Dean Barber

To Spec or Not to Spec

In Corporate Site Selection and Economic Development on May 4, 2014 at 6:24 am

Many years ago as a young newspaper reporter, I covered murder trials that would result in the prosecution and the defense trotting out their expert witnesses who would then proceed to contradict each other.

The testimony of the experts would typically center on their scientific interpretation of some forensic evidence. Sometimes they would speak about the mental state of the defendant, usually accused of doing something crazy.

Whether the accused was in fact crazy – that is he or she knew the difference between right and wrong — depended on which expert witness you believed. I could only take notes and report on what they said.

So years later, I have found myself being accorded a certain degree of expert business status as a site selection/economic development consultant, to which I will admit that I am not completely comfortable with.

But I have been around the block and have seen my fair share. So when I am frequently asked to speak at various functions, I think to myself, “Well, if they are asking, I might as well give it to them straight and not sugar coat it.” And that’s what I try to do.

Occasionally I will find myself at events in the company of other dubbed experts who say things that leave me wondering. Sometimes they speak in a consultantese jargon, which boggles the mind, and at other times, I get what they are saying, but just can’t subscribe to it.

In last week’s blog – Much Ado About Not Much – I told how conventional wisdom concerning right-to-work state status no longer holds much weight for me, although it apparently did for one panelist.

Hold on Thar

During that same “Meet the Consultants” event, a question came from the audience, actually from a very capable and experienced economic developer working with a statewide utility company, as to whether communities should build “spec” buildings.

If I interpreted the comments correctly from one panelist, and I might not have, his answer sounded like an unequivocal yes – build it and they will come.

I thought about that for a moment and wanted to quote Quick Draw McGraw by saying, “Hold on thar, Baba Looey.” But I didn’t. But I did speak up with a qualified “it depends” counter answer.

Now if you have an industrial park at an interstate interchange with good visibility and presumably good access, and you, the economic developer, have a patient, understanding board (I’ve heard about one a long time ago), well, then maybe a spec building might make sense.

If you do go that route, do make sure that it is designed with flexibility and expansion in mind and with the knowledge that ceiling heights continue to go up for much of manufacturing.

How Big is Your Elephant?

But even then, and even in the best of locations, you might have to be prepared to look at that building unoccupied for an extended period of time. And to that end, you have to know (I can’t tell you this) your own comfort level as to risk. Are you (and your board) prepared for the snide comments that you built a “white elephant” if it does stay empty?

Last year, I saw a spec building that never should have been built. It was in an isolated community 26 miles from the nearest interstate and it was obsolete the day it was built with low ceiling heights. And it has remained empty, not having its first tenant, for 17 years. Now I think that probably does qualify for white elephant status.

Generally speaking, I would advise a rural community, especially one that is miles away from an interstate highway and/or a metropolitan area, to steer clear of a  spec building unless you have the patience of Job.

Having said that, it is absolutely true that a community needs real estate “product” to be a contender in industrial recruitment. Preferably that product consists of both existing buildings and sites, but for many communities that is simply not the case.

There is an Alternative

Instead of a spec building, you might want to go the certified site route, which is a step forward but invokes less risk in terms of capital investment. It’s not a building, but you would be offering a site, after going through an exercise of due diligence, preparation and investment, that would essentially be ready for immediate development.

Too many economic developers, and this holds true in both rural and metropolitan areas, equate land with a site. It took me years to figure out the difference. But today if I am  representing a corporate client, particularly a manufacturer, I want to look at sites where the company can hit the ground running.

Raw land – where so many things have not been done that need to be done – does not offer the needed assurances for immediate construction. For that reason, I would much rather pay $50,000 an acre and know that I’m getting in a ready-to-go site – some would call it a certified site – than $5,000 an acre for a cotton field and not knowing what I’m getting into.

Time, Risk and Money

Like the spec building, it’s a matter of knowing the level of risk you are willing to tolerate. Typically, transforming raw land into a viable building site takes time which a company doesn’t have to give.

These dual elements of time and risk are the basis for site certification work that I do for economic development organizations. It essentially entails the building of an electronic file through the use of a Dropbox, that would provide documentary answers to any and all questions about a given site.

In short, site certification is a marketing tool and process that demonstrates that the due diligence has been performed so as to allow for fast-track construction to take place. And that can give a community a decided advantage.

Still, it is not uncommon for me having to explain the benefits and logic of site certification to often skeptical economic development organizations. (Call me if you would like to learn more.) And I also have to had to do the same with companies.

Now it is a given that companies have expertise in their core business or they would likely not be expanding. But they do not have in-depth knowledge (nor should they) about how the site selection process should work, which is where I come in. Listen to me, I tell them, and I will save you time and money.

