How to Buy Industrial Space

Buying industrial space does not make sense for every business so you first need to understand the risk of purchasing vs leasing and weigh the pros and cons. The last thing you want to do is realize a year later that it would have made better sense to lease.

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Step 1: Consider Risks Before Buying Industrial Space

While there are advantages to owning (e.g. fixed mortgage, tax advantages, more control of space, potential appreciation, etc. there are some inherent risks that you must carefully consider.
  • Lose Liquidity - When you buy vs lease industrial space you tie up your cash that could otherwise be used to invest in your business.
  • Change of needs - Your future space needs may change and the space not meet your needs. Your ability to be nimble to move quickly will be limited.
  • Upfront Costs - Purchasing will require at least 10% to 30% down payment and you will possibly need additional capital to improve the building.
  • Management - Managing a commercial industrial property can take up more time than you have which means you lose focus on your business.
If after weighing the pros and cons to purchasing you determine that it makes business sense now you are ready to get started.

Step 2: Time to Purchase Industrial Space

  • Select a Support Team Find a good commercial real estate advisor that specializes in industrial space. Also consult with a mortgage lender, attorney, your cpa, and an architect or space planner.
  • Determine your current and future needs Think about how you will use the space and what your current and future needs will be. Do you need warehouse, individual offices, dock high or grade level loading, high power such as 3 phase, etc..
  • Identify and Tour Properties You need to evaluate the operational, physical, location, and prelim economic attributes against your current and future needs. In addition you need to evaluate the zoning and use to ensure the property is suitable for your business needs (e.g. manufacturing, distribution, warehousing, etc.).
  • Analyze each option You need to compare each option weighing the benefits of each one.
  • Negotiate Once you have selected the property based on the subjective and objective criteria it’s time to make an offer and negotiate.
  • Due Diligence Once you have the property under contract you want to start your due diligence period. Conduct physical and environmental inspections, verify zoning and use, get pricing estimates from contractors, work with lender on financing, and negotiate repairs as needed.
  • Settlement If all the inspections meet your teams approval proceed with the purchase. Set a closing date, review closing statements, finalize mortgage application, & get title insurance.

