The site selection process – How do you get from point A to point B?

While every site selection project of course is different, the following is a basic overview of the process and philosophy behind choosing where to move a business.

Typical site selection process:

Phase I — Community evaluation
1. Project setup
2. Define project criteria
3. Client confidentiality
4. Community evaluation and short list

Phase II — Site search and analysis
1. Real estate search
2. Issue for request for proposals from short-listed communities
3. Site due diligence

Phase III — Negotiation and final selection
1. Incentives negotiation
2. Site acquisition and project announcement

Phase I – Community evaluation

Project setup

The site selection process typically begins with a  company hiring a site selection consultant who works closely with a prospective client business to detail the scope of the project, site selection criteria, business strategies, desired outcomes and timeframe. At the outset, it is critical for the client’s project team to agree on the criteria and the business strategy for conducting the location study, and to help the site selection consultant understand the team’s project success metrics. The site selection consultant will also define and establish lines of communication with the client to ensure that information is exchanged smoothly and effectively, and to ensure correct protocol in the decision-making process.

Define project criteria

The site selection consultant begins each project by working with the client to outline information on the project. The process is designed to ferret out relevant high-level information. A detailed information request will follow, divided into unique sections to be completed by different units of the client’s organization, i.e., engineering, manufacturing, human resources, logistics, legal, finance and management. Where gaps remain, the site selection consultant will help develop “directional” information representative of the project.

Information typically requested and discussed during this initial stage includes:

  • Customer proximity.
  • Competitor proximity.
  • Legal, financial and marketing considerations.
  • Land requirements for initial project and future expansions.
  • Utility requirements (water, sewer, gas, electricity), current and future.
  • Workforce requirements.
  • Technical labor skills required.
  • Training strategies and requirements.
  • Recurring costs (state and local taxes, wages, payroll taxes, utilities, etc.).
  • Proximity to airport and required service level.
  • Incentives and cost offsets.
  • Quality of life.
  • Cost of living.
  • Cost of construction.

The project criteria are rank ordered and weighted. Subfactors for each primary factor are developed and used in evaluating and rating alternative locations. The project team is then able to rank order the alternative locations from most to least desirable using a quantitative measure based on specific criteria. This approach is designed to take emotion out of the evaluation process and to identify those locations that best meet project criteria. It also prevents placing too much emphasis on any one criterion or factor during the location study.

Note on incentives: At this point in the process, the site selection consultant will provide an overview of the types of incentives that the client can expect to receive based on similar types of site location studies. Typically a plan is developed along with a strategy for negotiating incentives and a financial model for testing the true or applied value of the incentives. It is important to understand that incentive negotiations begin when the first phone call is made to a prospective state or community and continue throughout the entire process.

Client confidentiality

The site selection process is conducted on a confidential basis, often without disclosing the client’s identity. Confidentiality is important for a number of reasons:

  • Avoid disruptions to current operations from employees, government officials or suppliers.
  • Improve the consultant’s negotiating position.
  • Allow the process to be driven by factors decided at the outset, rather than reactions to outside groups.
  • Maximize the marketing value of the project announcement.
  • Minimize sales hassle from vendors, brokers and community representatives.
  • Shield the client from unwanted public scrutiny.

Before the company decides to release its identity, the site selection consultant will lay the groundwork with local officials for a long-term relationship and successful project announcement. A managed process ensures high levels of support within the local community. Establishing a strong rapport with community leaders is an important part of the process and proves beneficial in optimizing incentives and creating a positive, competitive environment within which to negotiate final agreements.

Community evaluation and development of a short list

Based on the criteria and business strategy defined in the preceding step, the site selection consultant will develop a “long” list of 10 to 12 locations that best meet the client’s requirements. The site selection consultant works closely with his or her client to refine the list.

The site selection consultant evaluates each of the communities to determine suitability and acceptability through a macro-level analysis of the following factors, as well as other criteria defined during project setup:

  • Local and regional demographics (e.g., population and labor force).
  • Education and training programs (e.g., number of college and technical graduates, regional R&D activities and local training programs).
  • Human capital (e.g., labor availability and skill levels).
  • Labor costs by selected employment categories.
  • Regional infrastructure capacity (e.g., water, wastewater, electricity and transportation).
  • Proximity to customers and suppliers.
  • Business costs (e.g., federal, state and local taxes such as income, franchise, business activity and sales taxes).
  • Business climate (receptiveness to new economic development, labor laws).
  • Likely availability of suitable sites and/or buildings.
  • Presence of competitors and customers.
  • Comparative cost of living.
  • Comparative cost of construction.
  • State and local incentives (e.g., property tax abatements, labor training funds, sales tax rebates, sales tax sharing, and various local and state public sector fee waivers).

The site selection consultant will then identify the top two to four metropolitan regions that best meet the site selection requirements. The consultant and client business then meet to discuss and finalize the list. Two regions are almost always included throughout the remainder of the process in order to maintain options in case a “fatal flaw” is discovered later during the detailed evaluations.

Phase II – Site search and analysis

Real estate search

The site selection consultant will thoroughly evaluate the short-listed metropolitan regions and communities to develop a complete list of suitable properties for consideration. In commercial real estate there is no single repository with all available properties, so utilizing multiple sources of information is important. The site selection consultant will often use various commercial real estate databases, communicate with local economic development organizations, and utilize other publicly available listings. The consultant typically then hires one or two real estate brokers on a negotiated fee basis to determine if any additional properties are available. These brokers sometimes try to capture the buy-side real estate commission, which is always refunded to their clients.

