Hi, I'm Chad and in this video i'm going to cover manufacturing properties and why they're such
an important component of the overall industrial real estate market. Before we get in depth, I think
it will help if we first break manufacturing down to a very basic level. Things get delivered to the
property, those things are manufactured, produced, or assembled, then those things get shipped out.
I covered the importance of ensuring a property can adequately handle things coming in and going
out in the first video, so this video will focus on the processes involved within the
building itself. So let's jump into it! When you think of a manufacturing property an image of
a heavy industrial property might come to mind but there are also many companies specializing
in basic assembly or light manufacturing. These companies, while still manufacturers
in the broader sense of the term, require a different type of industrial property altogether.
Let's consider two companies: one is a metal fabricator which welds cuts, burns and machines
different types of raw materials. The other company assembles computer parts and electronics.
The fabrication space would undoubtedly be heavy industrial, whereas the computer company's space
could almost resemble an office space. And if we put these two companies at either end of
the spectrum, you can imagine all the different types of companies that would fall in between.
This helps explain why industrial real estate is such a broad category. It also highlights why
it's not always easy assigning a label to every property it's led to a relatively new category
called flex properties, which is a catch-all term intended to describe properties which
cater to a number of different uses. I'm focusing on warehouse and manufacturing properties in this
series of videos but don't ignore all these flex properties which could also be suitable options
for various companies. The various building types also underscores why zoning is such an integral
part of differentiating between industrial and commercial properties. It will vary from market to
market, but most municipalities will have a zoning regulation which specifically identifies which
properties are industrial and by extension what uses will be permitted under those regulations.
It's also common to see the zoning broken out into subcategories of light, medium or heavy
industrial. There might even be a business or general industrial zoning which goes to
show how some modern industrial properties blur the line between retail and office properties.
Since there's such a wide spectrum of different types of manufacturing
properties, there isn't a single property that will work for every company. I'll cover the major
aspects next but just be aware that every company will be unique and prioritize different components.
Let's start with clear ceiling heights which is the height from the floor to the underside of the
roof truss. Most modern buildings are being built with a minimum of 24 foot clear ceiling heights
but some older properties may be less than 20 feet. I sold a property a few years ago that
only had 14 foot clear ceiling heights and it was an insurmountable problem for many of the
companies that looked at it. It ultimately sold to a roofing company that did not need high ceilings
but I believe it sold for less than it would have if it had higher ceilings. Like many of
the other components i'm going to address I'd suggest you don't necessarily need to be the
best on the block, you just want to make sure you have a building that is competitive with similar
types of buildings. This can also be illustrated with the electrical power to the building having
a lot of power to a building will be critical for some manufacturers but less so for others.
The amount of power should scale with the building meaning larger properties should have more power
than a smaller building but some tenants will have a certain requirement for power irrespective of
the building size. It's helpful to confirm the amps and volts to the property but it'd also be
advisable to have any prospective tenant confirm themselves. After all a company would be prudent
to have an electrician or an electrical engineer audit their equipment to project how much power
will be required, so part of the process is making sure the building is compatible. I'd stress that
you don't want to underestimate the importance of having adequate power to the building
or at least have a comfort level on what it would cost to upgrade if necessary. Moving on, let's talk
cranes. It's common for manufacturing tenants to have a crane requirement, so if there isn't already
a crane it'd be helpful if the building was at least designed to accommodate it in the future.
Almost any building can theoretically handle a crane but if the building was
not designed for it at the beginning the cost to retrofit it can be prohibitively expensive.
Again not every tenant requires it but it can be a deal breaker for certain tenants. Let's go
over the common types of cranes and some of the terminology you'll encounter. Bridge crane. I've
also heard these called overhead cranes or craneways, so keep in mind the terms might vary across
different markets but the intent with a bridge crane is that it travels along a fixed rail system.
