By Eli Dile
It has long been a common practice among economic development organizations to invest in speculative shell buildings as a business attraction tool. Spec buildings make a community more competitive in the site selection process by reducing the time and upfront costs for a company to get up and running in a new community.
But spec buildings don't come without risk. Capital is tied up in construction, and there's no guarantee a company will ever buy or lease it. Plus, constructing a building without a specific industry in mind can limit the range of potential end users, as many have specific facility requirements.
A less risky alternative to a shell building that is a step above a shovel-ready site is the "virtual" spec building. In using this increasingly popular tool, an EDO completes all the site work up to construction, stopping short of putting up the actual building. Instead, a video rendering of the proposed building is provided, hence the "virtual" aspect.
"The visualization helps corporate clients understand how a finished building might look," said location consultant Janet Ady, president of Ady Advantage. "It can also be used to guide utility engineers as to how they might service the building in the future."
Ideally, it's more than just a video rendering. Virtual spec properties should include the technical aspects of the site and proposed building, posted online for site selectors or businesses to review. Sometimes, several different plans are provided to cater to multiple industries.
It's essentially a middle way between simply having a site and developing a building.
Taking risk out of the equation
The biggest advantage of virtual spec is risk mitigation. Rather than taking a gamble on a shell building, a virtual property saves the community money up front while communicating to prospects that a building can be completed on an accelerated timetable. "It's kind of the middle of the range" said Paige Webster of Webster Global Site Selectors. "It reduces cost, they're not taking as much risk, and it gets them on the radar. It's a great option for a rural community."
"We had a spec building that was on the market for several years before a company located in it," said Lindsay Frilling, CEcD, CEO of the Obion County Joint Economic Development Council (JEDC) in Tennessee. "Since then, the community has been reluctant to fund another one."
That's why Frilling and JEDC have opted instead to prepare a 105,000-square-foot virtual property. The virtual building is designed with a manufacturer or distribution company in mind and can easily be scaled up or dow depending on the tenant. By completing the engineering and permitting processes in advance, JEDC has shaved three months off of the timeline from groundbreaking to ribbon-cutting.
Emphasizing flexibility, speed
This flexibility has put the community in the running for projects it previously would not have been eligible for. And the customizable design and floor space enables Frilling to pitch the site on a wider variety of RFIs.
"It keeps us in the game," Frilling said. "It helps us communicate to site selectors and prospects that we're prepared."
"[Virtual spec] allows the EDO to list the property in both site and building databases, opening up new markets," said Ady. "But it should be clearly marked as 'virtual.'" Still, if a company needs to open quickly and has location flexibility, it will more often than not opt for a completed building.
"If the client needs the building today, it's not working," said Webster. "Still, it's a start. At least they're proactive. It gets them in the game, and adds to their economic development toolbox."
That's why it's important to "market the heck out of it," according to Webster, and to play up the flexibility of virtual properties to win over skeptics. Plenty of companies find that after setting up in a shell building, they require expensive renovations to fit the property to their needs. Sometimes, they end up constructing an entirely new building on the site. With traditional spec, whether or not to include a floor can be a quandary, since different types of manufacturers require different thicknesses or drainage capacity. This is another headache avoided with virtual building products.
In addition to the video, virtual spec buildings should have all the required permitting, zoning, and approval processes completed, plus full blueprints, engineering plans, utility service maps, and title/deed information available for review.
"It's ready to go. There's just no dirt that's been moved," Frilling explained.
Virtual spec properties can be made more attractive with site certifications. The virtual building in Obion County occupies a Select Tennessee Certified Site, a state designation that ensures a property is ready for industrial use, and also sits within a Foreign Trade Zone.
Although flexibility is one of the key advantages, a virtual building cannot be everything to everybody.
"To do a virtual spec building right, the developer has to understand what types of companies would be a good fit based on that community's unique assets and the characteristics of the site," notes Ady.
A valuable dry run
There's another key advantage the virtual property has afforded Frilling and her staff, and that's practice
"If not everyone on your team has worked on developing a building, it's a good exercise to go through because you're thinking through the whole process as if you're working an actual project," Frilling said.
"It's a great use of city engineering time to understand what it would take to service the building -how much it would cost, how much time it will take, who will pay for it - before there is the pressure of a deal on the table," Ady said.
To make a virtual property competitive, Frilling recommends accumulating as much information about the property as possible.
"Get your team together, including the architect, engineer, builder, even your financers. Have all of that information lined up, and have cost estimates to finish it out," Frilling said. "As much information you can assemble on the front end is recommended."
In a perfect world, every EDO would have the ideal inventory for their dream companies (or said companies would build it themselves). But for communities with modest budgets, virtual spec affords a viable alternative.
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