FINDING THE RIGHT LOCATION:
FOUR DIMENSIONS OF
SUCCESSFUL FOREIGN
DIRECT INVESTMENT
Airbus Assembly Line – Mobile, Alabama
Overview
With the announcement earlier this year by
Airbus that it plans to invest $600 million to
build jetliners in Mobile, Alabama, the
Southeast U.S is well positioned to attract
foreign direct investment and U.S suppliers
to the region. Central to the supply chain
discussion are location strategies that
optimize the value chain, drive innovation
through the involvement of education and
academia in proximity/joint working
relationships and provide flexibility for
adapting to business change. Location
decisions such as these are special events
that require careful attention to many
conflicting strategic, operational, financial
and intangible factors that can set the stage
for either great success or fantastic failures.
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
Global commercial aircraft orders have
increased six percent in 2011, with
accelerating demand for new, more fuel-
efficient and technologically advanced
aircraft. According to a number of studies,
the industry will have to increase production
by 45 percent to meet demand in the coming
year to address the backlog orders. This is
evident by the recent announcement by
Airbus to double its current $12 billion spend
on U.S. suppliers. The demand issues up
and down the supply chain will place greater
pressure on program management,
manufacturing capability and capacity, cost
and the greening of aerospace products.
Collectively, these issues will be one of the
biggest challenges facing the industry in the
coming years.
This whitepaper explores the key drivers
impacting the aerospace industry, the process
for developing a comprehensive location
strategy in response to industry expansion,
and these critical locations factors that lead to
location strategy success in the Southeast
U.S.:
 Strategic Shift in Supply Base Location
 Integrated Global & Local Supply Chain
Sourcing Strategy
 Cost Pressure of Supply Chain Operations
Continues to be a Significant Industry Issue
 Comprehensive Business Location
Strategy & Decision Making
 Labor Dynamics and the Impact on
Location Strategy
 Economic Climate & Regulatory Dynamics
 Taxes and Economic Incentives
 Transportation Logistics & Cost
 Facility Requirements & Real Estate
Conditions
 Community Capacity & Fit
 Bringing it All Together – Best Practices In
Location Strategy
The paper is positioned to provide you with an
understanding of the complexity of the
process, regional issues and high-level data
1