Depending on what the building in the crane itself is engineered to handle these systems
can typically handle 1 to 20 tons of capacity. And in some cases even more another type of
crane that's common is called a jib crane. A jib crane is typically fixed to either the floor
wall or column and it's designed to do repetitive tasks. The jib might swivel or just might move up
and down. It's possible to have a portable jib crane just as it's possible to have a portable
overhead crane on wheels, which is actually called a gantry crane. Pay close attention to whether the
crane is fixed or portable as it could determine who actually owns it. Since a bridge or jib crane
is attached directly to the property it is often considered a channel and accordingly would form
part of the property. You'll want to check if there are any pre-existing agreements in place though
as it's not always black and white. A couple more important notes on cranes: cranes require regular
inspections and certifications. There are all sorts of various components and designs within each of
these categories so don't hesitate to reach out to a crane specialist if you have questions about
a specific crane. Another key number that some manufacturers want to know is the underhook height
of the crane. As the name suggests this is the height of the floor to the height under the hook
at its highest point. In addition to paying attention to the size of the building itself
I would also recommend analyzing the breakdown of office to warehouse space and ensuring it's
consistent with the market. If the majority of the market has buildings with a certain ratio
let's use a hypothetical 25% office, 75% warehouse, you should be cautious if your building deviates
too much outside the typical configuration. If you have a building with only five percent office it
might mean you could be faced with a sizeable cost to build up more office. If you have a
building with 50% office you might have to demolish some of it to make the building more functional.
That's not an iron-clad rule of course as having a unique configuration might cater
well to a tenant that has a unique requirement. All these points are just intended to provide
some high level information but recognize every single scenario will be different.
Along the lines of looking at the breakdown of office to warehouse, I would also look at the
ratio of the building to the site size which is often called the site coverage ratio. Again this
will be tenant specific but the amount of yard space can dramatically impact the rentability
of the property. It's typically more important for manufacturing companies which need yard space for
materials or equipment, but even some distributors have a requirement to park vehicles or trailers.
It's also important to see if the yard area has been graveled and how well it's been done.
A poorly graveled yard will create soft spots and potentially drainage issues. As well some companies
will also have a requirement for exterior lighting and fencing in the yard. The last points I want to
cover are sprinklers and makeup air units. I spoke on both of these topics in more detail
in the last video so i'll just touch on them here. There are various types but a sprinkler system is
designed to suppress fires and mitigate damage. The cost of installing one can be significant
so be aware that it might be a requirement of the tenant, the insurance company, or the municipality.
Moving on to make up air units, a makeup air unit is designed to turn over 100%
of the indoor air with outdoor air and can have a dramatic impact on the health of the workers
and the building itself. Similar to a sprinkler system, it's not necessarily mandatory but many
tenants might require it. Congratulations if you've made it this far I know it's a lot of information
to take in. But to round out this video I want to add a few additional comments and things to warn
you about as you embark on your investing journey. First, I have to stress that i'm just scratching
the surface on these areas. Whether you're looking into cranes, makeup air sprinkler systems
or any of the other specific components note that there are professionals dedicated entirely to
these fields, so knowing about the importance of these components is a critical first step
but don't be afraid to learn even more and be ready to hire consultants as required.
Also there are a number of smaller factors that will also come up such as the type of warehouse
lighting quality of office build out or the HVAC systems, to name a few. I don't want to diminish the
importance of those factors, but generally speaking the cost involved in upgrading any of those areas
will be much less than say having to raise a roof! And in addition to these areas, there
are virtually endless amount of specialized requirements that an industrial tenant may have.
No building can accommodate every single tenant, but as a general rule of thumb you want to ensure
your building has the best chance of staying occupied at the best price you can get. So keep
on top of what is in demand and find a property that checks as many of the boxes as possible.
Quick highlight of the next couple of videos as well. I'm really excited to do an interview
with Mark Duclos, current president of SIOR and co-founder and president of Sentry Commercial.
I'm going to talk to Mark about what he saw for industrial real estate in different markets last
year and trends he's following this year. Mark is an amazing guy i'm sure you'll love hearing from
him. Following the interview with Mark i'm going to get into some advanced investment analysis
for commercial real estate. We'll go beyond cap rates and look into discounted cash flow analysis.
We'll cover terms such as internal rates of return and net present value but I'll make it as
simple and straightforward as I can. So if you're interested in learning more subscribe and turn on
that notification bell so you don't miss either of those videos. Thanks for watching, have a great day!
which could also be suitable options for various companies