Author: Thomas Openo Jr., Director, Preferred Realty & Development
Think inside the box. Does your warehouse and warehouse layout meet the strategic objectives for your multichannel business?
Many older warehouses, distributions centers and locations are obsolete in today’s “point and click” world. Higher volume ecommerce sales and increased competition are quick to expose warehouse inefficiencies. Today, consumers expect fast delivery, which requires automation and technology but with an outdated warehouse layout; operations such as high-rise racking are not an option.
Amazon.com changed the norm for ecommerce and customer expectations; and with these changes came changes to the fulfillment strategy. Robotics and automation of the modern facility is a critical driver to their success. Amazon.com didn’t settle for the 1980’s 18’ clear height box; Amazon.com used distribution centers as part of their strategy. For example, in Richmond, VA they opened two large centers (1M square feet) created 1,350 jobs and made an investment of $135 million in less than 1 year. Virginia provided development tax incentives for the deal. It is this level of distribution center commitment that makes “same day order delivery” possible.
You should consider Build-To-Suit lease as you consider your strategy.
A Build-To-Suit facility (BTS), also known as a design-build, is a purpose-built building usually for a single tenant. There are several benefits to a BTS facility that make it a realistic option for multichannel businesses including: preservation of capital, modern technology, economic incentives, tax deductions, flexibility, and administrative relief.
The highest and best use of your capital is to reinvest it into your business. Working with an experienced BTS developer allows you to preserve capital and shifts the financial, construction, and capital market risk to the developer in exchange for a long term lease; typically 10+ years.
Everything about BTS is modern and tailored to your specific needs. The technology and warehouse layout integrated throughout a BTS facility equals real dollar savings and increased profits. A modern facility will increase efficiency, reduce operating costs, and ultimately lead to a better customer experience and repeat sales.
Now states and local municipalities have taken notice and want your growing business inside their borders. States and municipalities are competing to offer the best economic incentive packages to attract or keep your jobs inside their lines whether you lease or own.
Another option to consider is to purchase the real estate long term. A BTS developer will certainly build the facility on a fee basis; however, it’s important to know the different exposures that ownership presents. First and foremost, if you choose to own, welcome to the real estate industry!
Ownership entails certain responsibilities and liabilities. From a tax perspective, 100% of rent payments on leased property are typically tax deductible, while only the interest portion of mortgage payments is deductible for property owners.
Furthermore, consider the flexibility or lack thereof provided by a lease versus ownership. When your business grows or right sizes, the underlying real estate does not and the asset is fairly illiquid.
Above a Preferred Realty & Development facility – FedEx Salt Lake City Airport –
• 70,908 SF
• 20 Dock doors
• Sort Capacity: 3,000 packages an hour
Each business is unique and will address real estate needs differently. Remember behind people and benefits, real estate is among the highest costs in your business. A warehouse isn’t a building any more – it’s part of your strategy. Think inside the box or you could always lease that 1980’s space. It’s still available at a great deal!