Event: AIRE’s Lunch and Learn: Food Facilities 101
- Steve Groetsma, Principal and Chicago Market Officer, Bridge Development Partners
- Larry Lanterno, Jr, President, United Insulated Structures, Inc
- Rick Watters, Vice President, Refrigeration and Food Process Piping Group AMS Mechanical Systems, Inc
- Food deals take a long time, 6 years vs 6 months, as these tenants are faced with heavy capital considerations, such as employees, unions, etc.
- Although these types of transactions have a long cycle, there are great opportunities, as Groetsma notes rents are going up, producing higher yields with opportunities to place long-term debt.
- Asking net rental rates: $7.00 – $8.00 PSF for cooler space and $12.00-$13.00 PSF for freezer space.
- This specialty type of space is often quoted by price per pallet per month vs rent PSF.
- Food buildings design changes have evolved and today’s facilities typically feature:
- 40’ clear ceiling height
- Staging bays are deeper (60’-70’)
- Enhanced security systems for food safety
- New vertical leveler systems so truck driver never leaves cab
- if space has >10,000 lbs of ammonia, governmental registration is required
- Two refrigerants, Freon and ammonia, are essentially the same however when it comes to cost, Freon is used for buildings <50,000 SF and ammonia is typically used for buildings > 50,000 SF.
- Underwriting food building acquisitions is challenging for cold storage as the market is very tight with limited data as compared to data for dry storage.
- Conversion of an existing building with some food infrastructure is largely dependent on the floor construction, which is one of the most expensive components, followed by the costs associated with adding drop ceiling, additional lighting and sprinklers.
- If developing a spec building and want to keep options open for food user, waiting to pour the floor will allow for flexibility.
- The process of refrigeration is removing heat from the air.
- Pricing to build bulk freezer building (173,000 SF, 45’ ceiling height) = $113 PSF (cost of land NOT included).
- Cost to develop food processing building is much higher than freezer building as the specialized infrastructure is unique to the user.
- Three types of food processing buildings:
- Packaging assembly (think Kraft Lunchables) – $170 PSF
- Ready-to-cook (chicken parts are sized, marinated, frozen and packaged – you cook at home) – $225-$240 PSF
- Ready-to-eat (raw product is processed and fully cooked, blast frozen and packaged – you warm at home) – $250-$290 PSF