace any bumpers that are past their useful life.
Dock levelers, plates, and ramps are the next three workhorses that bridge the gap between the container and the warehouse floor. The pallet jack and forklift will have to drive over these into the container to pick up the pallet, reverse back into the warehouse speed bay, and move onward to their next destination. It is essential to make this path of travel safe and efficient.
Dock levelers are the most permanent and heavy-duty solution commonly employed in industrial real estate. The three main types of dock levelers are hydraulic, mechanical, and “edge-of dock” levelers. The type of material being loaded, its weight, and its packaging will usually dictate what size levelers you require, and the flow of your operation will dictate the quantity and location of these levelers. It is important to know this in advance, as each one costs thousands of dollars.
You cannot assume that new buildings have dock levelers. When you are the first company to occupy a building in a ground-up development, it is common for the developer to include some dock levelers, but they are not sufficient for the needs of most companies. It is important to go into negotiations knowing what type, size, and brand of dock leveler you require and to create enough leverage in the negotiation to have them included within your landlord’s tenant improvement package. I was able to do this while negotiating a lease on 80,000 square feet of distribution space in a new industrial park in San Antonio, Texas, next to Amazon. Our attention to this detail meant that while the landlord was building out our office space, they were also demolishing parts of the dock area and digging the pits to house the leveler hydraulics.
Edge-of-dock levelers are very short and wide steel plates with a hinge that lifts manually to bridge the gap between a container and the dock’s edge. It is useful to test each edge-of-dock leveler during the first thirty days of the lease to ensure each one works, and they can still be a few thousand dollars to replace. I have worked with a national flooring distributor for the last ten years, on over 200,000 square feet of warehouse space. One of the buildings we leased had new edge-of-dock levelers installed. Upon further investigation, we found that some of the welds were faulty, leading to an unsafe environment where the leveler could snap under heavy loads. Fortunately, we discovered this before it caused an accident. However, the landlord thought it was our fault and we had damaged the leveler. We had to find a competing dock installer to inspect the docks and prove it was, in fact, a faulty installation before the landlord decided to do the right thing and replace it for us.
Dock plates are mobile pieces of corrugated steel that are set down between a container and the dock door. These dock plates are practical for small deliveries loaded and unloaded by hand, as opposed to by forklift. They are cheap to acquire and easy to use, but also easily damaged. They do not require installation and are typically used to deal with less-than-ideal loading situations.
The purpose of a truck ramp is to connect the inside of the warehouse to the loading area outside, where the docks are located, when distribution buildings do not have grade-level loading. With this challenge, there are two common remedies. The safest, yet more costly option: pour concrete to create a permanent ramp. The more cost-effective and portable option: bolt a steel ramp to the ground. This ramp can be moved to different positions or removed and resold later. I have found that landlords will sometimes contribute toward the installation of concrete ramps because they are considered an improvement to the property, whereas a steel ramp is the tenant’s personal property and can go with them wherever they move. Concrete ramps should be installed at the same time as dock levelers before you move in.
Lastly, measure the distance between the ground and the loading dock. On the odd occasion, a loading dock or truck well height can be a few inches higher or lower than normal. This is a surprising issue I have run into a handful of times. It is not a good feeling when you back up your first truck to the docks to deliver the first shipment into your brand-new building, only to find out you have a problem.
If you want to install exterior fencing to protect your trucks, equipment, trailers, or shipping containers, you should do so while you are doing construction on your office and warehouse. Most fencing is relatively standard wrought iron or chain link.
I have found that sometimes you need to rework existing fencing as well. In one instance, I sold a 46,000-square-foot building to a health food supplement company in Costa Mesa, California. We were in escrow with a credible buyer when everything came screeching to a halt. The buyer had reviewed their property survey and realized a part of the fencing did not go all the way out to the corner of the property. On the other side of the fence was the neighbor who had taken over that part of our property a decade earlier and had installed a picnic table and break area. Imagine our surprise when we learned a picnic table was creating such a large problem. We had to reach out to the neighbor, negotiate a solution for them to relocate their lunch area, and then hire a fencing company to relocate the fencing to the property line before the sale could be completed.
