How to Lease or Buy a Food Processing Facility

The food and beverage sector is one of the main benefactors of the acceleration of the e-commerce revolution. With customers desiring faster delivery, more specialized and diet-specific products and integrated digital shopping experiences, food processing properties are highly in demand in markets throughout the United States.

Evaluating potential properties for a food processing business is a unique proposition, however, and whether you’re opening your first food processing facility or your 20th, it can be helpful to keep some of the following considerations in mind.

Determine Whether to Retrofit or Build Ne

Your geographic location and your target industrial submarket will dramatically impact your property search. In particular, location will affect whether it will be more advantageous to retrofit an existing property or build, buy or occupy a new property custom-designed to your business’s specifications.

When to Retrofit

If you are located in a competitive, urban market such as Los Angeles, there may not be suitable land available to build a new facility. In such markets, developers aggressively compete for each buildable site. Even when there is land available, the price of the land can be cost prohibitive. In these situations, it is more practical to consider retrofitting an existing facility.

If you elect to retrofit an existing food processing plant, you will need to assess a variety of property elements, including the wash-down walls; the height and temperature of cooler and freezer systems; the location and size of floor drains; the volume and type of clarifier or separation system that handles waste water; and the quantity, pressure and pipe size of incoming water supply.

In a retrofit or renovation scenario, you must also be mindful of both the existing infrastructure that will benefit your business, as well as the infrastructure elements that will need to be demolished or removed from the building. Every existing system that remains within the building is a feature that you will be paying to remove, sell or scrap. Some pieces of equipment are attached to the warehouse foundation through footers and thick concrete pads; the same is true for mezzanines, making the removal of these items both costly and labor intensive. Accordingly, it could be beneficial to negotiate for the removal of unwanted equipment by the existing owner in advance of signing the lease or purchase contract.

When to Build New

On the other hand, companies that are located in secondary, tertiary and rural markets generally find that not only is there land available for their facility, but that the land is affordable. Companies in these markets are excellent candidates for build-to-suit opportunities; i.e., where a new property is built specifically for your business and its requirements.

When seeking to build a new plant you have three options:

• Buy a new property and be the first company to build it out.
• Buy an unfinished building from a developer and customize it to your needs.
• Buy land and hire a general contractor to build the property for you from scratch.

With the first approach, you can identify first generation properties that are already in the process of being built and customize them to your needs. This is the most expeditious of choices, as you will not have to wait for entitlements.

With the second approach you can work with a developer who has already acquired the land to design and build a property based on your requirements, from the site level all the way up to the building envelope and beyond. This is the most common approach for companies that have the time to have a facility built to their exact specifications.

With the third approach, you buy the land yourself. In this instance you might even be able to negotiate economic incentives from the local municipality, which could decrease your costs and tax liability and facilitate land acquisition approvals and the expedition of construction permits. In many secondary markets, buying land and hiring a general contractor is the lowest-cost approach, but it is also the most time intensive.

Engage Trusted Advisors

It can be very helpful to engage contractors and industrial engineers during the process of finding a food processing plant, as they possess the expertise required to help you accurately assess the costs of retrofitting an existing plant versus building out a new one, or improving your manufacturing process when you move into your new building, including enabling additional automation along the production line.

Consider the Production Process

When seeking an industrial property for a food production plant, it is important to consider the specific food product being manufactured and understand the particular requirements that the property will need to accommodate. Some manufacturers only mix and package dry products, whereas others deal with liquid or raw ingredients that need to be stored, heated, mixed and cooled using certain methods.

Each facet of the food manufacturing process usually correlates with distinctive property characteristics that will affect your property search. For example, if your food production process uses a piece of machinery that is 16 feet tall, then warehouse clearance will be one of your primary search criteria. If your food production process requires cooler or freezer space to be built out within the property, then you will likely want to closely scrutinize the number of amps currently serving the building.

Seek Properties With Existing Certification

The food processing business has become more regulated and larger grocers demand transparency within the food supply chain. Fortunately, some existing food processing plants are already USDA and FDA certified, which can be an advantage in shortening the timeframe from lease signing or escrow closing to construction, regulatory board approval and opening of the plant. Using USDA or FDA as a keyword within your LoopNet search will help you identify such properties.

Thoroughly and Clearly Negotiate FF&E

When negotiating food processing plant leases and purchases, it is important to specifically clarify which items within the facility are included as part of the purchase price or rental rate. Some landlords and sellers will regard furniture, fixtures and equipment as bonus features that are priced separately and charged in addition to the property’s rental rate or purchase price.

Undertaking the process of learning how to buy or lease a food processing facility can be an exciting and fascinating experience. It is an opportunity to learn more about construction and work with developers; to analyze real estate, transportation and labor and economic incentives; and to collaborate with high level experts in the field. All of these aspects of the process bring you one step closer to realizing your dream of opening up your ideal food facility.

Author: Justin Smith

Justin Smith is a commercial real estate broker in Lee & Associates’ Irvine office who has helped his clients close more than 500 real estate transactions totaling more than half a billion dollars in consideration. In his upcoming book, "Industrial Intelligence: The Executive’s Guide to Making Informed Commercial Real Estate Decisions," he shares his extensive expertise to help industrial tenants navigate the leasing process and achieve success for their businesses.

This article was updated on 12/12/2024