There's no doubt that warehouse/distribution facilities are in favor among investors. In the premier markets — Atlanta, Chicago, Dallas, Los Angeles and New Jersey — big-box industrial facilities with credit tenants on leases 10 years or longer are trading at cap rates of 7.5%. The problem is that a good deal of the product in these markets is poised to become obsolete (75% of the buildings in Chicago's O'Hare market, for example, are under 200,000 sq. ft., and between 20 and 30 years old). Today, “obsolete” refers to buildings of less than 300,000 sq. ft. with 25-foot-clear heights, minimal parking and five-inch or thinner floor slabs.
So what's the owner of a below-institutional-grade facility to do? Some say “raise the roof,” so the building can accommodate the racking systems of today. This quick fix, however, doesn't take into account what may be the most well-kept secret in industrial real estate — super-flat floors. Without them, a building is functionally obsolete no matter how big it is.
Historical Perspective
“It's about throughput,” says Allen Face, principal of Wilmington, N.C.-based Allen Face & Co., who is credited with pioneering super-flat floors in the 1970s. According to Face, corporations and logistics providers are under increasing pressure to maximize the number of inventory turns during the course of a year. “In order to hit these efficiency targets, you need to have your lift trucks move through a 6-foot aisle in a warehouse at top speed — 6 miles per hour — picking product from pallets stacked on 30-foot high racks and delivering them to conveyor systems.”
By conducting workflow analyses on a number of warehouse/distribution centers, Face discovered that variations in floor gradient or surface impaired the trucks' ability to find and pick the right product and even led to accidents where the vehicles collided with the racks.
In order to measure a floor's relative flatness, Face created the F numbering system which measures floor flatness (the undulations of a floor) and floor levelness (the degree to which a floor is horizontal). By using his patented F-Meter, a floor- profiling instrument, users score their floor on an FF scale from 15 to 150 and an FL scale of 10 to 75. The higher the number, the greater the flatness and levelness.
These indices are now used by lift-truck manufacturers worldwide to specify the type of floor that enables their machinery to operate optimally. Five to seven years ago, floors were usually at FF35 and FL25 readings. With the advent of the laser screed for pouring concrete, floors today achieve FF65 and FL45 readings.
Why the Flat-Floor Infatuation?
The net effect of these flatter floors is that the lift trucks are able to pick product from increasingly higher racks, effectively raising standard ceiling heights to between 32 and 38 feet. In fact, 90% of buildings now employ a wire-guidance system that relieves the driver of steering a truck in favor of an infrared system that automatically guides the vehicle down a 6-foot aisle while a turret mechanism concurrently reaches for the pallet. If a floor is not flat, this automatically guided truck could cave in the rack and damage inventory.
For the owner of a sub-par industrial building looking to improve the performance of his asset with a super-flat floor, the question remains: what to do? There are really three options:
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Pour a super-flat floor on top of the existing floor at a cost of $3.75 per sq. ft. The problem here is that a raised floor reduces the clear heights and affects everything from docks to entryways, mitigating any efficiencies gained.
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Tear out the old floor and pour a super-flat floor. This is the most intrusive option and can cost as much as $8 per sq. ft.
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Grind away up to 3/8 of an inch off the top of the floor in order to render it super-flat.
According to Allen Face, the third option is generally the way to go. “In order to facilitate product picking, you really only need to grind the area of the floor traveled by the lift truck, which constitutes around 15% of the total floor plate in a narrow (6-foot) aisle warehouse or 40% in an older facility. When you average that out over the entire floor, it works out to about $1.50 per sq. ft.”
The question is whether it is worth installing a super-flat floor in an old building. Assuming the rest of the building passes muster, the enhancement to an asset's value might be 50 basis points, which might justify the cost. The problem is that this hypothetical value is rarely obtained in the real world because older buildings are generally attended by multiple problems, from inefficient orientation of the docks to antiquated power and telecommunications infrastructures.
Therefore, a super-flat floor — on its own — can rarely redeem an old building. However, super flats are an essential component in the larger complement of amenities and one that investors and owners cannot afford to ignore.
Daniel N. Frasca is vice president of development for The Alter Group, an office and industrial developer with 6.7 million sq. ft. under development.