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Types of Industrial Space

As you’re building a business, there comes a point when you need to consider industrial space. This is a specific type of real estate that’s designed to house the various functions of a company, from manufacturing to storage and distribution. Unlike residential or commercial spaces, these buildings are designed to fill specific industrial needs. Before you head out to find an industrial building, it’s important to understand the different types.
Telecommunications buildings house the various electrical supplies and systems that support communication technology. One example is a switching center, which handles all of the routing for a network. Most types of communication, including text messages and phone calls, travel through these centers before they reach the recipient. Another example is a call center — a building that handles a high level of incoming calls, often for customer service. Because of the heavy communication load, these buildings are usually designed to handle large amounts of cables, power, and computer equipment.
A data center is a building that’s designed specifically to handle large amounts of computer equipment. This might include servers, storage drives, and other IT equipment, such as firewalls and routers. These facilities often also handle data transmission, so they may use wireless or cabled systems for that purpose. Because computers have highly specific maintenance requirements, data centers are carefully designed. In many cases, they feature thick floors that are engineered to handle the weight of heavy equipment — this is particularly true in server rooms, which consist of rows of tall server racks. Most data centers also feature sophisticated cooling systems that port the heat away from the computer equipment to prevent it from overheating. The electricity requirements for these buildings are unusually high, which means that they also have a heavy-duty power infrastructure. Most also have complex backup generators to ensure that the power and cooling systems stay online even in the case of a power outage. There are many different types of data centers. Web hosting companies use them to store the data from client websites. Cloud and data storage companies use them for the same purpose. You might also see these facilities called cyber centers. Because they have such stringent HVAC, construction, and power requirements, data centers are usually purpose built. Most have state-of-the-art fire-prevention systems, as well.
Warehouses are some of the most common types of industrial buildings. A warehouse is a building that’s used for storage. Usually, these buildings are very large — this allows plenty of space for shelving, palettes, and products. Many warehouses also allow space for small industrial machines, including forklifts, to move around.
A bulk warehouse is a special types of building that is designed to hold large quantities of products. Businesses often use these warehouses when they need to store items that are shipped in high quantities. This might include grain, gravel, or goods in barrels. A bulk warehouse is usually very large, and is often outfitted with loading docks. They may also include room for vehicles and retrieval machinery to move around.
A cold storage warehouse is exactly what it sounds like — a storage building that is kept at a specific temperature. This is common when you’re storing foods, including fruit, meat, and dairy products. Cold storage can mean refrigerated storage; it might also mean freezer storage. Given that different products have varying temperature requirements, cold warehouses require more complex logistics.
High-bay warehouses, which may also be called high-cube warehouses, are industrial storage buildings with a tall vertical height. Since these warehouses are taller than normal, they can offer a great deal of storage in a relatively small footprint. Given that the shelves in this type of building are usually too tall for forklift or manual access, high-bay facilities often use an automated retrieval system. These buildings may be standalone units, or they might be connected directly to your production facility.
Retail warehouses are hybrid industrial/commercial buildings. These are large warehouses that double as storage and a store — in fact, they’re also called warehouse stores. Retail warehouses often sell large quantities of products directly to customers. Since these types of buildings usually sell in bulk and work with limited staff, they can offer lower prices to customers.
A distribution center is a type of warehouse that stores products that are intended to be shipped to customers. These customers might be wholesale distributors, end consumers, or retail stores. Businesses store goods in the center only until they’re sent out to fulfill orders. As a result, they’re often built with numerous loading docks, and may also include packing areas.
Manufacturing facilities are buildings that are used to make products. They may also be used to assemble products from pre-manufactured components. Plants and factories are both common types. In a manufacturing building, most of the space is designated to production; the rest is usually used for offices, storage, or places to load shipping vehicles.
In a light manufacturing building, all or most of the production and assembly of a product takes place in a single place. This type of space may also be used at the end of the production chain — in other words the buildings might be used to assemble products. Light manufacturing buildings don’t often include heavy fabrication equipment, which means that they’re more flexible.
A heavy manufacturing building is used to produce or fabricate products or components. Inside this type of building, you might find heavy machinery and fixed production lines. These buildings are often very large, and usually include a loading zone for the vehicles that bring in raw materials and transport the finished product. Heavy manufacturing buildings include Because it requires a very expensive, very complicated level of customization, a heavy manufacturing space is usually tied to a specific industry or process. It’s not easy to convert an oil refinery into a meat-processing plant, for example. If you’re starting from scratch, you can expect time to set up the space to meet your needs.
A transportation terminal is a building that handles different parts of the shipping and transportation of goods. It’s commonly used by shipping and logistics companies. Some terminals are used to store and maintain vehicles. Others serve as an intermediate point on shipping routes — trucks, trains, or ships stop in on their routes, unload their cargo, and transfer it to another vehicle. These centers allow shipping companies to send goods in the most efficient manner possible. Most transportation centers are intermediary points on a shipping route, which means that they usually don’t have much storage space. There may be a small area that’s used to hold cargo when a truck is delayed, but most of the space is often dedicated to loading bays, parking, and maintenance areas.
Most industrial buildings are designed for a highly specific purpose. Flex buildings are the opposite — they’re industrial buildings that can be configured for a variety of different business purposes. If you don’t have stringent infrastructure requirements for production, storage, or delivery, this is the most common type of industrial property, and also the easiest to find. Depending on the building, flex spaces may also include a small number of loading docks and truck parking. Some common types of flex space include:
These buildings are often configured with large, open rooms that are used for research and development. They might include lab space, or computer labs that are designed for 3-D modeling. You might also find spaces that can be used to test different products. Some spaces, particularly those that are engineered for scientific research, might be built out with enhanced HVAC to encourage safe air quality. When you’re looking for flex spaces, you don’t usually need to worry about industry-specific spaces. Instead, you can customize the building to meet your needs once you’re moved in.
A showroom is an industrial building that’s designed to display products. Often, these items are large. Some showrooms also include space for sales. A car dealership is one example — it usually has an enclosed area that houses a variety of automobiles, plus office space and waiting area. Some also feature attached repair shops. Showrooms often have high ceilings, but are usually a single floor. Most often have large doors that allow you to move oversized products in and out.
In some cases, industrial buildings are used for office space. These buildings aren’t usually entirely dedicated to offices; they might be a combination of storage, loading area, and office space. This is common for small businesses that house their entire operation in a single building. Depending on the space, there may also be an area for packing products.
Businesses that handle research and product development might need specialized laboratory space. This happens for companies that deal with sensitive materials, such as chemicals or biological substances. These buildings may also be called wet labs. In a specialized lab, special systems are required for safe handling of the materials. This includes plumbing that can distribute water to labs, eye wash stations, and testing facilities. Along with water delivery, the buildings have specialized drainage systems to port the water to the disposal area. Laboratories that deal in gases, chemicals, or other potentially dangerous substances also have advanced HVAC systems integrated into the building. That way, they can vent out fumes to protect employees and researchers. In some cases, these systems are used to control dust. Lab buildings are rarely standalone units. Since they’re usually a part of a larger business operation, they usually require additional space. They might be built next to or near office parks; this is common when a lab is a division of a corporation. In other cases, lab buildings come with built-in offices or administrative space; this is used for companies whose main services are research or testing. Both types may include parking lots or loading docks. As you’re searching for industrial space, it’s important to consider several factors. In addition to the purpose of the space, you must also look at its proximity to major transportation corridors. By understanding the different types of space, you can narrow your search to find the building that best meets your needs.