After experiencing unprecedented growth and continuously rising customer demand, a national tire and car part distributor realized it needed 50% more real estate than what its current distribution facility could accommodate at one of its many locations. The distributor turned to its long-time real estate partner, Allegro Real Estate Brokers & Advisors, to locate logistics commercial real estate that fit its needs.
When the distributor approached Allegro for assistance, demand for logistics real estate was high and vacancy was at an all time low. Landlords were also typically only interested in talking with tenants that could move within 6-12 months, which is difficult for companies that need 12-18 months of planning prior to making a decision. Combined, these factors introduced a new set of challenges for a distributor with an already unique inventory and client base.
To navigate these challenges and identify appropriate distribution facility alternatives, Allegro guided the distributor through their tenant representation process.
Determining Project Strategy and Selection Criteria
Before identifying market opportunities, the distributor worked with Allegro to determine key project strategy and selection criteria for this project. Their first step was to conduct a needs assessment that identified the critical requirements for a new facility.
The distributor’s primary concerns in the selection of its new logistics facility involved specific building infrastructure and square footage needs. Proximity to customers and major highways was also an important consideration. By analyzing projected sales growth and inventory turnover, the distributor determined that a facility with approximately 75,000 square feet fulfilled their operational goals.
Once the distributor and Allegro identified key selection criteria for its new space, the teams worked to locate the most central location possible for distribution of its product to clients.
Conducting Market Research
Allegro’s real estate team surveyed the market with the distributor’s criteria in mind to identify viable opportunities, including existing buildings and new construction options. The distributor then reviewed the shortlist of potential distribution centers produced by Allegro.
Fifteen months prior to the distributor’s lease expiration, Allegro and the distributor visited different markets to tour each property option. While on-site, both teams were able to ask questions and identify areas of concern.
Offering Decision Support
Allegro provided critical data and expert analysis to help the distributor’s senior leadership fully understand the specifics of each property option. Because of high logistics demand and low property availability, there were few buildings available that matched the distributor’s specific needs.
With these limitations in mind, Allegro worked with the distributor to draft a request for proposal (RFP) for each remaining viable option. In them, the distributor detailed space requirements, use intentions, and expectations for rental rate and operating costs, among other key items.
Leveraging Negotiations
Allegro assisted in negotiating business and economic terms between different properties and ownership groups by utilizing the requests for proposal. They leveraged simultaneous negotiations across multiple groups to ensure the distributor was realizing the most efficient market terms possible.
After reviewing all options and leading multiple rounds of negotiations, the distributor and the Allegro team decided to build a new distribution center that met its exact needs. The 72,000-square-foot facility would be located close to major highway networks and include storage features necessary for its unique inventory. In making this decision, the distributor had to consider the financial implications of timing issues that could affect move-in dates and product delivery. Supply chain disruption also created hurdles for the building’s construction and completion.
Successfully Closing the Transaction
Once the decision was made, Allegro worked with the distributor to draft and finalize the lease document with the new landlord. Allegro maintained diligent communication with the distributor’s counsel to make certain that all business terms from the RFP were properly addressed within the new lease. Careful attention was given to performance milestones, which would hold the new landlord accountable to timing and budget considerations during construction.
With Allegro’s expertise, this international distributor secured a built-to-suit logistics facility that not only accommodated their growth, but also met their customers’ needs. This distribution space will allow the distributor to successfully operate for years to come.
Could your organization benefit from experienced logistics transaction support? We can help. Contact us to discuss your logistics real estate needs today.
