Conducting Due Diligence for Infrastructure-Dependent Facilities

The ability of any company to effectively compete is based on a variety of factors. One factor that can sometimes be overlooked is location. To reach their competitive potential, many companies need to make smart property buying and leasing choices—and being smart often means taking into consideration the infrastructure surrounding those properties.

Good infrastructure enables fair trade, empowers businesses, connects employees to their jobs, and protects businesses from an increasingly unpredictable Mother Nature. Having a good understanding of the telecommunication systems, broadband networks, freight railroads, energy projects and pipelines, transportation and water systems, and disaster mitigation strategies of the area around potential properties is part of the commercial real estate due diligence process.

Understanding Classes of Properties

Commercial real estate is typically categorized into three classes, depending on the business function:

Office space
Industrial use
Retail

Within these categories, there may be further classifications. For example, office space is generally characterized as Class A, B, or C.

Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure, and location.
Class B represents the buildings that are typically older and not as competitive, price-wise, as Class A buildings. Often, these buildings are targeted by investors for restoration.
Class C represents the buildings that are the oldest (generally 20+ years of age), located in less desirable areas, and in need of quite a bit of maintenance.

It’s important to note that some zoning and licensing authorities break out industrial properties—sites used for manufacturing and the production of goods—but most consider it a subset of commercial real estate.

The Importance of Infrastructure

The type of infrastructure that’s most important to you may vary depending on your business’ needs. For a long time, infrastructure in densely populated urban areas generally wasn’t a concern, as most established cities have built, maintained, and upgraded their transport, power, water, and telecommunication networks throughout the years.

However, following the outbreak of COVID-19 in early 2020, businesses that had once flocked to the big city began moving (or considered moving at the end of their leases), to the outskirts of town or to sprawling suburban areas. These locations offer room to grow (and room to practice social distancing) along with numerous financial benefits.

There’s a caveat to consider, however. As these areas grow, infrastructure may not be able to keep up with growth and demand, which can be an issue.

Transportation

Many businesses need a reliable transportation infrastructure to connect their supply chains and move products and services effectively and efficiently. Poor transportation infrastructure costs businesses both time and money. Those considering a relocation need to ask themselves two critical questions:

How long will it take to receive the goods and services I need to produce my products?
How long will it take to get my products to market?

That’s not all. A good transportation Infrastructure also helps connect people to the business via car or public transit. However, the American Society of Civil Engineers (ASCE) reports that one in nine U.S. bridges are structurally deficient, and that road congestion costs American drivers $101 billion annually in wasted time and fuel.

Power

Many commercial and industrial businesses rely on a strong energy infrastructure that can provide their company with a steady supply of electricity and gas. This can be critical for companies that are operating around the clock.

If the power grid goes down due to a weather- or disaster-related outage, a cyber-attack, or simply from being overwhelmed by customer usage, the entire supply chain can be affected and productivity can come to a standstill.

Water

According to the Value of Water campaign, water service disruptions caused by poor infrastructure are not just an inconvenience to American employees and businesses, but a major expense. At a national level, a one-day disruption in water services would result in a $43.5 billion daily sales loss to businesses; for every day of water service disruption, the average US business loses $230 in sales per employee. In the industries most reliant on water, sales can drop by up to 75% or up to $5,800 per employee.

Telecommunications

Most businesses today depend on telecommunications network infrastructure for all aspects of daily operations. A good telecom network for voice and data ensures that day-to-day business gets done and that data remains safe and secure.

Poor telecom infrastructure can result in:

Frustrated employees and angry customers;
Temporary or permanent loss of essential information and data; and
Wasteful downtime affecting productivity.

CRE Assistance for Infrastructure-Centric Facilities

Not every company will need all their facilities located in a Class A building or structure (some may not need any of their facilities in these prime locations). However, there are many infrastructure-centric operations that may only find success and safety when located in Class A facilities. A few of these infrastructure-centric industries include:

Information Technology/Data Centers
Bioscience/Pharmaceuticals
Manufacturing

For companies operating within these industries, it makes sense to conduct as much up-front research as possible using a due diligence checklist. It’s also important to not just look at power, transportation, water, and telecommunications infrastructure in and of itself, but also how resilient each type of infrastructure is. As climate and disaster threats continue to rise across the country, infrastructure must be kept current to mitigate physical and financial damage to the area and its businesses.

Of course, performing the due diligence process can be time-consuming for anyone. That’s where iOptimize Realty comes in. As your tenant representative, we will review the infrastructure needs of your business and its facilities, and map out locations that are best suited to your needs using our proprietary software.

And, it doesn’t matter if you’re considering a move across the country or around the world, our experienced team has access to a network of 16,400 top CRE advisors globally so you get the best intel and the best deals. Read more about the lease due diligence process by downloading our free Guide to Office Leasing Due Diligence. Otherwise, if you’re interested in talking with an expert now, contact us today!