When a developer has to be a headhunter

AACI | Vice President, The Regional Group of Companies Inc.
  • Jun. 6, 2015

Real estate by nature tends to be a highly transactional and sometimes confrontational business. The divide between buyer and seller, tenant and landlord, can be pretty sharp, written deep in the fine print of a contract and measured in dollars and cents.

John ClarkBut sometimes a more collaborative approach is needed.

I’ve written recently about the worrisome state of Ontario’s manufacturing industry, and the legions of idle and derelict industrial sites littering the province. I put the onus on politicians to do something about it and suggested a few ways they might.

But real estate developers have a job to do, too, and not just in terms of how they should work with local government. They must rethink how they market and how they approach the relationship with buyers and tenants.

The current market can create opportunities for savvy developers. Industrial sites no longer attractive to manufacturers due to prevailing economic conditions sometimes can be picked up for a song and repurposed.

Important criteria for redevelopment

Of course, it’s only a deal if it’s worth having. These criteria must be met:

* The building is structurally sound and can be repurposed for a reasonable cost;
* The site doesn’t require extensive environmental cleanup;
* There’s good local infrastructure, including a reliable power grid, water and sewer with capacity to spare;
* The community is close to a major highway;
* There’s good local housing stock;
* The local government is business-friendly and appreciates the economic benefits of what you propose. You don’t want this relationship to be adversarial;
* You have to figure out what to do with the property and find the right market. You can’t just put up a “For Rent” sign and hope for the best. The odds are you’ll be hoping in vain.

Lessons from North Conway, N.H.

You need to market and position the property to a specific market vertical or a cluster of complimentary ones.

Take, for example, North Conway, N.H. According to the last census, the town’s population is only 2,349. It’s home to the Settlers’ Green Outlet Village, which was developed on the site of the former White Mountain Airport.

This retail cluster boasts 60 tax-free outlets for brands such as Banana Republic, Eddie Bauer, Brookstone, Brooks Brothers, Hanesbrands, Gymboree, Lane Bryant, Nike and Zales.

North Conway is a little town in the middle of nowhere, but it lies along a major highway heading for Portland, Maine. When the airport proved no longer commercially viable in the late ’80s, the owner sold the site to developers for $8 million US.

It’s probably worth a lot more than that now.

A retail strategy was the plan from the get-go. The outlet village opened with 30 tenants within a couple of years of the land purchase.

People go where they see value

People will drive for miles if they see enough bang for their buck. Shoppers come in from all over the place to visit Mountain Equipment Co-Op and the massive IKEA store in Ottawa.

My wife has driven down to Moose Creek, Ont., a speck on the map near the Quebec border almost an hour away, because it has a small mall filled with apparel retailers catering to formal occasions.

But retail is only one option. An industrial site that can no longer fulfil its intended purpose has all sorts of potential uses: a craft brewery; an artist co-operative; even a technology hub for young companies in need of low overhead.

The appeal in every instance is largely the same. The cost of local real estate, even before taking into account any discount on the purchase price of the property, is lower — perhaps substantially so — than in a larger urban centre. Quality of life may be a factor, especially in the case of a business with a more highly skilled workforce like a tech company.

Why endure long commutes into the city if you can enjoy a small town lifestyle with work just down the street?

But the owner of the property has to do research and cater to these target verticals. It’s no different than with a new office tower in the urban core. Only foolhardy developers commit to a project unless they can secure tenants for half or more of the space first.

Time to be a headhunter

This requires relationship building with the intent to create an equal-opportunity partnership. The landlord can provide low-cost real estate to tenants as well as a cadre of complementary businesses as neighbours.

This will bring customers to the door, or else drive economies of scale that can help reduce operating costs for everyone. The landlord gets a return on its investment in the form of rent.

The other winners are the local economy and government, thanks to new employment opportunities, a widened tax base and a greater volume of visitors with money to spend. 

Like I said, you have to understand your target market and market effectively. But you aren’t marketing the real estate. You’re a headhunter, a recruiter, looking for the right tenants with which to work. Your message is “I’m going to help you make your business more successful.”

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I’m also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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