For two days, the site selection team was wined and dined by economic development personnel from the Southeastern state -- for good reason. Executives were scouting locations for an assembly plant that would create an estimated 600 new jobs. State officials had responded enthusiastically to the plans; the governor guided one inspection personally.
But the atmosphere quickly changed. While riding with the state's economic development director, company officials casually mentioned they had a national union contract, says David Jarvis, director of consulting for CB Commercial's Madison Advisory Group, Los Angeles. "The economic development guy just stopped the car and looked at them," Jarvis continues. "`We are union free here, and that's what attracts other companies,l the director said. `We're not about to help a company with unions to come here.'"
Jarvis' anecdote illustrates a major theme in corporate site selection of the 1990s: what may be a boon to one firm may be the bane of another. Companies have their own unique reasons for making a move, and lower labor costs, one of the goals of many companies in the 1980s, is but one part of the equation. Added to this is the fact that government incentives, which used to be dangled like candy in front of a baby, are losing some of their allure.
"Corporation site selection is now tooked at much more broadly than strictly what the cost of site is or what labor costs will be. Companies seek the highest value -- with that value taking into account a number of different items," explains Van L. Pell, executive vice president and COO of Miglin-Beitler Inc., Chicago. "The best value tends to meet the facilities needs of the corporation while providing the best possible work environment. Naturally, companies want to minimize the cost of operations, but with the trend toward downsizing and outsourcing, they are also looking for future flexibility."
Occupancy costs, employee demographics, employee retention, access to airports and transportation and business interruption are all factors that corporations think about when considering a site change, according to Garry Weiss, vice president with Stein & Co., Chicago.
Not only that, but expansion-minded firms are placing an increased importance on issues that lead to a more content work force. "There is an emphasis on quality of life, because quality of life is going to give you a more productive work force," says Paul Waspi, vice president of LaSalle Partners in Chicago.
"In addition to low real estate costs, the search for a better quality of life has also been a catalyst in shifting corporate decisions about where to locate," says Pete Johnston, senior vice president and national leasing director for Equity Office Properties, Chicago. "Technology may make the world seem smaller, until you set out on the daily commute. Proximity to housing, dining, entertainment, transportation and even cultural attractions is having an increasing effect on location decisions."
Jack Koon, president and CEO of corporate services for PM Realty Group, Houston, notes that companies are tn a re-engineering mode, and change is spilling over into the site selection process.
"Right now, corporations are very keen on how the workplace can enhance productivity; it has its own subset of variable," Koon says. "Lifestyle is important to employees, and I think its a dichotomy. On one hand, the company is downsizing, consolidating and that is creating tension within the organization. But on the flip side, they're coming back and saying we `want to create a workplace that's enjoyable.' Clients are coming to us saying reduce costs but increase productivity."
Koon says companies will have to more closely align their corporate real estate plans with the company's business plan in the future. Why? "Because real estate is going to have to become a profit center, and they're going to have to look at lease vs. ownership even more so, as well as different financing methods. My theory of the future: companies are going to do things faster cheaper. If you can't show a client where your better, you won't get the job."
In selecting a new site, companies today want to consider a smorgasbord of factors before locking in a location. "Changing technology, new transportation hubs and evolving work patterns will continue to radically shift the decisionmaking process regarding size and geographic location of corporations," observes Gary Lenz of Arthur Andersen's Real Estate Service Group, Los Angeles.
That's in contrast to only a few years ago when one item such as a non-union work force or incentives, tax and otherwise, were the primary motivation for making a move. Government incentives are still sought -- and offered -- explains CB Commercial's Jarvis, but such generosity can oftentimes be offset by other economic factors. "Free money from the government sounds so good, but it can be as much of a trap for corporations as were tax shelters in the 1980s," Jarvis says. "Incentives are real sexy, and people think `the government is giving me something.' But incentives need to be negotiated, and that tends to be difficult until late in the game."
David Gialenella, senior managing director of Cushman & Wakefield in New York, notes that incentives, in fact, are becoming more focused. "There is not now as much of a feeding frenzy about incentives as there was a while ago," he continues. "Clearly incentives are much more focused, more targeted, to the nature of what they're trying to attract.
"Governments don't have the resources to do what they did in the past, and government budgets are tighter. But most areas still have bodies both at state and local levels, to offer incentives to a company to locate there, because they feel the gain in jobs offsets the costs in tax shortfatls."
Corporations are more closely scrutinizing the entire parcel, educational climate, cost of living, crime, socioeconomic status and tax environment, not merely incentives, those in the industry say. "For instance, Nevada has no corporate tax," Jarvis says. "Nevada is not going to give you incentives, but it's not going to tax you. So what's the bottom line? Is it better to go to a state with corporate taxes that gives incentives or a state without corporate taxes? Companies are looking at the total package."
