Worley Blog


Posted on: March 28th, 2019 by Clifford F. Lynch

Fifty years ago, when you wanted to expand your distribution network and build a new distribution center, you didn’t call an industrial real estate broker; you called a railroad located in the area in which you wanted to expand.
Most large companies shipped their product – whether it was cases of consumer goods or rolls of carpet – by rail, which meant they needed access to a rail siding.  At that time the railroads owned a significant amount of raw land, much of it located along the rail rights of way, thanks to government land grants handed out in the mid-1800s to encourage development in the nation’s heartland.  And the railroads were only too eager to sell off plots for nominal amounts in exchange for a contractual promise of an agreed upon number of carloads of freight.  Depending on the level of potential traffic involved, they sometimes included other concessions such as extended rail sidings, rate discounts, and extra services.
But those days have gone the way of the steam locomotives and cabooses. Today’s selection teams want to know about a site’s access to highways, not railroads. In fact, very few distribution centers today even have rail sidings. While transportation availability should be at the top of everyone’s list, these teams must also be concerned about such things as labor supply, tax incentives, quality of life, and zoning.
Each firm’s requirements will be unique, but there are certain factors that should be considered for any project. Here are some factors to consider.
– Availability and cost of labor
-Availability of community services, i.e. commercial, churches, commercial
– Availability of extra land for expansion
– Availability of industrial support services
– Availability of special financing
– Building restrictions, if any; i.e., height, setbacks, landscape requirements
– Education facilities in the area
– Fire codes/protection
– Foreign Trade Zone availability
– Land or building availability and cost
– Location and volume of customers to be served
– Origin of products and materials flowing into warehouse
– Sustainability requirements; i.e. water retention
– Tax incentives
– Tax structures – property, income, inventory sales
– Telecommunications availability and cost
– Transportation access – rail intermodal yards, motor, package carriers
– Unemployment rate
– Union environment
-Unique Transportation Requirements
– Utilities, availability and cost
– Zoning regulations
While each of these is important and requires a critical review and close scrutiny, municipal and state incentives can be particularly important. Many areas have so-called PILOT (Payment in lieu of Taxes) programs which will provide tax reductions in exchange for new employment opportunities. Economic development incentives may also be available. The amount will depend on what benefit the new company might bring. Iowa and Mississippi in particular, have very attractive incentives for the right firms. For example, in several cases, firms interested in a Memphis location have been lured just across the state line by Mississippi incentives.
Be aware however, most of the incentive agreements will have “claw back” provisions whereby the incentives must be returned to the granting body if the recipient does not meet its contractual commitments.
Wherever you decide to locate, land and construction costs are such that the construction of a new distribution center or plant can be an expensive undertaking; and proper due diligence will be critical to its success.