What to Watch for in Due Diligence - The Devil’s in the Details

Jonathan Gemmen, Senior Location Consultant with Austin Consulting

For a typical industrial site search, our team sifts through information on dozens, if not hundreds of industrial properties. Upon a tertiary review, a large percentage of these sites appear to be viable location options. Yet, it is surprising just how many of these good-looking sites have one or more shortcomings that must still be overcome to be deemed ready for development.

These shortcomings or flaws are not necessarily fatal to the site’s ultimate development, but they often create enough of an unknown that the site must be removed from consideration as a finalist.

Typically, what are these shortcomings or flaws? The usual suspects are:

  • Unknown geotechnical conditions
  • Exorbitant impact fees
  • Possible endangered species or historically significant areas on-site
  • Inappropriate zoning designation
  • Utility services not adjacent to the site

True, such shortcomings can eventually be overcome, but at the outset, both the monetary cost and the timeline (opportunity costs) are unknown. As site selection professionals, our goal is avoid or minimize as many of these risks as possible. It is not good practice to invest limited time, energy and resources in a property when multiple variables in the cost analysis are undefined. It is most advantageous to minimize the time gap between site selection and construction commencement. These shortcomings can rapidly fill and expand that gap, as bringing resolution to development obstacles too often takes longer than originally estimated or promised.

The window of opportunity to increase production capacity and grab market share can be finite. What are the true monetary costs of the project team sitting idle and waiting for the next regularly scheduled planning and zoning board meeting? Or waiting the statutory-required two weeks between each of the three public readings at the county commission meeting? Or waiting for review and approval from state agencies that typically operate on a “first-in, first-out” basis?

The decision to explore expansion is generally not done on a whim. This is usually preceded by months – or years – of running at higher-than-optimal capacity with increased unit cost and a burned out production team. The momentum required to get to the place of considering such a move is significant. These delays can be detrimental to the expansion, as they open the door for one of many possible hiccups:

  • A modest one-week slide of the Dow Jones Industrial Average or an incident halfway around the globe can cause an influential board member to get “cold feet” about the expansion
  • Lending institutions can ask more questions or inject more demands
  • Your competition can strategize, prepare and even counter your proposed expansion

Companies who are active in searching for an industrial site for expanding operations must execute a comprehensive due diligence analysis for the finalist sites in consideration. This ensures that the property is able to satisfy their needs, while minimizing all potential risk factors that can add time and effort to the site location process.