When Siliconature Corp. examined potential sites in West Michigan for its North American headquarters, the company knew finding an existing building that fit its specific needs would be challenging.
The company’s broker showed executives a handful of buildings, but none of them fit the Italian manufacturer’s specifications, President Dave Arado told MiBiz. Specifically, Siliconature, which coats tapes and other products with a silicon backing, required a facility with 40-foot-high ceilings, reinforced flooring and specialized air handling equipment.
“You’d tear the damn thing down before you get what you want out of it,” Arado said of the existing facilities. “It would end up costing more than building.”
That cost-benefit analysis of new construction versus retrofitting an existing building led Siliconature to invest $20 million into building a new facility located at 4495 68th St. SE in Kentwood. When the building is completed in 2018, the company plans to employ approximately 26 people.
Siliconature’s decision to build a new facility echoes similar sentiments among many West Michigan manufacturing executives who are having difficulty finding available facilities to meet their needs.
For some, the search often comes down to a simple cost decision.
Rick DeKam, principal of Portage-based Midwest Realty Group LLC, agrees that many manufacturers are choosing new construction, in a large part because of the costs associated with remodeling existing buildings and the low industrial property inventory in West Michigan.
“We talked to a number of people recently that are finding it very difficult,” DeKam said. “It’s not that you can’t go out there and find a building, it’s that the buildings are becoming scarce enough and specific enough that … there’s just not enough choices to get you close enough to your desired amenities, whether that’s location, ceiling height, floor load, docks, doors, power — all of that.”
Moreover, many of the existing buildings are in poor condition and require sizeable investments to recondition to modern specifications.
“(They’ve) been passed over because they didn’t work for anyone else,” DeKam said. “You have the dregs that are left. Every now and then, you find a needle in the haystack.”
Manufacturers’ cost conundrum when it comes to new construction or buying an existing building also factors in increasing rental rates. The scarcity of existing manufacturing facilities is driving up lease rates so much that for larger facilities, a new building only comes at a slight premium in the cost per square foot, according to DeKam.
“If you’re looking at a building that doesn’t meet your needs and you have to pay $4.50 triple-net, which is pretty common right now, you can build a building and be in it for exactly what you need for $5 a square foot,” DeKam said, noting buildings would need to be more than 30,000 square feet for that math to apply. “The only thing that would cause you to rent something that’s less desirable than exactly what you want is timing. (But) let’s face it, it doesn’t take a long time to throw up a steel can.”
While many manufacturers are opting to invest in building new facilities, companies often do not factor into their expansion plans how long construction takes.
“With the lack (of buildings), some companies are looking at constructing, but unfortunately what we find is they haven’t left themselves enough of a running time frame in order to do the build,” said Therese Thill, vice president of business development at The Right Place Inc., a Grand Rapids-based economic development firm. “That’s a bit of a challenge. They kind of back themselves into a corner.”
Thill notes that manufacturers can still find smaller buildings in the 30,000- to 50,000-square-foot range, but the real lack of inventory is for larger facilities around 100,000 square feet.
Still, some companies simply cannot afford to buy new facilities outright. That’s led to a number of situations where real estate developers are building a new facility to meet a company’s needs and offering that company a long-term lease on the property.
The lack of available manufacturing buildings in West Michigan has affected some companies’ decisions to locate to the area, Thill said.
“Where we really run into problems is with business attraction,” Thill said. “Companies come in looking for the perfect building, the perfect manufacturing site and if they’re not able to find it in Michigan, particularly in West Michigan, we find they’re more willing to start looking at other markets.
“They’re more willing to look at Ohio and Indianapolis, and the metro Chicago area, even though that’s really expensive. There are a few that aren’t looking at the Midwest at all. They’ll go further and look down at North and South Carolina and Georgia, which seem to have, unfortunately, quite a few manufacturing sites available.”
To combat that challenge, The Right Place tries to promote West Michigan’s breadth of available talent, she said.
“While everyone has a talent problem, in Michigan we still have a deeper bench of skilled folks than you’ll typically find in Tennessee or South Carolina,” Thill said.
As manufacturers struggle to find facilities to fit their needs, some real estate developers again are building facilities on spec.
A subsidiary of Grand Rapids-based Visser Brothers Inc. is currently in the process of developing the northeast corner of Turner Avenue NW and Ann Street NW in Grand Rapids, where it plans to construct two industrial buildings. The facilities measure 136,500 square feet and 68,250 square feet.
While the developer is currently in talks with a client for one building, the company plans to build the other one on spec, said President Bill Mast. Both buildings can be used as warehouses, light industrial or offices.
The site is currently home to an automobile salvage yard and will require significant environmental cleanup. However, the property does offer easy access to U.S. 131 and other key roadways.
Mast is comfortable building some facilities on spec given the high demand for specialized facilities.
“During the recession, people outside Michigan assumed because we had millions of square feet, they could come in and find everything to suit their needs,” Mast said. “But it was a conglomerate of older buildings. For unique space, there’s a still a shortage.”
Outside of Visser Brothers, Grand Rapids-based Rockford Construction Co. Inc. also is developing the 230-acre Walker View Industrial Park north of the I-96 and Walker Avenue interchange.
At the present, the company is seeking approvals for a 54,000-square-foot manufacturing facility in the park, according to a company spokesperson.
The park still has roughly 120 acres available for sale as a greenfield site or as a build-to-suit option for lease.
In addition to courting new manufacturers to the area, The Right Place also is working with municipal leaders in suburban communities in southern Kent County to develop additional land for manufacturers and other companies.
The long-term economic development project focuses on the “four corners” region which includes the city of Kentwood and Cascade, Gaines and Caledonia townships.
“If you look at the development history over the last 20 years, (the four corners region) is no longer way out there,” said Rick Chapla, vice president of strategic initiatives at The Right Place. “It’s not way far away. The growth that’s taken place there over the last 20 years clearly has much more of an urban feel than being in the country.”
Chapla notes the area has access to important infrastructure including I-96 and M-6, the Gerald R. Ford International Airport and water and sewer capacity.
Robert Grooters Development Co. currently is developing nearly 1 million square feet of properties in that region.
Additionally, developing these more suburban areas forms an essential part of The Right Place’s economic development strategy.
“To accomplish our work of business attraction, retention and expansion, we have to have land with infrastructure,” Chapla said. “Our role is to work with the public officials and those responsible for the development and operation and maintenance of public infrastructure that service our companies’ private investments.”
Proximity to workers
As available industrial sites dry up and manufacturers move farther away from city centers, many companies have started to prioritize locating within close proximity of their workforce.
Specifically, companies want to locate facilities near well-traveled, quality roadways and easy access points for public transportation, said Therese Thill, vice president of business development at The Right Place Inc., a Grand Rapids-based economic development firm.
Thill notes that the labor issues are “bubbling to the top” since many available sites are away from core population areas.
The Right Place worked with one “very large” company considering an expansion in West Michigan to study workforce availability in their area — information that is becoming more important as an economic development tool.
“We were able to do a pretty deep dive into workforce availability and commuting patterns and show them there was a current available workforce within an hour drive from them that was in their specific salary range,” Thill said. “We do have that data and use it to promote the area.”