analytics required to make comprehensive
and transparent business decisions
Airbus supports more than 210,000
American jobs in more than 40 states. In
2011 alone, Airbus spent $12 billion in the
U.S., marking four consecutive years of
spending in the U.S. that has topped $10
billion annually.
Airbus plans to double its annual $12
billion spending with U.S. manufacturers
in the coming years due to a strong global
backlog of more than 4,400 aircraft and
growing future demand. With this
continued investment in the U.S., Airbus
can now forge a more comprehensive and
holistic approach to building its A320
family of aircraft to serve the U.S. market
and sales objectives.
Key Strategic Issues in the
Aerospace Industry
Overview of Aerospace Market
Condition
The aerospace industry as a whole
continues to develop technology to increase
airline profitability and meet every
demanding competitive pressure in the
market — from customers as well as
regulatory agencies. To support these
efforts for improved performance, the
aerospace industry relies heavily on
integrating advancement in technology and
materials from its supply chain. Airbus’ goal
is to have the highest manufacturing
through-put of any aerospace manufacturer,
enabled by a LEAN manufacturing process
that is considerate of best practices in supply
chain management. Airbus also focuses on
eco-efficient solutions at every stage of the
aircraft life-cycle through optimized
performance by design, dissemination of
best environment practices within the supply
chain and greener manufacturing processes.
All of these philosophies support the need
for Airbus to develop the most cost effective
aircraft solution for its customers.
Central to achieving these corporate goals of
efficiency and effectiveness throughout the
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
supply chain of making airplanes are key
determinant variables such as:
 Skilled Labor Availability and Labor
Growth
 Cost Effective Labor Availability
 Academic Institution Focus on Aerospace
 Employee Training at the Local Level,
Specifically Community Colleges
 Program Management
 Supply Chain Transportation Logistics
and Cost
 Real Estate and Infrastructure
This whitepaper will address each of
these variables and how they impact the
strategic and operational plans of the
supply chain and suppliers that will be so
important to Airbus’ commitment to
Figure 1: Airbus Approved Suppliers (Source: Airbus)
Source : Newmark Grubb Knight Frank, Airbus
manufacture world class commercial
aircraft in Mobile, Alabama.
Strategic Shift in Supply Base
Location
With long-standing aerospace companies like
Lockheed Martin and Pratt & Whitney, recent
investments made by Boeing and the July
announcement by Airbus, the Southeast U.S.
is well on its way to becoming a key
commercial aircraft cluster in the U.S. This
regional shift poses a larger strategic question:
does the current supply base support the
current and future assembly needs of the
original equipment manufacturers (OEM)?
With the West Coast, Midwest and the Eastern
regions of the U.S. holding the largest number
of Airbus’ approved suppliers, (Figure 1) the
regional shift for suppliers is inevitable. Yet
much of the shift will be driven by the ever-
present cost competitiveness in the aerospace
industry, as the supply chain moves towards
lower cost manufacturing locations. Because
the supply chain at all levels needs to address
cost, quality and on-time delivery, the focus
will be on cost-effective, positive “business
climate” locations and the ability to both
attract, as well as develop, highly qualified
labor at that location. The integration of
positive location attributes with the ability to
attract and retain qualified labor while
maintaining competitive rates is key to having
a cost-effective supply chain that is
sustainable and scaleable. Similarly, reducing
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transportation costs to the final assembly
location will not only help deliver cost-
effective results, it will support reduced
carbon footprint and sustainability objectives
of each and every supplier. Similarly, well
though site selection efforts will also support
on-time deliveries by reducing transportation
variables and supply chain risks.
The automotive industry saw similar
moves, though different production
volumes, with an integrated supply base.
As automotive OEMs became integrators
of vehicle platforms the Tier 1 supply
base took on a greater responsibility for
design, engineering, system and module
production and warranty risks. The
integrated supply base drove decisions by
suppliers on both the manufacturing and
non-manufacturing fronts. First, on non-
manufacturing or development and
engineering there are two levels of
integration: on-site and off-site. Suppliers
fully integrated into vehicle programs
teams’ often resided within the OEM’s
campus/facility. On-site integration
facilitated layered development and faster
conflict resolution, which drove faster
product development timing. Off-site
often related to longer lead development
and occurred in surrounding tech or
industrial parks. Proximity was often
driven by fast turnaround in the “physical
environment” rather than the simulation
environment.
On the manufacturing side body, paint and
final assembly typically defines the series
production methods. As automotive OEMs
pushed more of the system and module
assemblies to the suppliers, the supply chain
became lean and risk adverse. To meet
production volumes, OEMs relied on Just-in-
time (JIT) methods to sequence suppliers’
systems and modules into the final assembly
line. The JIT of sub-assemblies pushed a
greater amount of the supply chain risk to
the suppliers. To reduce cost and risk,
suppliers used location optimization as a
way to control inventory and the cost
associated with transportation. The location
driver resulted in a number of “supplier
industrial parks” being developed to support
primary vehicle assembly facilities. By
locating in clusters, suppliers can benefit
from Tier 1, 2 and 3 collaboration, skilled
workforce, education and in-place
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
transportation systems that are available to
support the manufacturing infrastructure.
Therefore a basic best practice in on-time
risk mitigation is using location optimization
to reduce product delivery transportation
risk, which is increasingly important in a
procurement-driven business environment
that has rigorous service level agreements
for both cost and schedule.
With the Southeast U.S. being home to a
number of defense and commercial aircraft
OEMs, the same dynamics are in play in the
region. Relating to the value and supply
chain, a key strategic question that Airbus
will need to address is the sourcing strategy
coming out of the current European Center
of Expertise (CoE) network, and how that
supply chain can benefit from location in
proximity to Airbus in Mobile. With growth in
the U.S. China, India and Latin America, the
potential need for new CoEs sourcing
strategies is a key issue.
Integrated Global and Local
Supply Chain Sourcing Strategy
As program management models change in
the aerospace industry, a greater reliance is
placed on suppliers for innovation, quality
and cost management. Similar to the
automotive industry, aerospace companies
are exploring and moving towards series
production of system assemblies. This
production method is underscored as Airbus
ships major system sub-assemblies via
water, rail or air to the new Final Assembly
Facility and then relies on local skilled and
semi-skilled labor for the fitting out airframes,
landing gear, cabin interiors, avionics and
systems.
This movement will tighten the overall
value chain and drive a greater interface
between OEMs and Tier 1 and 2 suppliers
in both development and production. As
Airbus defines aircraft assembly types
and manufacturing sequence timing at the
Mobile facility, suppliers will need to
determine whether to source the supply
chain globally, through established
suppliers, or locally, either through U.S.
suppliers or global suppliers with a U.S.
presence. These decisions will have
significant impact on the size, function and
location of the supply chain moving
forward.
To address the forthcoming capacity issues,
Airbus will have to rely to a greater extent on
the supply base to build up the capabilities of
the supply chain. To mitigate risk, OEMs will
