By Ryan O’Leary, senior vice president, Duke Realty
Selecting a developer for your new industrial facility can be a complex and challenging process with many factors to consider. To help ensure that you make a well-informed decision and the right one for your business, an all-important first step is to engage a professional commercial real estate broker—an individual with knowledge and expertise in the industrial sector. Equally important is to know the type of information you should find out about prospective developers.
Why is it helpful to work with a commercial real estate broker? Similar to brokers for insurance, stocks and other products, commercial real estate brokers have in-depth knowledge of their industry and familiarity with all of the players. A broker can provide unique insights and present you with a lot of options, making the selection of a developer easier and less time consuming for you.
Your broker will serve as your representative throughout the development selection process, looking out for your best interests. His first order of business will be to work diligently to understand your business and space needs. Armed with this knowledge, he can then share with you any recommendations he might have about prospective sites and qualified developers.
After a list of companies that are qualified to construct your facility is compiled, your broker will help you evaluate potential developers using a variety of important criteria. Your broker will then serve as an intermediary between you and the selected developer helping negotiate all the terms of your transaction.
So what should you consider when selecting a developer? Obviously, one of the factors is price. While price is important and will always matter, your decision on which developer to go with shouldn’t be based solely on the lowest quote. Instead look closely at other characteristics of the developer, such as the ones detailed below, to ensure that you end up with a high-quality building that is delivered on time and on budget.
First, understand the business model of the developer. This is very important if you are looking to lease your new facility. Is the developer constructing your facility with the intent of owning it and having you as a tenant for many years? Or are they looking to sell the facility to an unknown investor as soon as it is complete. A developer that is building for its own portfolio will make decisions based on long-term asset value compared to maximizing up-front gains from the sale.
The vertical construction of the building is the easy part of developing, so don’t underestimate the importance of the “dirt.” The physical characteristics of a site often can be the most challenging aspect of development. Site-specific civil engineering or environmental issues often can introduce complex problems that may have major time and financial impacts on your project. With that in mind the depth of the developer’s team is an important consideration. If delivery is time sensitive or there are issues with the site where your facility will be built, it’s helpful to have in-house expertise that understands circumstances surrounding your new development and can quickly handle any situations that arise. Your priority should be selecting a developer that has a team on staff to deal with the work load on the front end of the project, including planning, infrastructure, entitlement, and civil engineering for the site. Oftentimes developers will hire consultants for these roles, but it is to your advantage that the developer has an expert on staff to manage these aspects of the project and ensure your interests and bottom line are always the first priority.
Once you are confident a developer has the expertise to manage the early stages of a development project, be sure the developer you choose has a team that can handle all aspects of design and construction. You want to be sure that the company you choose is up-to-date on industrial building construction and market requirements plus has a strong working knowledge and past experience in dealing with all trades. Does the developer keep current with industry standards, incorporating the latest and greatest, cutting-edge features in their buildings? Are they familiar with architecture, concrete work, electrical, plumbing, interior finishes and more? In short, do they have the capabilities to deliver a modern, attractive, efficient facility that will last for years to come?
The developer’s track record also is an excellent indicator of whether or not they are a good fit for your project. Have they built industrial facilities similar to yours, both in type and size? Are they known in your market? Do they have a good reputation? Who are their customers? Do they have repeat customers? Have they expanded facilities for customers? Have they met the delivery timetables established at the start of projects or are they known to miss deadlines? If you can answer yes to all or most of these questions for a particular developer, that company is likely to be a good choice for your project.
Financial strength is another important trait of a developer. Do they have the financial wherewithal to complete your project? Can they financially handle any unforeseen issues that might have an unanticipated cost impact to the project? Is their funding subject to capital markets where a turn may force them to abandon a deal or prevent them from delivering what they promised? During negotiations, do they always look for and encourage the least expensive approach? Development is capital intensive. Be sure your developer has the money to see your project through completion.
Remember, selecting a developer for your building is a lot like hiring a new associate. You have a set of criteria you want them to meet. You weigh their qualifications against your requirements and other candidates. If you decide they might be a good match for your project, meet with them face-to-face, have them make a presentation and then make an informed selection.
Industrial development, though exciting, is an arduous undertaking. That’s why it’s prudent to select partners that can make the process as smooth as possible. Choosing a commercial real estate broker is a great start. Then together you can work to find the best developer for your project—one that is financially strong and can handle all aspects of development so that you end up with a high-quality facility that’s perfect for your needs.