Issue request for proposal

The site selection consultant will develop and issue a request for proposals from the short-listed communities. The RFP will ask for detailed and specific information and data on the community, appropriate sites and other points. The information will be collected, reviewed and evaluated against project criteria. The site selection consultant will identify gaps in the information that will be filled prior to or during the community visit. A specific section of the RFP will likely address the potential for incentives, including the type, estimated values and duration.

Site due diligence

After a comprehensive list of properties is compiled, the site selection consultant begins a rigorous site-specific due diligence process that is detailed and further narrows the list of sites. Due diligence includes detailed work by legal, real estate, architecture and engineering firms. Specific pieces here typically include:

Legal:

  • Draft and review contingent purchase agreements or option contracts.
  • Set up shell acquisition entity for client to protect anonymity.
  • Title review.
  • Environmental review.

Real estate analysis:

  • Site assessment.
  • Preliminary title review.
  • Acquisition strategy.

Architecture and engineering:

  • Architecture site and development planning.
  • Develop site plan of proposed building layout, square footage on each site option.
  • Building design standards (materials, height and footprint-ratio coverage).
  • Zoning and permitting process / timeline / risks.
  • Site development covenants and restrictions.
  • Site and building security.
  • Local noise ordinances.
  • Client disclosure requirements and timing for planning discussions.
  • Civil engineering, land use and soils.
  • Environmental issues.
  • Utility service analysis.
  • Site cut-and-fill requirements and costs.Impervious cover restrictions, landscaping options / restrictions, easements issues affecting site planning.
  • Water rights / usage.
  • Transportation issues.

Phase III – Negotiation and final selection

Incentives negotiation

Site selection projects are desirable economic development targets for many communities. Local, state and federal governments provide a wide variety of incentives to attract high-value-add projects.

It is important to determine the true value of offered incentives. Many communities provide large dollar-value incentives that no company can capture. State income tax credits are most commonly used in this manner, with available credits far exceeding any site selection project’s potential liability. The site selection consultant will model out all proposed incentives and determine a bottom-line value to the client. The consultant works with accounting and tax experts when project complexity demands such additional expertise.

Prior to any negotiations, it is important to decide what support the company requires and to develop a strategy for securing appropriate support. There are three main categories of incentives:

Statutory incentives —
Mandated by legislative action; a project needs to meet specific legal criteria. Examples include:

  • Job training tax credit — $1,000 per new job created.
  • State income tax credit — Credit equal to 50 percent of new facility investment in state.
  • Cash grant from deal closing fund — At governor’s discretion.
  • Rewrite of state depreciation schedule for unique asset.
  • Move interchange construction from 2015 to 2012.

Existing negotiated incentives —
Incentives put in place by statute but open to negotiation.

Other incentives —
Nondefined project support including infrastructure construction, project financing, transportation project accelerations and revision of existing state tax law.

The site selection consultant will identify appropriate incentives and handle submission of incentive application forms. Consultants sometimes also represent their clients at public meetings and with other local groups. They can coordinate document drafting with inside and outside legal and accounting representatives. Many times the site selection consultant is the lead negotiator and will conduct all negotiations with the prospective states and communities. This ensures a consistent message to all candidate locations, and provides an “arm’s length” position for the client.

Site acquisition and project announcement

After completing due diligence and selecting a site or building, the site selection consultant will finalize all legal agreements. This includes:

  • Development agreements are executed for entitlement, infrastructure and incentives.
  • Infrastructure.
  • Finalize rates, routes, timeline.
  • Electrical, gas, water, wastewater, transportation.
  • Development / Entitlement.
  • Incentives.
  • Finalize negotiations, file applications, secure approvals, finalize legal agreement.

The site selection consultant coordinates a public announcement with the client and with state and local entities. The site selection consultant can also assist with an effective public relations campaign around a project announcement, maximizing or minimizing local and national coverage as the client desires. During the course of a site selection project, the site selection consultant will develop excellent relationships with state and local political, business and nonprofit groups to ensure strong buy in and support of the project.

Project timeline

Phase I — Community evaluation:

  • Define project: success drivers, needs/wants criteria (1 week)
  • Define project specifications and decision criteria (1 week)
  • Select and screen candidate locations (2 weeks)
  • Select finalist communities (1 week)
  • Total estimated time (5 weeks)

Phase II — Site analysis:

  • Develop and issue RFP to short-listed communities (1 week)
  • Allow response time from communities (3 weeks)
  • Review and evaluate responses; schedule visits (2 weeks)
  • Consultant visit to communities (3 weeks)
  • Compile site analysis results and prepare client report (2 weeks)
  • Client presentation and schedule client visits (1 week)
  • Client visits to finalist communities (2 weeks)
  • Total estimated time (14 weeks)

The timeline during Phases I and II can change based upon project complexity, and client availability, preferences and priorities.

Phase III — Negotiation and final selection

  • Financial analysis and evaluation (2 weeks)
  • Incentives negotiations (2 weeks)
  • Site acquisition (2 weeks)
  • Project announcement (1 week)
  • Total estimated time (7 weeks)

The length of time for incentive negotiations varies by political jurisdiction, project details and the scope and scale of the “ask.” Local governing structure, authority levels and public hearing requirements can stretch the time required for final approval(s). The site selection consultant always negotiates with a primary and alternative location — this helps improve incentive packages but also the timeliness of the response.

The site selection process is a methodical and well-managed process, especially when professional consultation is involved. It can be complicated and very competitive. A project can take the better part of a year to come to fruition. So, it is imperative that the Missoula area with the help of the Missoula Economic Partnership get fully prepared to meet with and inform the industry of professional site selection consultants on all the advantages of locating in this part of the Northern Rockies!


Missoula Economic Partnership | 2501 Catlin Street Suite 205 Missoula, Montana 59801 | P: 406.541.6461 | F: 406.541.6464