need to drive a greater integration of their
operation models with suppliers. As the value
chain model shifts from build-to-order to
design-to-build, greater responsibility will be
placed on Super-Tier 1 and Tier 1 suppliers
(Figure 2). Similarly, as aircraft demand shifts
from supplier-focused to customer-focused,
greater responsibility will also be placed on the
supply chain to meet customer requirements
for aircraft.
This shift in responsibility will drive a greater
need for sophisticated program management
systems that deliver increased supplier and
OEM interface and improved response time
and provide operational and financial support
to suppliers.
As with the automotive industry, a similar
location optimization response could unfold
in the aerospace sector in the Southeast
U.S. - which places a greater amount of the
risk and responsibilities on suppliers.
Suppliers will find it advantageous to
consider relocating both engineering and
manufacturing capabilities within the
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Figure 2 : Shift in Aerospace Value/Supply Chain
Source : Newmark Grubb Knight Frank
region. These moves will benefit the
industry in the following ways:
 Drive industry collaboration between
OEMs, suppliers and academia
 Create greater integration which leads to
innovation and faster to market
 Develop a leaner manufacturing network
that reduces risk and costs.
Cost Pressure of Operations
Continues to be a Significant
Industry Issue
As cost pressure continues to intensify,
suppliers must position themselves
competitively to maintain long-term
contracts. Fundamental rethinking of
operating models and economics at all levels
of structural costs must be addressed in a
comprehensive way to create cost
competitive alternatives for customers
without compromising a company’s core
competencies. When analyzing the typical
cost structure of an aerospace
manufacturing facility, (Figure 3),
approximately 90 percent of the costs are
related to labor, logistics and amortized
costs (real property). Therefore, location
strategy and site selection decisions will
significantly influences all three of the
mentioned categories.
For a typical aerospace manufacturing
operation, labor costs are close to 70 percent
of the overall operating cost. In the U.S., labor
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
Figure 3 : Average Cost to Operate an
Aerospace Plant
Property &
Sales Tax Shipping
5% Costs
12%
Amortization
Costs
10%
Natural Gas
3% Labor Cost
68%
Electric
2%
Source : Newmark Grubb Knight Frank, Aerospace
Industries Association
rates can vary as much as 25 percent from
region to region. The second highest cost
relate to transportation . Analysis shows that
region-to-region transportation costs can vary
as much as 30 percent. In addition to these
variances, shipping costs will have inherent
risks associated with weather, terrain and
labor. Real property is the last large category
impacted by location. At ten percent of the
overall manufacturing costs, real estate and
related construction costs can vary by as much
as 50 percent based on a region-by-region
comparison. A good example of this is
comparing the Pacific Northwest to the
Southeast, where construction costs vary by
over 40 percent.
Nevertheless, suppliers must be cautious
when basing a location decision on cost
alone. This decision could support the
business case by generating a favorable
Return on Investment (ROI) or Return on
Net Assets (RONA) but, without thinking
ahead for issues such as economic growth,
alternative customer base, supply chain
risk, business climate, sustainable
population/workforce skills and capabilities
and technical education, this decision to
optimize around costs could turn into a
fatal flaw down the road. Therefore a best
practice is to monetize the risk, business
climate, and the intangibles that surround
the aerospace supply chain, which then
allows for these to be evaluated objectively
and in a balanced way.
Comprehensive Business
Location Strategy &
Decision-Making
With the Southeast region of the U.S. being
home to companies like Mercedes,
Lockheed Martin, Embraer, Boeing and
their respective supply bases, the region is
competitively positioned to support global
manufacturing and especially the
aerospace industry. As Airbus ramps up
production in Mobile and the supply base
seeks to establish business relationships
that are cost effective and efficient,
companies need to consider how to best
align the economic geography of the area
with their strategic expansion and structural
cost objectives.
4
 Labor Dynamics and the Impact After significant industry downsizing and cost
on Location Strategy reductions, the industry faces a new challenge
— the workforce. Attracting and retaining
With labor accounting for around 70 critical talent in engineering, science and
percent of aircraft production costs and manufacturing is a top strategic issue for C-
the related need for high-skilled workers, level executives in the industry. The issue will
the issue is significant when it comes to be exacerbated by the short supply of
considering strategic, operational and engineers and skilled production workers in
financial issues as part of a location the U.S. One of the key factors that is driving
strategy. Labor constraints, costs and this reduction is the aging workforce that
education are all critical location factors currently makes up the aerospace industry.
Locating operations in the appropriate
that best practice aerospace companies The average age of the production workers in
industry clusters, states, regions and
are looking at. the industry is around 48 years, while the
municipal communities requires careful
average age of engineers is 46. Estimates
consideration of a myriad of operating
As an industry, aerospace and defense show that 25 percent of the workforce will
costs, operating conditions and cultural
employs approximately 625,000 high-skilled become eligible for retirement in the coming
differences that vary significantly by
and high-wage jobs nationwide. The years, and with the potential for additional
geography. Industry/regulatory
aerospace and defense workforce in 2011 retirements in the baby-boomer generation,
dynamics, supply chain optimization,
earned an average wage/salary of $80,175, the industry could see significant skilled
workforce skill capacity, physical
45 percent higher than the national average workforce reductions and availability.
infrastructure, real estate (both existing
of $45,000. Of the total aerospace and
and greenfield assets), business
defense employment, approximately 67 The reduced workforce availability is a
incentives/taxes and community capacity
percent, or 412,000, are employed in the challenging strategic issue for the industry and
are some of the key decision factors that
aircraft and parts sector. Forty-four (44) much of the advanced manufacturing sector in
require thorough due diligence and risk
percent or approximately 180,000 are the United States. The key question is how
assessment so that companies can make
employed in the aircraft supplier industry. the aerospace and defense industry will
the best business case for investment
compete for the current and future talent pool
decisions to senior management. A best
Over half of the U.S. aerospace and defense entering the workforce today. The current and
practice location selection process
employment is located in the East, Midwest future workforce has significantly different
blends the strategic, operational,
and West Coast. As a result of continued values than the previous generations of
financial and intangible factors using
investments by space, defense and aircraft workers. Aerospace companies will have to
robust and objective evaluation
OEMs, the Southeast has given way to the find a balance between changes to the
processes to drive a result that is
growth of smaller clusters in the region. fundamental elements of their cultures, while
sustainable and aligned with the
Figure xx illustrates the state-by-state maintaining elements that have made the
corporate objectives for the business
employment concentration, where the industry successful. Today’s entry-level
enterprise. Critical location factors that
Southeast shows competitive concentration workers value open environments,
will vary by geography will include the
of the workforce. advancement, flexible work schedules,
following:

