Location, Location, Location

Convergence Corner

Location, Location, Location

By Erik Linask, Group Editorial Director  |  January 14, 2016

We’re in an unprecedented era in the tech space that combines countless startups looking to leverage the emergence of things like cloud computing and the Internet of Things within a mobile, app-driven economy, with the natural consolidation that follows. In addition to the technological innovation being demonstrated, a natural side effect is a constant demand for real estate at a time when costs are escalating and viable site options are limited.

The traditional model has been to use commercial real estate services. Such services are good at what they do, but their shortcoming is they have a narrow focus, acting primarily as the realtor. Much like their residential counterparts, they get paid when a property is sold or leased, so the motivation is to get businesses into their properties, pure and simple, which leaves a lot of work to be done by businesses themselves, taking time and energy away from actually running their operations.

It’s opened the door for a service-driven real estate model, says King White, who launched Site Selection Group (News - Alert) after his previous business was acquired by CBRE back in 2006. The idea was to create a commercial real estate organization that would eliminate some of the financial constraints of site moves by employing a more holistic approach and avoiding the lack of focus and conflict of interest he saw in the traditional commercial real estate market.

“Traditional real estate isn’t about value, it’s just about the property, but the real estate alone is a small percentage of the overall cost,” says White. “Ours is a services business, which works well in high-growth markets and where businesses are looking to grow margins, expand business, or may be struggling in their current locations.”

Site Selection Group’s business eclipses the traditional real estate model by taking more of a partnership approach, working in a consultative manner, and helping businesses evaluate sites based on multiple factors beyond basic real estate variables to determine the best option to maximize their investment.

To make the model succeed, in addition to traditional real estate services, the company also provides location advisory and economic incentive services, along with economic development consulting.

As metro regions seek to attract and retain businesses, economic incentives continue to play a major role in corporate location decision-making. Often, such incentives can offset the costs of moves or builds, making certain sites highly attractive. This part of the model works well, because often the economic benefits are contracted on a contingency basis – when the business receives the benefit, Site Selection Group gets paid. As such, it motivates the company to ensure its clients are meeting requirements for the incentive packages.

“One of the unique parts of our business is we negotiate the real estate in terms of economic incentives with local governments,” explains White. “We have a software package that helps ensure businesses are in compliance with the guidelines that keep them eligible for the incentives.”

The company stops short of IT and hiring, but, as part of the overall relationship with its clients, it does have construction managers to oversee buildouts and bid out projects to vendors and contractors. And, of course, by acting as the real estate broker, it is also able to offset some of the additional costs it may incur throughout its projects. It’s all part of the overall approach, and it is working – the company currently has about 150 relationships per year and is looking to grow.

This model is ideal for the current tech environment, as successful startups can quickly outgrow their spaces and will be in need of larger facilities. It also is an opportunity to get in with many of today’s tech startups at their earliest stages to cultivate relationships from the outset, helping them manage changing needs through growth stages, whether those happen organically or by way of acquisition.

“We’re looking for more long-term relationships,” says White. “Small companies want to get big, so we have to get in early and work with them along the way.”

Edited by Kyle Piscioniere