When Build-to-Suit is the Only Option
In today’s eCommerce-driven economy, keeping up with consumer demand is imperative to success. But as retailers continue to grow, it can be difficult to find existing distribution centers that meet standards for labor, transportation costs, incentives, clear height, dock positions, and so on. Luckily, there’s a great option left: a build-to-suit.
While the process can be complex and time consuming, when done right, a build-to-suit can provide optimal return on investment for your business. For those that move forward with the process, there are plenty of exciting decisions to make, from skylights and clearstory windows that allow free daylight inside to efficient LED lighting and floors flat enough for synchronized roller-skating.
However, in the midst of this excitement, one unexpected stakeholder is often forgotten – the insurance underwriter. Their job? To ensure the insurance company can underwrite the value of the contents inside the building. Put simply, the insurance underwriter is not there to insure the building itself; instead, their role is to insure the products, goods, raw materials, and equipment the occupant of the building is going to put inside.
The Gold Standard
While there are many such insurance underwriters in the industrial space, in my 18 years of experience, one of the most influential is Factory Mutual Global (FM). In fact, even when working with clients who are not FM insured, I find their insurance company will often refer to FM data sheets as the gold standard for build-to-suit buildings. Why? Because even if your roof meets code and local standards, if it does not meet your insurance carrier’s expectations the carrier will raise your rates, or worst case, they may very well decline coverage for that element of your brand-new build-to-suit.
Might it cost more to have a developer construct a building based on the underwriter’s specs? Yes. But if you want your goods insured without rate hikes, you have little choice in the matter.
As suggested, FM has many data sheets that guide the build-to-suit process. Data sheets FM 1-28 and FM 1-29, for example, provide the guidance that builders and developers need to ensure their roof stays on a building during storms. Most would agree this is important for the carrier insuring both the building and the building contents, right?
But what if your specifications did not call for the developer to include a roof based on FM 1-28 and 1-29 standards? If a storm blows in and takes off the roof, the developer’s insurance provider will pay to replace the roof, but they won’t pay for the contents inside the building. That cost is born by the occupier’s insurer. Want to demand the developer instead put on a roof that meets FM 1-28 and 1-29 standards? Realizing this too late in the game will require a change order that would have been better taken care of before the storm.
The Key to Success
As mentioned, FM has dozens of data sheets that define all kinds of building systems. The key? Determine from the beginning who your insurance underwriter is and ask them if they follow FM data sheets. If your carrier is FM, they will recommend the data sheets that are meaningful for your particular building type. For example, if your building is designed to simply store dry goods with no combustibles, no hazardous materials or flammables, then the list of FM data sheets you must abide by will be minimal. If, on the other hand, you have aerosol storage requirements, petroleum-based products like tires, hazardous materials like paint and chemicals, pesticides, or other flammables, then the list you get back could approximate the thickness of an old yellow pages.
The bottom line is that when you are beginning the design for a new distribution center, make sure one of your first calls is to the stakeholder who might matter most – the insurance underwriter. Better to cross that bridge at the onset when most changes require nothing more than amended drawings.
Are you considering a build-to-suit? Cushman & Wakefield’s Build-to-Suit experts can help evaluate your plan and provide you with the necessary information to make the right decision.
Build-to-Suit Advisory Group
Combining consulting, transactional expertise, and project execution, the Cushman & Wakefield Build-to-Suit Advisory Group provides strategy, process, risk mitigation, and execution management expertise for occupiers considering build-to-suit transactions. Our professionals help clients navigate the complex field of build-to-suit projects by utilizing expert knowledge and time-tested methods, increasing client control and targeting multiple cost savings points.
Randy Thompson is the Senior Managing Director of Cushman & Wakefield’s Build-to-Suit Advisory Group. Since joining C&W in 2000, Mr. Thompson has worked with C&W’s clients in such varied fields as healthcare, legal, manufacturing, high-tech, hospitality, professional services, engineering, energy, and financial services. He has managed and overseen over 13 MSF of office, industrial, and special use projects. In addition, he is an active member of C&W’s Sustainability Committee.