Friday, March 08, 2013
Courtney Dunbar, CEcD, EDFP, AICP, Industial Site Consulting
It has been stated that the largest crisis in economic development today is irrelevance.
Irrelevance: not good, not bad. Just simply, unnoticed.
If the antonym to “irrelevance” is “uniqueness,” then the litmus test to being noticed becomes, “What does my community offer that sets it apart and makes it relevant for industrial development?”
I’m going to let you in on a little secret . . . one that is kept far too well. Read on.
The average American states that the largest capital investment he or she will make in his or her lifetime is a home. Now, if you own a home, consider all of the diligence you underwent in making the decision to purchase. You likely checked the school district, the transportation routes to areas of personal significance, the home’s condition, the property’s suitability, the property tax rates, and the proximity to services.
Now, consider industrial prospects. Instead of purchasing a home, developers are making multi-million—if not multi-billion—dollar capital investments when they invest in a site. The products they produce require significant infrastructure support and capacity. Labor matters. Roads matter. Rail matters. Zoning matters. Other analytical, site-preparedness items matter. Timeliness to market is paramount. Underestimating a site’s ability to serve specific industrial needs can result in catastrophic outcomes, including closures, layoffs, or worse.
Here’s the secret: The best marketing you can do as an economic developer is to thoroughly assess and plan your industrial sites. Companies simply cannot afford to take a risk on “maybe this site can serve” or “we think we can obtain property control.” Absolutely and without a doubt, risk avoidance in the form of industrial site preparedness is crucial to site selection decisions. Communities must be able to fully explain the functionality of their site inventories to effectively compete for industrial development.
Here’s the problem: When a site selector or end-user is looking for a new site, much of the information necessary to begin the search is obtained on the Internet, without you ever knowing that they inquired. Economic developers spend significant time creating a story that will sell their communities and sites, but, shockingly, few have robust, site-specific infrastructure information available for these seekers. Considering that company profits hinge on site-specific attributes, such as input availability, time-to-production, and exchange and proximity to markets, ready access to this information should be a top priority for economic developers.
Site selection has evolved considerably over the last few decades. Highly specialized equipment and telecommunications advancements have led to unique siting requirements for most end-users. Rarely does a one-size-fits-all approach to site development work for today’s modern industrial company. As many as 75 different site and community attributes may be requested for initial diligence in site selection decisions, all with the intention of efficiently identifying risk-to-development factors. Site preparedness should be seen not only as a means to attracting an end-user, but as a means for playing the economic development game intelligently.
The benefits of site preparedness are vast and provide benefits locally—far beyond simply serving as a tool for economic development marketing. Here are some local benefits that you may not have considered:
Streamlined Industrial Targeting: A community cannot effectively develop a plan to target market industrial segments without understanding if the sites within its community can adequately serve companies’ infrastructure demands. Site preparedness allows a community to understand its natural assets and mitigate uncovered deficiencies so that it can align likely user groups to sites that make sense for optimal industrial development types. Companies make decisions based on a lower production cost on their chosen site compared to any other site. Since production costs are a primary reason for a site decision, it is wise for economic developers to effectively target industrial segments for which the community and site can provide a natural advantage.
Capital Improvements Budgeting: Economic development is most often a public/private partnership that requires investing dollars to build infrastructure to serve industrial sites. To make the case to county boards, city councils, and other elected officials that these funds should be designated for economic development growth, it certainly helps to understand “Why this site? Why this capacity? Why this timeline?” To invest in site-readiness without a plan is risky for the longevity of public officials and the job of the economic developer. Industrial absorption rates are historically slower than retail and commercial. Industrial infrastructure needs are more stringent and costly. However, the ability to provide a solid plan for logical infrastructure phasing is necessary to mitigate risk in the eyes of a prospective end-user. Having a plan mitigates political risk and encourages readiness actions.
Incentives Negotiation: Recently, a client was looking to invest nearly $500 million on a site in the Midwest. It was discovered that nearly $1 million would be made available in working capital (cash) incentive to the company, among other tax and workforce incentives. As part of the site’s underwriting, it was discovered that the state’s Department of Transportation would require an additional turn-lane for access. Designing and permitting a turn-lane off of a state highway is approximately a nine-month process. In addition, the company would need to thoroughly assess water availability, volume, and pressure to ensure compatibility with their production needs, posing the need for an assessment that would also take several months to complete. The math showed that, if this company were to be delayed in time-to-production because of permitting issues or undiscovered infrastructure capacity deficiencies, $1 million would be eaten up in lost profitability in less than one week. One week! Site preparedness helps communities craft incentive packages that truly add to the bottom line profitability of the companies they are courting. In this instance, funding to assist with turn-lane design and a water study affected the bottom-line profits, well beyond what the working capital investment would have provided. Smart site preparedness allows communities to anticipate and implement wise incentive decisions.
Industrial Company Protection: Local planning and zoning policies often provide little protection for industrial companies. In many instances, future land use maps reserve peripheral, low-resource land tracts for industrial uses. The zoning code that governs these areas allows for a variety of uses, some of which could be detrimental to industrial companies. Land use laws provide the highest level of protection to residential, commercial, and retail areas, with industrial receiving the least protection. Noise, smells, dust, and other normal aspects of industrial production could cause operational shutdowns due to encroaching incompatible uses. Consider this: Industrial companies often provide the highest levels of local, taxable capital investment and jobs; yet they have the least zoning protection and can be forced out of production due to encroachment of incompatible, peripheral developments. Protection for industrial companies through site preparedness tasks are necessary steps in mitigating risk to production.
Industrial Tract Optimization: A crucial aspect of site preparedness is master planning industrial tracts. Master planning is a preferred method to platting, as plans are technically sound yet considerably more fluid than a registered plat. Master plans allow users to visualize the intended design of an industrial park but have options to join lots to create additional spaces. These plans effectively accommodate drainage, access, and other easement issues while allowing tract development to be optimized.
Many communities choose to take site preparedness to an accelerated level of site certification. Certification programs vary nationally and are offered by private companies or governmental entities. Communities taking the site preparedness steps necessary to achieve certification are absolutely elevating the marketability of their site inventory, leading to quality jobs and capital investment critical to a community’s “quality of place.” Receiving site certification for industrial sites provides site selectors and end-users with a sense of confidence that crucial site attributes are addressed.
Site selection decisions are largely made by determining that the costs to produce are less and the bottom-line profits will be more in the chosen location than anywhere else. Undergoing site preparedness exercises communities’ abilities to assess their communities’ attributes, mitigate deficiencies, and organize tracts for optimum efficiency, which are all crucial to successfully creating the relevance necessary to attract new industrial investment.
For more information on how Olsson can help create or enhance your community’s relevancy in attracting industrial development, please contact Courtney at 402.341.1116 or email@example.com.
This article also appeared in the March 2013 issue of Site Selection magazine.