In keeping with the theme of the upcoming IAMC Fall Professional Forum in Kansas City, Missouri, October 2-6, I recently convened a group of IAMC Active corporate members to think about the future of industrial real estate. Joining me were:
- Jim Eckert, Director of Corporate Real Estate for the Global Real Estate Solutions team at Owens Corning, headquartered in Toledo, Ohio;
- Michael G. Connors, Senior Vice President of Real Estate at CORT, A Berkshire Hathaway Company, based in Chantilly, Virginia;
- Scott Cameron, Global Real Estate Manager for Sonoco, base
A series of IAMC white papers focused on how future facilities will be more “flex.” Are companies incorporating flexibility into their portfolios?
“When we’re looking for warehouses, we’ll sometimes want to put in a showroom where customers can shop our furniture rental solutions, or a furniture outlet where we can sell our previously leased furniture on site, so we look for zoning that permits more than one use,” says Connors, “and a property that may lend itself to redevelopment for adding a showroom that may be open to the public in the future. One example is a facility we had in Texas which was opened up initially as a warehouse only, and we ended up later creating a rental showroom and furniture outlet, and now it may have a call center added, which the zoning allows for.”
“When I think of flex facilities, I think of offce, and some of the flexibility we’ll have in the future going forward with people working from away,” says Eckert, though offcing is a small part of operations. “Many of our manufacturing sites are very heavy industrial sites. We’ve worked toward making these less single-purpose in character than they have been historically. It’s a big challenge for us. How do we build a single-purpose facility in a way that it can be repurposed for reuse later and for flexibility of reuse and exit? The other part of our portfolio is warehousing and logistics. We’re really careful when we locate facilities and do build-to-suits in that we want flexibility, and want to have a clear exit strategy — because strategy changes — so they can be made into flex manufacturing spaces or repurposed for other logistics operations.”
Sonoco too is invested in long-term manufacturing sites. “Where we look for flexibility is on the agreement side,” Cameron says. Since many facilities are closely tied to one or two customers, “we try to tie the terms to the length of our contract with the customer, or we negotiate a break clause based on whether the customer renews the agreement. We haven’t had that problem, luckily. Also, if we’re going onto a new site, we always like to look for a property with room to expand, or if a building is next to it, we get first right of refusal on that property. We don’t tend to repurpose a site, but to stay there forever.”
The topic of what to do with shopping malls comes up, and sparks more general observations.
“We as a country have had the luxury over so many years and decades of having so much space to work with and resources to build with that we have not done a really good job of planning our assets well, from construction and location to infrastructure used to support it,” Eckert says, noting how fast e-commerce is eating up warehouse space and leaving manufacturers in the lurch location-wise. The challenge for cities and municipalities is to set the stage for long-term sustainable development. “If we continue to operate on an ad hoc basis, based on what we need today and not what we will need in the future, we’ll end up with facilities that will not serve us for a long time.”
Life-Cycle Thinking
The discussion then turns naturally to how corporate sustainability and social responsibility goals are influencing these leaders’ work.
In addition to partnering with landlords on LED lighting upgrades and replacing tired HVAC units, thus reducing energy consumption, Connors points out that CORT’s business model is very sustainable by nature. “We invest in durable products manufactured to our high-quality standards and expertly maintain the pieces throughout their rental life,” he says. “We rent our products anywhere from two to six times for a total of three to four years on average. At the end of their rental life our furniture is delivered to a CORT Furniture Outlet to be sold to its forever home.”
“Sonoco is trying to reduce greenhouse gas emissions,” says Cameron. Sonoco is working on a project right now to convert a former industrial property the company purchased into a large solar installation. “We’re also looking at all of our larger facilities across the United States and globally where we have excess property or large flat roofs to install solar. Sonoco is also a large recycler: Our industrial division uses a lot of paper, and most of what we use we make. The majority of the paper we use is recycled.” There is one last aspect that has more to do with Sonoco Products: “ The world throws away so much food,” Cameron says. “Sonoco is working to improve packaging so food can last a bit longer.”
In Owens Corning’s case, “We provide not only the fiberglass, but technology associated with the wind blades themselves, to help make them more effcient, bigger, longer and faster,” Eckert said. Making buildings and roofs more durable and vehicles lighter are Owens Corning goals, as is increasing the use of recyclable and renewable materials and improving product design for reuse. “We’re collaborating with suppliers to increase transparency around materials we use,” he says. “The concept of a circular economy has become prevalent in our conversation — everything is just continually put to use and recycled.”
In addition to doubling the positive impact of the company’s products, Owens Corning aims to halve the negative impact of its operations, and advance workforce inclusion. “Our aspirations also include keeping people safe, improving quality of life of employees and improving communities,” said Eckert.
Improving that quality of life can help talent recruitment and retention, our final discussion topic.
“Talent is a very big piece of our relocation strategy,” said Eckert. There is an increasing need for technical talent, as operating and maintenance of equipment and the IT aspects of operations require a different level of expertise. “When I’m doing site selection and talk with communities about base requirements in terms of wage level, we’re usually well above that. It’s a big part of what we do — making sure the talent tis there, the ability to train that talent is there, and that there are schools that will continue to replenish that.”
“If you ask any CEO what the most important assets in the business are, he’s going to say people,” says Connors. “Right now, it’s challenging to recruit and keep good people. And real estate can help with the types of facilities it creates for their associates to work in. So, I think our jobs have become more important, not only from the accounting perspective, due to the new accounting standards that companies must adhere to, but by ensuring the facilities, their locations, the technology and amenities provided are first class, so when a prospective employee comes through the door, they have a favorable first impression. It’s critical that CEOs recognize if I don’t have a good real estate team, that puts me in second place (or worse) when recruiting against my competitors.”