And while there is no site selection school – different consultants do it different ways – there is the school of hard knocks and experience, which should mean something at the end of the day. At least I hope so.

Giga This

I read an article this past week in which a New Jersey-based site selection consultant was praising Elon Musk, the head of Tesla, for being particularly astute at the site selection process for what is being touted as a $5 billion gigafactory that will employ 6,000.

Well, I’m not so sure about that. In past blogs I have questioned the size and scope of this project, and continue to do so simply based on the realities of what this company is today and what the market is for electric cars.

Four states — Arizona, Nevada, New Mexico and Texas – would appear to be in the running, and Musk said this past week that his company will go in a multi-track direction. Here’s what he told Bloomberg:

“What we’re going to do is move forward with more than one state, at least two, all the way to breaking ground, just in case there’s last-minute issues. The No. 1 thing is we want to minimize the risk timing for the gigafactory to get up and running.” Musk said.

“We will end up spending more money than would otherwise be the case to minimize the timing risk.”

Time, risk, money – are all key components to virtually every site selection project. And, I would argue, it’s the reason why site certification makes sense for communities and why companies should not try to go it alone but hire an expert who can help them.

Plano Wins a Big One

Literally my backyard here at Legacy in Plano, a suburb city north of Dallas, will be getting what is effectively Toyota’s North American headquarters and eventually 4,000 jobs. A big congratulations to the good folks at Plano Economic Development. This is a big one worth savoring. I reckon I should brush up on my Japanese.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

 

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  1. Seems to me that “It depends” is often the best answer to most questions; at least until one has had the opportunity to uncover the specifics. Good article.

  2. Dean:

    Two comments:

    #1 right on, brother! Site certification is a great strategy (especially if it includes broadband, as well as other utilities).

    #2 how about some comments on the boom that is the DFW area (not necessarily Dallas per se)? I would love to hear what an expert who happens to be local thinks about all the announcements coming out of the DFW area.

    Rollie Cole, PhD, JD
    Founder, Fertile Ground for Startups, Small Firms, and Nonprofits
    “Think Small to Grow Big”
    Author of WHOLESALE ECONOMIC DEVELOPMENT http://preview.tinyurl.com/wholesaleeconomics

  3. Both spec buildings and certified sites are tools in the overall economic development strategy of a community. The problem (not really the problem but the reality) is that they are a blend of economic development marketing and real estate development. Community leaders need to understand that a spec building or development ready site probably fills a void in what their community has to offer and filling that void allows potential employers (prospects) to justify a visit to that community. A spec building, in particular, should be seen as “marketing” and the dollars invested need to be written off as marketing. But, because a building is brick and mortar, community leaders and the public tend to see a real estate investment, and they want results and a return tied directly to that investment. This is where the reality check comes in, as you pointed out, Dean. Obviously, if the market does not support a low ceiling shell building 26 miles off of the nearest Interstate, with suitable utilities, workforce, etc., the community really needs to think about what they are getting themselves into. The decision to move forward may still be made, but the rationale for moving forward may be different.
    As a positive example, we put up a spec building in Pensacola 20+ years ago, with the County borrowing the money for construction and the private sector (through part of a capital campaign) pledging to pay the interest for the first five year. This took the heat off of the local government (i.e. the real estate need for a quick deal mindset), and the private investors saw their money as marketing dollars. It sat empty for maybe 3 years but we generate a number of prospects solely because we had that building and landed some good companies as a result. Eventually, the building was taken by a local company that needed to expand. We put up a second building and that one turned over in a much shorter time. But we entered into the experience knowing that we had a certain size building void in the region and with the attitude of a public/private partnership spending marketing dollars for the community. (I don’t remember whether the first building was 40,000 or 50,000 SF. Tilt-up concrete walls, designed to move the back wall and expand as needed. No floor. Utilities to the interior, with basic factory lighting installed.)
    I, too, have seen the classic spec building with the faded For Sale sign in very rural communities in Florida, although more so in Tennessee. Typically, either a new economic developer was hired and talked the community into a spec building because he/she needed something to sell or the Mayor went to a state ED or rural development conference, was sold on the idea of a spec building, got home and called the local or state utility or closest Rural Development office and got some money for a spec building. Sounded like a good idea….at the time. I would also caution people on the site certification process. I have been through that, too. The certification means a site meets specific criteria (ownership, topography and soils, utilities, transportation system on or near the site, etc) and is development ready. It can be an advantage over similar pieces of property, but, it does not in and of itself make a site marketable or desirable. That gets back to real estate basics – location – and opportunity.
    Sorry for the long rant, Dean. I was on a roll.

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