Learn from our experience: always double-check the property fencing line before you sign the lease.
Scales are important for some logistics companies that have to weigh their truckloads, and these companies must install them on-site if there are not weighing stations conveniently located nearby. If this is the case, it is essential to find an industrial property with the right yard dimensions. If a fully loaded trailer is 74 feet and most truck courts average a minimum of 110 feet, you can see how important it is to map out traffic and make sure the warehouse can accommodate the scale position, along with all other company-related truck traffic.
You can install an above-ground or below-ground scale, but either way, you will need landlord approval. Landlords will want to know the make, model, and type of construction needed to install and remove the scale, and they may ask you to remove it when you leave the property.
If you run a company that utilizes scales for your trucking operation, be mindful that any property you find with a scale in place is not necessarily a good thing. Sometimes you will find the manufacturer no longer makes parts for old scales. They can actually be a liability in that you need to remove the old scale before installing your new one. I discovered this while helping a logistics client in Tampa, Florida. However, we were fortunate, and there was a public scale we could utilize nearby instead of replacing the old, dilapidated scale.
Roof lifting is a specialized kind of general contracting reserved for older, functionally obsolescent warehouses. We will focus on its use in industrial buildings here, but it also works for retail buildings and other commercial applications.
If you decide to lift the roof on your existing building, you save money on relocation expenses, tenant improvements, and project management. You also save on disruption of time and effort, and more. With roof lifting, the question is, how much will this process increase your capacity, and at what cost?
Here is an outline of the primary steps involved in roof lifting:
- The contractor supports the existing roof with hydraulics.
- All building systems connected from the tilt-wall panel to the roof are separated.
- The roof is separated from the four walls and columns.
- The roof is incrementally raised, using hydraulic lifts.
- New support columns are installed to support the higher ceiling clearance.
- The building systems are reconnected.
- The facade that raises the surrounding four walls is constructed.
In an interview with Toronto’s premier roof lifter, Marty Shiff of Rooflifters, we discussed how the roof-lifting feasibility process begins as an exploratory mission. The general contractor walks the job site to understand the client’s operational needs and inspect the property conditions. If the old roof was recently replaced and under a manufacturer’s and installer’s warranty, then the installer will be looped into the conversation. You will spend a few thousand dollars on preliminary engineering studies and drawings, along with concrete slab borings and initial pressure testing. Just like tenant improvements can be paid for and performed by the landlord or tenant, roof lifting can too.
Not all industrial buildings can have their roof lifted, though. The main limiting factor to explore during the feasibility process is if the concrete slab can sustain the increased load on the floor
from the higher roof and subsequent fully loaded higher racking system. Additional feasibility is required for the existing fire suppression system, electricity, roof drains, and roof warranty.
One overlooked benefit to roof lifting is the speed of the project. A roof lifting project can take just a few months from inception to completion because, in most cases, roof lifting is allowable within a warehouse’s current zoning code.
There are obvious concerns regarding safety, weather, and timing considerations. Given careful consideration and preparation, it is possible to lift the roof while occupying the warehouse with modest disruption, creating an immediate increase in capacity. From a practical standpoint, you may need to find temporary space for your inventory in order to accommodate the breakdown and removal of the existing racking system, and then the installation, inspection, and loading of your new racking.
It may not be necessary to lift the entire roof in some cases. Let us say you have manufacturing in one half of the building and distribution in the other half of the building. You have reorganized your production line and invested in new machinery to meet demand, contributing to higher inventory levels. In these cases, you can raise the roof on half the building to accommodate higher racking without disrupting the manufacturing side of your operation.
If you are in the food, beverage, and cold storage industry, or the life sciences industry, you face a number of additional considerations. We will focus on these here because they are the most prevalent in the industrial real estate market.
