RE65C11: Advanced Industrial Real Estate Brokerage

Approved Jan. 10, 2011

I. Economics of a Manufacturer (Not a warehouser) (25 mins)

A. New economic expenses that face manufacturers and drive real estate decisions

a. Labor cost issues and how it is narrowing profit margins. Labor cost as a percent of total operating costs in order to understand its importance and the reason to outsource to other countries

b. High land costs that can drive up the rental rates to an industrial user and force users to move to less expensive markets.

c. Increasing transportation costs; air, rail, trucking that impact site selection locations to less expensive transportation modes and influence the choice of transportation such as the west coast and the use of rail

d. How the above three items effects an industrial company's return on capital and influences its decision to lease vs. own

e. The new International Financial Reporting Standards (IFRS) vs. Generally Accepted Accounting Principles (GAAP) and the very general accounting changes that a broker should be aware of that could impact an industrial user's decision to lease vs. own. In other words, how a capital lease vs. an operating lease would affect a public industrial user's real estate decisions.

f. Impact of the accounting system to the broker on sublet rental rates, straight-lining rents, broker's opinion letter of market rents. How new accounting affects straight-line rents and rental rate losses on subletting

g. Working with industrial users on lease renewals to create flexible lease terms with termination language or options to extend

h. How foreign exchange rates are favoring foreign national industries and Research & Development (R&D) users to move to Massachusetts and how the exchange rate plays a part in lease/purchase negotiations in Massachusetts

II. Logistics and Supply Chain Process (30 mins)

a. The broker's need to understand logistics chain process in industrial site selection that can influence an end-user to lease a more expensive building or buy a more expensive land location

b. Brokerage understanding of how industrial users are re-evaluating their supply chain strategy and its impact for distribution space with higher ceiling heights and using cubic feet as a metric.

c. Defining "multi-modal" vs. "intermodal" and what is means to a broker. Identifying how intermodal plays a wrinkle to the distribution of goods, buildings that are rail-served for delivery of bulk goods and how volume pricing is cheaper

d. A review of recent shifts from container shipping and industrial ports like to Boston to inland transportation hubs that can change trends for site location to the suburbs

e. Cost effective shipping options such Boston harbor and the use of Massport that might make Boston a more popular location than the Port of Newark. How shipping from SE Asia is closer to Boston than California and that shift from Korea to SE Asia of goods could make Boston a more desirable port to unload ships

f. Rail service and benefits (with such companies as CSX Corporation and its partners). The definition of double-stacking, size of cars, switching issues, day and night service, faster and more efficient as compared to trucks.

g. Air Freight with high value inventory (Logan Airport) as an alternative. Companies such as Legal Seafoods have processing plant on the harbor to be close to Logan.

h. Kennedy Airport is still the preferred airport and how that negatively effects Boston and New England.

i. Distance Based Pricing, how it works and why tenants price in the cost of real estate as it pertains to DBP

j. "Turn" rates per day are important (to and from port to distribution center) and how that influences site selection to more expensive locations.

III. Industrial Site Selection Brokerage Issues (25 mins)

  1. Industrial broker's need to know how small Massachusetts users seek niches to be creative, supply local customers and be more agile on service and to understand how the real estate decision is affected by operational variable.
  2. Broker's knowledge of industrial user's customer contracts and workplace operations that affect real estate leasing terms for flexibility, rent, total occupancy cost, etc. It is not about comparing one industrial building's rent to another building's rental rate.
  3. New industrial metrics that determine building affordability such Cost per seat, cost per cubic feet, cost per truck delivery, frequency of "turn rates"; cost per truck deliveries per route, net margins as a percent of real estate costs, cost per palate, cost per mile, etc.
  4. Industrial broker's knowledge of the new industrial trend toward infrastructure-related industries such as Caterpillar and Deere
  5. Offer resources available to identify municipalities close to Boston port or near main trunks of rail and highway
  6. Identify rail companies such as CSX to identify rail service lines
  7. The industrial broker's knowledge to transportation hubs and how older transport hubs may need to adjust to build additional infrastructure to attract industrial users
  8. End-users needs specific to external logistic hubs and how an industrial building will chain into the hubs
  9. This specialty is known as "logistics property brokerage business"
  10. How the industrial broker is faced with industrial user issues on "Intellectual Property" in Asia and the broker's role to protect the operations of an industrial users
  11. The industrial trend to move overseas operations to the U.S. due to productivity, work ethic, transportation/distribution costs and overall operational efficiency

IV. Industrial Real Estate Cost Comparison (15 mins)

1. The knowledge needed by industrial brokers to identify and use the metrics systems employed by industrial users in real estate decisions as mentioned above

2. Discussion on how rental rate comparisons have become less important as a metric for brokers when surveying the industrial marketplace.

3. How an industrial broker's knowledge of financing with MassDevelopment and Mass Alliance has been a new partner

4. New economic expense metrics that impact affordable rental rates and the exodus from Massachusetts to other states

V. The 21st Century Industrial Building Physical Characteristics (25 mins)

1. "Just in Time" process, bar coding and the impact on building design and decrease need for space and how it saves the end-user money but not shutting down a building for inventory count.

2. How automation, robotics has changed the industrial physical needs by saving on labor costs and expediting the delivery of goods to a truck

3. Global Positioning System (GPS) use for air transportation and telecom needs at industrial facilities that the broker needs to be aware of

4. Broker's understanding of cross-dock warehousing. Defining "cross-docking" and what the advantages are to an end-user and its need in a warehouse building

5. Identifying other highest and best use of "functionally obsolete" industrial or mill buildings

6. The need by start-up manufacturers and R&D users for mill building space as incubator space that is very inexpensive from a rent and occupancy standpoint

7. An industrial broker's awareness of how a mill building could offer a user the ability to compete successfully with adaptive re-use buildings by having lower occupancy costs.



"The World is Flat" by Tom Friedmann
"China Inc." by Ted Fishman
CoreNet Industrial
Society of Industrial and Office Realtors
National Association of Industrial and Office Properties
CSX Rail Map

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