 Labor Dynamics (Availability, Competition

Figure 4: Aerospace Employment
and Cost)
 Academic Environment and Innovation
 Economic Climate and Regulatory
Dynamics
 Taxes and Economic Incentives
 Global and Local Supply Chain Analysis
 Facility Requirements and Real
Conditions
 Community Capacity and Fit

All of these need not only considerable

analysis, but also objective evaluation to
States with more than States with less than
have the most positive effect on location 30,000 AGD employees 9,999 and more than
5,000 AGD employees
decision-making. Each brings a dynamic
and a risk that must be modeled to create States with less than States with less than
29,999 and more than 4,999 AGD employees
the highest probability of success for the 10,000 AGD employees

entire supply chain. Source : Newmark Grubb Knight Frank, BLS

Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012 5
 Figure 6 : Manufacturing Employment and concentration levels, while the levels, while the darker shades indicate a
darker shades indicate a greater greater industry concentration (IC) of the
concentration of the workforce and skills workforce and competition.
presence.
The following figures illustrate annual mean
The following figures illustrate employment wages for key aerospace production occupations
levels for key aerospace production that are important to aerospace manufacturing
occupations that are important to aerospace success. The lighter shades represent lower
manufacturing success. The lighter shades workforce costs while the darker shades indicate
represent lower workforce and competition higher workforce costs.

Source : Newmark Grubb Knight Frank, BLS

dynamic technologies, flatter organizations

and hyper communications, and not the
traditional styles, values and cultures of
today’s aerospace companies.