FOOD, BEVERAGE, AND COLD STORAGE
Food-related uses have unique regulations and industry standards with major real estate implications. The Safe Quality Food Institute (SQFI), the United States Department of Agriculture (USDA), and the United States Food and Drug Administration (FDA) are the primary regulatory food agencies ensuring food production companies adhere to strict health, safety, and accountability standards. The Food Safety Modernization Act (FSMA), enacted in 2011, has led to a need for modernizing the way food is grown, harvested, and processed.
I have advised executives of food companies that produce baked goods, bread, frozen yogurt, ice cream, smoothies, frozen fruits, frozen vegetables, soups, sauces, broths, and teas, as well as craft breweries and beer distributors. While each operation is different, there are similarities in their needs.
Kate Lyle is one of Ware Malcomb’s top architectural and design specialists for industrial cold storage, food, and beverage projects, and she is a resource for my clients. She articulates how programming can sometimes take much longer than anticipated in food production due to the abundance of intricacies involved. It can take months to years from project vision to construction, depending on how intensive the programming process is.
Kate helps clients determine whether it makes more sense to design a “box-in-box” system, or whether the whole building should be part of the refrigerated system. The first option is where the building shell is built, and there is a climate-controlled system within the building, whereas the second application uses the walls of the building and the roof insulation as the system. Each municipality has different codes that dictate which application they will allow; other internal considerations are important, like fire suppression systems, roof structure, and reusability concerns.
It is always a challenge to repurpose another company’s food production building. In expensive coastal markets, it is cost prohibitive to find suitable land, buy it, and build a custom food plant from scratch. In the Midwest, though, where there is greater land availability and lower cost of land and construction, build-to-suits are more commonplace. It is difficult to find industrial buildings used by a food producer that can now accommodate another food production company. This is because every company has their own proprietary methods and manufacturing processes. For example, making pretzel chips is a very different process than making hot sauce or Greek yogurt. It can be very difficult to find a match between an old location, size, temperature of a cooler, freezer spaces, and your other requirements. The same goes for floor drains, clarifiers, and wash-down walls, which usually are not the right size, shape, or orientation to provide any real value. Other common issues include ceiling clearance height, room adjacencies for flow and thermal, or refrigeration efficiencies. Old food production buildings present an obstacle to most new food companies because it can cost six figures to remove all of the existing improvements before building out the new ones.
As discussed above, the cooler and freezer application for existing retrofit facilities is commonly described as a “box in box.”
Think of it like a couple of Russian nesting dolls. The inside box is the climate-controlled space; it has its own four walls and ceiling and is built within the larger box of the warehouse.
For cold storage and freezer-driven companies, new construction can be beneficial so the underfloor heating and insulation
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can be installed. It is possible to do this when retrofitting an existing building, but it can be expensive. In retrofits, concrete is only removed and replaced in the freezer section of the building, for installation of the heating and insulation elements. This might be less important for broadline foodservice distributors with tri-temperature warehouses to handle products that need to be chilled or frozen or need ambient climates.
There are a variety of different cooler and freezer systems and applications that have changed over time, so you should be conservative if you are trying to work with any existing system. I routinely bring in several specialized architecture, construction, and industrial engineers to help identify the condition of existing buildings and assess the potential for a successful retrofit.
COLD-READY SPECULATIVE CONSTRUCTION
Kate Lyle also explains how she has helped developers design the cold storage speculative construction design of the future. As e-commerce effects have rippled throughout the food and beverage industry, so has capital, and industrial developers are now interested in building cold storage on a speculative basis, thanks to innovative architects like Kate and Ware Malcomb.
The cost of a cold storage building can be upward of three times that of a regular dry building. Kate and her team have designed ways to improve the building envelope so it has all the right building characteristics for users, who can then customize their own thermal envelope at a price a developer can afford.
It is this new cold-ready speculative development that can provide new opportunities for executives to open a new warehouse without going through the costly and challenging process of converting a dry warehouse to a cold one.
INCREASED ACCESS CONTROL
This type of building will most often include a lobby area where visitors need to sign in and put on proper attire before they enter the rest of the facility. Most companies require a hair net at minimum; some require a smock, beard net, safety glasses, hard hat, and booties to cover shoes. Thick insulated jackets for going into cooler and freezer rooms may also be required.