Accordingly, firms are becoming more flexible. Les Cheikin, principal and cofounder of Relocation Management Corporation of America, New York, a full-service facilities relocation management firm, says many companies searching for sites will now listen to any viable plan a state, city or regional area may offer -- no matter what -- "because while it may not be what they're looking for on the surface, it could be a good starting point. Even if it sounds off the beaten track, companies are now taking a serious look. More times than not, deals are made out of thin air, and something companies thought might not be feasible could work."
Daniel Malachuck, worldwide director of business location services for Arthur Andersen, New York, adds that if a company needs a robust cadre of youngish professionals, for example, it will be better served by a place that provides opportunities for dual career, not just dual-income households. "Interestingly, the search for lower costs and the search for well qualified employees are not incompatible," he says. "Companies find places with relatively low housing costs, strong community college programs and marked underemployment in retail and other services, all good indicators for a potential fit."
Over the past 18 months or so, economic development officials report a rise in activity by corporations seeking that fit. "Right now, there is an aggressiveness in the marketplace," says Steve Mayberry, director of the Florida Commerce Department's division of economic development. "We're seeing an awful lot of activity from all around the nation and the world."
There is a reason that increasing numbers of companies are searching for sites nowadays. Dary Stone, president of Faison-Stone Inc., Dallas, the manager of the 12,000-acre Las Colinas development located between downtown Dallas and D/FW Airport. "In the 1990s, companies are more willing to make a decision, to pull up roots and leave," Stone says. "Other companies see you can do it -- have a good quality of life -- and then become willing to make a move."
Nowadays, says Waspi of LaSalle Partners, companies are seeking areas an hour or so from major metropolitan areas in order to combine the amenities of the "big city" with the quality of life associated with the smaller towns. Typical of this trend was 3C Alliance LLP, a consortium of battery manufacturers, which is constructing a 200,000 sq. ft. facility in Mebane, N.C., to manufacture the rechargeable cells.
"We screened several areas including Charlotte, Raleigh and Atlanta for quality of life issues and looked at the supply of improved sites within those metropolitan areas, doing full evaluations of all operating costs that 3C would incur over a 10-year period," Waspi says. "We narrowed it down to the Raleigh area, and 3C Alliance purchased a site in Mebane, northwest of Raleigh and just east of Burlington. It was one of the areas that Mercedes Benz has been looking at."
Site selection has become extremely important in these cost-conscious times because every penny saved goes right to the bottom line. If the wrong area is picked, the company is going to be forever stuck with higher costs because it would be prohibitive to select another site a few years later. The economics of making the right move can be staggering. Say a company has a high profit margin -- $0.20 out of every dollar. Just saving 3% by determining the right location for expansion or relocation -- a pretty low figure -- means 2.4 cents more goes to the bottom line. That might not seem much, but it could be the difference between being successful and losing money, industry sources say.
Also companies seeking sites to construct industrial facilities place a high value on infrastructure that is already in place rather than simply promises that roads, water and sewage work may be finished down the line. John Talbot of Chicago-based A. Epstein & Co. notes that firms Epstein has worked with over the past several years want concrete evidence that the infrastructure work has been done or is on the way.
"We usually don't rely on promises, but there have been a few exceptions," he explains. "Having the infrastructure in place or far enough along so that we know it will be done is a key consideration for any company. The reason is that glitches often happen: either the work isn't done, or isn't finished on time or the company ends up footing more of the bill. In locating a project, corporations want to avoid the uncertainty."
Talbot recalls that an Epstein client was looking at several areas in Southern California to construct a $50 million industrial warehouse and had made a tentative decision on one community. To attract the facility, the local redevelopment authority promised to issue bonds for highway and water improvements at the million sq. ft. distribution center.
But there was a hitch. "The bonds didn't sell, especially with all the publicity about California bonds at the same time, so the company ended up fronting the cash itself," he continues. "It was a scenario they wanted to avoid. The company spent another 2% to 3% in development costs that it didn't think it would have to."
Corporations nowadays also are looking to the future in selecting sites. Talbot and others say corporations are asking themselves the "what if" question -- what if this just doesn't work out? What is the value left?
A couple of years ago, we had one client that wanted to build a distribution center and had decided on the general area," recalls Talbot. "It came down to two different sites, one along a new freeway corridor, and the other along an established freeway. We felt land values would appreciate along the new. freeway but would be flat in the old corridor."
The scenario Epstein came up with proved correct. Three years after building the 900,000 sq. ft. center along the new highway, the company decided to close it -- the projected market share didn't grow as quickly as the firm had predicted. The good news? Because of the proper location -- along the new freeway, their land prices had appreciated significantly -- the warehouse was sold at a profit.
Like others in the site selection business, Talbot says incentives aren't critical in choosing a locale, but a "company has to feel it is receiving something, that the community is going out of its way though an actual dollar amount isn't that important in the overall scheme of things."
