Industrial Areas: Step-By-Step Financing Guide
February 27, 2019
An industrial area, also known as an industrial park, solves industrial development problems. It can provide facilities for research, development, manufacturing and distribution of materials and products. In addition to plants, laboratories and warehouses, an industrial area can also have offices, employee facilities, and heavy, development infrastructure. In this guide, we’ll address the process of locating, designing, constructing and financing an industrial area.
Additionally, please check out our Complete Guide to Industrial Park Loans.
Choosing a Site for an Industrial Area
Typically, industrial areas provide facilities for many companies. However, captive industrial areas belong to a single corporation that sometimes handle the financing internally. We will concentrate on multi-company industrial park areas.
Considerations for Choosing a Location
The first consideration in constructing an industrial area is deciding where to place it. Developers must consider the following:
- Zoning: The area receives zoning for light or heavy industrial use. If not currently so designated, the developer must have assurances that the local government is willing to rezone the location.
- Land: Developers look for flat land, reasonably priced, in areas not far from cities. They consider how much work and money it will take to prepare the land before construction begins. Other considerations include the type of soil, the presence of toxic waste, and the presence of springs, lagoons and other bodies of water.
- Logistics: Major occupants must evaluate the ease of transporting inputs and outputs. Occupants will look at the distance to suppliers and customers. And they’ll look at the availability of nearby transportation networks, and the existence of a nearby pool of workers. Often, developers want proximity to a local airport, rivers and lakes, and/or rail system.
- Infrastructure: The industrial area will need ready access to various utilities. It will have its own network of private roads, sewers, access to water and electricity, and facilities for handling waste.
The Layout of an Industrial Park
Developers layout an industrial area in accord with the manufacturing and flexibility requirements. The layout should provide at least some competitive advantages. Similarly, the goals for the optimal layout of an industrial park usually include:
- Placement: The layout begins with a plan for the type and placement of facilities within the industrial area. Where will plants and warehouses go, and where will rails and roads go? Will occupants require expansion space? This is important, because it’s less expensive and easier to build expansion space during initial construction. Developers also plan the placement of secondary buildings and offices for support functions.
- Performance: The developer will consider the tradeoffs among low-cost operations, delivery speed, quality of output, and the need for unique features or services.
- Flexibility: The industrial area must accommodate the requirements of tenants/owners that demand flexibility. These include the output of frequent new products, multiple products, and high-volume and low-volume production.
- Detailed Placement: Each tenant or buyer requires a detailed plan for the placement of equipment, storage, fabrication, assembly workstations, and safety equipment.
Construction of an Industrial Area
Did you know, it takes years to complete the construction of a large industrial area? However, it might only take months to build an individual plant or warehouse, depending on size and complexity. The general contractor (GC) and subcontractors must be suitably licensed and experienced. The GC must be familiar with the local building codes and permit requirements. Developers must consider:
- Labor: Firstly, the GC must account for any shortage of laborers with the appropriate skill sets. A remote job site must accommodate workers’ needs for meals, housing and parking. The jobsite might require heavy security for certain types of facilities.
- Specialized Construction Requirements: Secondly, developers must contend with many possible special requirements for the industrial area construction. For example, industrial buildings might require a higher level of floor load capacity, lateral stiffness, and special framing systems, walls and roofing, including solar panels.
- Specialized Construction Equipment: Thirdly, the developer must coordinate the delivery and use of construction equipment. Cranes, bulldozers and dump trucks are standard, but the industrial park might require specialized equipment that adds to the overall cost and complexity. The area might involve problematic materials, such as toxic waste or radioactive materials, that require special construction equipment and techniques.
- External Constraints: Fourth, the developer and GC will factor in constraints beyond their control. These might include poor road conditions due to severe weather. Another constraint might be congestion that affects material storage, delivery of inputs and outputs, noise and noise abatement, traffic, and pedestrian safety. Finally, the GC must contend with shortages and price hikes for construction materials. This is especially acute in areas hit by hurricanes and other natural disasters.
Financing an Industrial Area
Today’s investors are ready to pay premium prices for top industrial assets that are earning superior returns. The NCREIF Index shows that in 2018 Q3, the annual ROI on the average industrial area was 14.17%, double that for multifamily and office properties. Financing for an industrial park is likely to have public and private components.
Public Financing of an Industrial Park
States, regions and municipalities often find it beneficial to offer public financing for an industrial area. The reason is that an industrial area creates jobs and tax revenues. Often, the governmental entities create quasi-public organizations that receive nominal public funding. These organizations often issue industrial bonds, both taxable and tax-free, to raise cash for industrial area development. Many examples exist, such as the Texas Enterprise Fund, MassDevelopment in Massachusetts, and the Pennsylvania Industrial Development Authority (PIDA).
Each financing organization is unique, so we’ll take PIDA as an example. PIDA provides loans to eligible businesses, including agriculture processors and producers, industrial enterprises, manufacturing enterprises, research and development enterprises and many more. PIDA offers loans with terms of 10 or 15 years, with interest rates based on current market conditions. Loans are available for up to 75% of eligible land. Remaining financing comes from other lenders with a maximum LTV of 80%. Loan amounts max out at $2.25 million up to 75% of project costs. A 7-year fixed-term option is available with reset.
Private Financing of an Industrial Area
Without doubt, the best method to receive private financing for an industrial park is through a commercial loan broker. Only a commercial loan broker can access a network of banks and commercial funding sources to develop the best offer available. Assets America® can finance industrial area and industrial park development with minimum loan amounts starting at $5 million. We are happy to coordinate our efforts with public financing when applicable. Our firm can arrange short-term acquisition, construction and bridge loans, and then later refinance with mini-perm and takeout loans. We are experts at packaging your loan request for maximum benefit. In conclusion, if you are interested in financing an industrial area or industrial park, please contact us for a no-cost, no-obligation meeting.