INCREASED WORKER DENSITY AND INTENSITY
An increased number of production workers per shift and quantity of shifts results in the need for additional warehouse restrooms with higher stall counts, larger break rooms, locker rooms, and more parking. Special supply air requirements are needed for production spaces to finely balance the air pressures between adjacent spaces. With an increased production schedule, in some instances, manufacturers run three shifts, twenty-four hours a day, seven days a week. The transitions between shifts can oftentimes be when creative parking arrangements are necessary.
ENERGY SUPPLY AND DISTRIBUTION
Utilities and energy availability are vital for this industry. It usually requires machines that blend, mix, convey, and package. Food and beverage production requires cooler and freezer space, conveyor systems, blast freezers, and spiral freezers in many applications. All of these require more energy than dry systems, and this energy needs to be distributed throughout the warehouse with additional subpanels, transformers, switches, and backup generators. Cold storage requires additional refrigeration units, and there are different types of systems to consider. Ammonia systems were prevalent for a long period of time, whereas freon systems are now commonly used on applications under 125,000 square feet. Carbon dioxide refrigeration systems are also now more widely used. Examine whether or not utilities are regulated, as this needs to be factored into your real estate project as well.
OUTDOOR STORAGE AND TRUCKING CONSIDERATIONS
Many companies need to store ingredients such as sugar, oil, and flour in large silos outside of their building. These silos and tanks require concrete footings. They usually do not require screening or enclosures, but they do require coring through the tilt-wall panel for pipes to connect them to the building. All of these installations will need to be removed and patched when the lease expires.
Additionally, in some cities, refrigerated trucks are not allowed to be within a certain distance of residential developments. You will want to verify this with the local city zoning department as part of your due diligence.
Some food production warehouses install steel platforms, or mezzanines, within the warehouse building to create a second story. This second story can be used for office space or for welfare space above process areas with low ceilings. Commercial general contractors install these mezzanines and will require concrete footings. Mezzanines are not unique to food production: they are also used in high-velocity distribution, aerospace, and engineering.
Mezzanines can be expensive to install and remove, and this can cause a major real estate dispute. One of my partners and I represented a private family who had sold their food production company to a large conglomerate, and years later the conglomerate decided to sell the building. That sale produced considerable litigation over the mezzanine. The tenant thought the mezzanine was part of the building because it had footings connecting the steel beams to the foundation. In contrast, the landlord and seller believed the mezzanine was a trade fixture, to be removed at the end of the lease obligation. The mezzanine cost a few hundred thousand dollars to remove, so it was something both parties had a vested interest in settling. The lesson learned was that when building a mezzanine within a leased property, it is vital to consider the impact of this improvement during the initial lease negotiation phase and to have a clear understanding of your restoration responsibilities.
WATER SUPPLY, CLARIFIERS, WATER DISCHARGE
Depending on the type of food production, it is common for buildings to need a more abundant supply of water. Water supply depends on water pressure and the size of the water line coming from the city water supply.
Water and ensuing liquid waste can require different types of separators and clarifiers. These work like they are panning for gold: different-sized screens will screen out waste particulates. Clarifiers can also require approval and credits from the city, and only a certain amount of waste can go through the system at one time.
Food producers must be aware of their wastewater needs so they can grow in areas that accommodate their discharge needs. Many large companies have spent considerable resources exploring industrial property developments, only to find out late in the negotiations that the locale cannot accommodate their discharge requirements.
Many operations require temperature-controlled dock areas. Docks also need to be closed to outside elements with seals, shelters, screens, and motorized roll-up doors to keep out dust, dirt, bugs, and pests. Sometimes we can negotiate these into the tenant improvement allowance from the landlord.
Most food producers benefit by selecting an industrial building with a cross-dock orientation so raw materials can come into the building, and finished product can go out the other end. This cross-dock orientation is typically found on newer buildings. Older, traditional industrial buildings are usually oriented so all ingoing and outgoing materials go through the same loading area.