Accordingly, companies are taking a harder look at economics, incentives, quality of life and the labor pool -- with some interesting results. Consider, for instance, a manufacturing firm that was considering setting up operations in either Orange County, Calif., or Des Moines. Most people would expect Iowa to be the choice over California. But that just might not be the case.
In other words, an area may have thousands of people available but if they are not qualified to do the work, it adds a tremendous training cost to the company's ledgers. Thus any potential savings from lower tabor costs are wiped out. Still, the fight for sites and corporate relocation goes on; economic development officials use every weapon in their arsenal to snare new business. Some, like the state of Florida, have even blasted into cyberspace with their pitches, putting out the information on the Internet. (http://www:state.fl.us/commerce/)
"We've helped develop more programs to aid businesses," says Florida's Mayberry. "We now have a quick response training program to meet a prospect's specific needs. For instance, if a company wants to come here and is going to employee 300 people, we'll set up a training program. We also have some other tax rebate programs and we have a transportation fund."
Alan Perlmutter, senior vice president of commercial development at Las Vegas-based American Nevada Corp., a master-planned community developer known for its 8,400-acre Green Valley project in Las Vegas says companies seeking to relocate desire a good business climate as well as lower costs.
"We're extremely pro-business in southern Nevada, and the whole state is very pro-business," Perlmutter points out. "If someone wants to come to the state and build a plant and they want to meet with the governor, a senator or the may or, it can be arranged on 24-hours notice."
Building a new plant can be costly, but that is not a deterrent nowadays either. A number of companies are also opting to let others put in the money for a new plant or corporate headquarters according to Sydney Domb, president of United Trust Fund of Miami, a firm that advances funds to corporations to build and leases the facility back to them.
"It wasn't too long ago that corporations wanted to hold onto real estate, it was their jewel," Domb says. "They'd go out with people and say, `that's our building; that's our factory.' But they've realized that they can have expansion without spending for bricks and mortar. with site selection, it's all mathematics."
As companies head toward the 21st century, the dynamics of their business will evolve; the corporate site selection industry will change too. "The future is going to be interesting because it will be so technology focused, and we'll see smaller, more profitable, more effective business units," says Gialenella of Cushman & Wakefield. "You may have a company now with 50,000 workers and 1.5 billion in sales that by turn of century might have $3 billion in sales and 40,000 employees. It's going to be interesting."
* Cost of Living * Availability/ Cost/
Quality of Housing * Availability
Location of Qualified
Labor * Labor/Management
Relations * Availability of Commercial/
Industrial/
Business Infrastructures * Recreational Opportunities * Medical Facilities/
Health Factors
Educational Quality/
Opportunities * Crime Rates * Hotel/Motel/Conference
Facilities * Shopping Facilities * Churches, Temples * Probable
Commuting Times * Environmental
Quality * Environmental
Restrictions * Public Attitudes * Association & Clubs * Libraries, Parks, Etc. * Employment Market
for Spouses * Governmental/
Regulatory Climate * Tax Climate * Local Transportation
Infrastructure * Local Economic
Trends * Air Transportation
Accessibility * Employment
Characteristics * Socio-demographic
Characteristics * Proximity to
Competitors/
Customers/Support
Services
So you're thinking of putting a plant in a low-cost, high-yield area or moving your corporate headquarters from a crowded building in a congested city to a more wide open expanse. How should you proceed? Carefully.
"Hire professionals to do the job for you," says David Jarvis, director of consulting for CB Commercial/Madison Advisory Group, Los Angeles. "There is an entire location analysis process that includes developing criteria, identifying locations, researching them, analyzing the data and site selection and acquisition."
Sometimes, companies lack the proper analytical toots to do the process in house. That could prove counter productive. "Many times corporate officials may have a bias toward one area because they think that's what the chairman wants to hear," says Les Cheikin, principal and co-founder of the Relocation Management Corporation of America, New York.
Negotiate hard -- but not too hard -- for the best possible deal. "Don't forget that you don't want to hold these communities hostages," adds Paul Waspi, vice president of LaSalle Partners. "Many times companies are just out for the incentives, but you're going to be a long-term citizen in that community, and you better start out on the right foot."
Once the site selection process has begun, continue to be realistic. Companies oftentimes underestimate the cost of a move, because someone decides it is going to cost $10 million and try to force it.
Keep asking the question: Is the site qualified? Jarvis recalls a company that was looking at an area south of Tijuana. Officials of the manufacturing concern had checked the water supply because H2O was needed for the process. "They looked at it during both the wet and dry season, and it looked okay," Jarvis said. "What they didn't know then was that it had been an unusually wet winter. The stream dries up eight out of every 10 years."
Mike Sheridan is a Houston-based freelance writer who contributes regularly to a number of national magazines.