Real Estate Responds to Supply Chain Shifts

By Chris Steele, President Real Estate Line of Business, TranSystems

Buildings and locations cannot change as quickly as today’s shifting supply chain universe. Companies increasingly seek flexibility in their contracts for trucking, rail carriage, and 3PLs, but they simply cannot eliminate, change, reconfigure, or add physical points and facilities to the network in the same manner.

How can companies break open the lease or ownership bonds when the world changes and they need to adjust? Even better, how can they plan for change?

Repositioning Within the Company or With Partners
A facility that has served as a good location for the business once may well do so again — with a few modifications.
A company, which has shifted to a 3PL solution for shipping, may offer their warehouse space in whole or in part to their new vendor, retaining the original function in a location that still works well for the purpose. Or, maybe the location continues to provide access to key talent in a low-cost environment and may provide an interesting site for assembly operations. Perhaps the space might be reconfigured in such a way as to allow for some type of back office operations.

Swapping
In some cases, the facility itself can be used as currency in adding new facilities to the operational portfolio.
In a “1031 Exchange” (named for the Federal tax regulation allowing the transfer), a party may exchange a facility with another party for a facility of equal value and incur no tax implications on the transaction. While this is a specialized and somewhat rare situation, it’s one worthwhile to remember when speaking of shifting warehouse needs.

Repositioning for the Open Market
Facilities that can’t be re-used by the original company are still likely to have value on the open market.

Companies have the best chance of moving these facilities quickly, if they can understand the benefits and liabilities of the site as seen by other possible users. This perspective can allow for a quick targeting of new potential users, identification of their needs and pressure points, and can even suggest a pricing and negotiations strategy, regardless of whether the property is owned or leased! [We will go into this in more depth next month.]

A Flexible Plan
Certainly the best and simplest way to remain well-positioned for most eventualities is to model or simulate such outcomes before committing to a long-term lease or ownership position. 

Too often we are forced into immediate action due to lease expirations, imminent product launches, or other events that limit the ability to truly examine the answers to important questions, including:

•  Why do we need this facility?
• What do we need it to do?
•  How long are we likely to need it?
• In what other ways might we address this problem? Do we need a building to take care of it?
•  What is our exit plan; what should or can we do with the facility if we no longer need it for this purpose?
Asking these questions beforehand and coming up with complete answers for each can save a great deal of distress (not to mention cost) later.

An honest look at the business line, how it functions, and how it interacts with the company and its markets can also help to determine needed flexibility. Ask yourself, how might technology, the economy, regulation, or other outside factors change how we do this function? How would these changes impact our need for the space?

Separating the Important from the Immediate
Change brings great stress into businesses, and while prudent management is a critical component to navigating such times, rash action can prove terribly harmful in the end. Tactical solutions can only band-aid operational problems, and sometimes good strategic solutions cost money in the short term. Looking ahead to a time of increased efficiency and flexibility can make pain in the short term much more palatable.

Of course, even given the best planning, vacancy rates will likely get worse before they get better. Next month, we will revisit a topic mentioned above and explore possible approaches for “reverse site selection,” otherwise known as “how to find the right buyers for excess real estate.”

In This Issue

New Items

Time for the Tough to Get Going

Supply Chain
Real Estate Responds to Supply Chain Shifts

Taking Your Ship to an IP Environment

Compliance Corner: SOPs, the Foundation of Trade Compliance

New Applications for RFID

Features
Gateway at a Glance ­– Canada

Moving Goods in a Slower Economy

Ports & infrastructure
National Gateway — a Public-Private Partnership in Progress

California River Ports

Port Products
Clean Air Equipment

Commentary
Contract Negotiations Approaching

Who, What, Where, When

Final Say