The life sciences industry is expanding rapidly. Many companies are located in clusters within geographic areas surrounding top research universities, like Boston, Seattle, San Jose, San Diego, and Orange County. Life science companies may specialize in research and development, pharmaceuticals, diagnostics laboratories, medical devices, and more. The following are some considerations unique to this industry.
Longer Lead Time
Timing can be critical for life science companies when relocating into a new, larger building. Regulatory notification, licensing, and inspections need to occur before, during, and after construction. It can make sense for life science companies to build out, move in, and begin operating their new facility before closing down their old facility. Creating a new space is expensive because it may require buying all-new furniture, equipment, and supplies. This is in addition to their existing operation, so they can move from one building to another without downtime and disruption.
Life science companies also need to utilize climate-controlled moving companies to ensure their live tissues, blood samples, and cultures are all appropriately handled. They need to be maintained at regulated temperatures, and backup measures need to be in place.
Specialized Space Use
Life science companies also consider building image, parking availability, office build-out, and HVAC supply when considering relocation into a new industrial property. Having an architect with life science experience is critical. There are so many nuances to the interior lab space that a generalist will not be able to do the project and client justice.
Some improvements that life science companies may need are clean rooms, individual lab rooms, larger testing space with multiple lab benches, wet lab space, HEPA-air-filtered space, negative pressure rooms, assembly space, and testing space. These different types of climate-controlled areas include higher end and more costly office materials.
Fume hoods require the ability to penetrate the roof membrane to provide for adequate venting and air circulation. Anytime you have to penetrate the roof, you need the landlord’s permission. If the roof is less than ten years old, you may have to work with the landlord’s roofer to work on the roof without voiding any kind of manufacturer and installer warranty. Landlords and tenants alike want to make sure that the roof is watertight, and as such, you will need proper prior approval before penetrating the roof, installing the hood ventilation, and patching around the penetration to ensure a watertight membrane.
In the industrial real estate world, we have a subcategory of industrial property known as “flex,” “flex-tech,” or “research and development” (R&D) that is very prevalent and sought-after in the life science community. This subcategory is most often a concrete tilt-up building with more refined exterior architecture and more abundant parking. The higher parking ratio supports a larger office build-out and corresponding employee count. The property includes a robust HVAC system and a combination of rooftop units to supply climate-controlled space through the vast majority of the building.
R&D properties will often have two-story offices based on the construction type. As a result, landlords and investors can sometimes repurpose two-story office buildings into R&D buildings by installing roll-up doors and grade-level loading. This gives landlords the flexibility to lease the space to either an R&D tenant, a traditional office tenant, a coworking tenant, or a creative office tenant.
Opaque Leasing Market
Appraisers have a difficult time appraising these properties because it is hard to find accurate and comparable leasing information.
First, this is because R&D properties are rare: they do not exist in many markets with traditional warehouse industries. Second, and more importantly, R&D properties are unique. They may exist on industrial, office, medical, or research and development zoned land. They may look like a warehouse or a corporate office. They may have an office that looks high-end but has roll-up doors in the back.
It pays to have a broker who is experienced in R&D industrial property. One of my colleagues handled a lease renewal for an aerospace company that was leasing a 150,000-square-foot building with 60 percent office, 40 percent assembly space, and four hundred employees. During negotiations, the tenant tried to use the lower industrial property lease rates to advocate for why their extension should be affordable. The landlord tried to increase the lease rate by using low-rise office space comparables. Because each party took such an extreme position, they went through a nasty, expensive, and distracting litigation to determine fair market value. This type of ambiguity can be avoided by working with a broker who has a track record of success in these types of transactions.
It is time to set the stage to move into your new building—it is time to orchestrate the actual move. A careful transition from one building to another will be felt and experienced by your company in positive ways. In the next chapter, we will cover how to get to the moment when everyone settles into the new building. There is nothing like walking into a new building for the first time and experiencing the mindset shift where everything new is possible.