Logistics Developers Embrace the 'P Word'
The real estate development community in the United States has performed a dramatic about-face when it comes to forming development partnerships. Developers have realized the dreaded 'P word' may be necessary for certain projects.
This new attitude pays off for real estate developers providing build-to-suit logistics facilities because they operate in a changed reality shaped by the fast-moving, multi-dimensional, competitive, and ever-changing global logistics market.
Follow the EcoDev Lead
Economic development organizations realized their fortunes were tied to the global marketplace almost a decade ago. In response, they formed public/private partnerships and launched cluster strategies.
While not all successful, these partnerships demonstrated an important idea: what is right for one community may be right for the region—and financially beneficial for both.
Similarly, the real estate industry has realized that developing attractive logistics facilities may involve what was previously considered an unholy alliance: a joint venture between otherwise competing developers.
The tight market for industrial land, the speed at which shippers need logistics facilities, and the industry's competitive cost structure dictates that we learn from our economic development brethren: What is right for one developer may be right—and profitable—for its co-development partners. Astute developers understand that this is the power of the 'P word.'
Some examples of partnerships that help developers further their strategic vision include:
Public/private partnerships with economic development entities. Local economic development organizations bring several advantages to the table: long-term relationships with a potential pool of local tenants, infrastructure grants, joint marketing dollars, and proven branding strategies to attract cluster activities.
Partnerships with materials handling providers. Developers can reap long-term value through materials handling providers' mutual market interest and clientele, without fear of competing interests in providing solutions for those facilities.
Partnerships with local developers. National and regional developers gain market insights and access to valuable, below-the-radar sites and local expertise that may otherwise go untapped.
Partnerships with specialists. Brownfield consultants or development entities can help traditional greenfield developers access new markets and additional sources for grants and other non-equity capital.
But partnerships, like all relationships, are tricky to navigate. These four rules of thumb are essential when developing partnerships:
1. Seek partners that have a vested interest in your success. Aligning interests, capital, and risk does wonders for the success of development ventures.
2. Never partner with any company that does not share your code of conduct. Your client relationships and market reputation will suffer if your partners enact unfair deals.
3. Keep your eye on costs and shared savings—both can get away from you as quickly as a partner can turn from a collaborator into a critic.
4. Make short-term project goals and objectives the most critical measure of success. Also, keep an eye out for the next deal—for your client, your company, and your development partner.
Though the volatile development landscape increases both opportunity and risk for logistics facility developers and tenants, partnerships can be an essential part of the winning plan.
The 'P word' can mean increased profitability all around.