Over the past number of years, whether

stemming from lower wages or more
favorable regulatory environment, the
Location quotient Employment
Southeast has attracted a significant 0.03 - 0.10 0.11 - 0.21 0.23 - 0.60 0.83 - 0.97 1.08 - 2.05
Blank areas indicate data not available.
2.15 - 4.61 40 - 90 130 - 240 340 - 530 680 - 1,950 2,060 - 3,310
Blank areas indicate data not available.
3,300 - 19,990

number of manufacturing, logistics and

research and development companies,
including both relocations within the U.S.
and those originating overseas. These
locations now boast some of the highest
manufacturing employment as a
percentage of total employment in the
country (Figure 4).

As stated earlier, aerospace and defense

Location quotient Employment
employment has traditionally been 0.12 - 0.37 0.41 - 0.64 0.66 - 0.88 0.91 - 1.16 1.23 - 1.52
Blank areas indicate data not available.
1.68 - 2.95 80 - 400 480 - 1,030 1,050 - 1,990 2,060 - 2,720 2,910 - 5,800
Blank areas indicate data not available.
6,460 - 11,120

concentrated in the East, Midwest and West

Coast of the U.S. Employment by industry
will vary from state-to-state due to the type of
aerospace and defense companies that
reside in the region.

The West Coast has been predominately

influenced by commercial aircraft, while
the Midwest is home to smaller aircraft
producers and parts suppliers. The
Location quotient Employment
Southwest and Southeast have been, for 0.10 - 0.27 0.37 - 0.75 0.84 - 0.96
Blank areas indicate data not available.
1.37 - 4.13 90 - 210 220 - 680 880 - 1,790 1,890 - 4,010
Blank areas indicate data not available.

the most part, dominated by defense

contractors, but that landscape is
changing rapidly with the arrival of Boeing
and Airbus to the region. The next set of
figures breaks down workforce
availability, competition and costs on a
state-by-state basis for both engineering
and manufacturing workforces. The
following figures illustrate the aerospace
engineering workforce and skills Location quotient Employment
0.15 - 0.56 0.67 - 0.90 0.91 - 1.00 1.03 - 1.12 1.12 - 1.30 1.37 - 2.35 40 - 140 160 - 280 350 - 670 680 - 890 910 - 1,340 1,360 - 4,760

concentration in the U.S. The lighter Blank areas indicate data not available. Blank areas indicate data not available.

shades represent lower workforce skills Source : BLS

Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012 6
 afforded them the flexibility to move into
expansion of flight line, paint shop,
warehouse, administrative offices, flight
operations and flight test engineering.
One of the most disruptive companies
make when making location-decisions is
to assume that labor market capacity and
skills at one-point in time is a good
indicator of what it will be in the future.
Annual mean wage
American Eurocopter looked at the
$23,180 - $33,270 $33,290 - $34,420 $34,640 - $35,680
$35,700 - $38,910 $37,470 - $38,660 $38,670 - $45,510
Blank areas indicate data not available.
Columbus labor market from short and
long term needs and benefited
tremendously.
One of the top location issues that senior
management in the industry faces is the dire
need for the necessary science, technology,
engineering and advanced manufacturing
skills to support future growth in the
industry.
$30,310 - $39,890
Annual mean wage
$41,290 - $42,790 $42,980 - $43,320
While Airbus has established a solid
$44,270 - $47,540 $47,800 - $54,660
Blank areas indicate data not available.
presence in the Mobile, Alabama, area
for aerospace engineering, many of the
Top 12 academic university institutions
supporting aerospace are in proximity to
the major manufacturing clusters in the
U.S., as evidenced by the map (Figure
5). Two of the Top 12 aeronautical
engineering graduate programs are
located in the South/Southeast, these
being number four Georgia Institute of
Annual mean wage
$53,600 - $83,690 $86,090 - $89,670 $90,810 - $93,670
$99,270 - $103,245 $103,300 - $107,420 $111,370 - $123,980
Blank areas indicate data not available. Figure 6 : Top Aeronautical Academic Graduate Programs & Industry Cluster Map
number eight University of Texas in Austin,
Texas.
In addition to the top ranked universities, the
Southeast region’s colleges and universities
offer strong research centers and excellent
educational programs and degrees relevant to
the aerospace industry. Examples include
nationally recognized programs in polymer
science aerospace engineering, commercial
aviation and jet engine mechanics. As an
example, the Mississippi Polymer Institute at
the University of Southern Mississippi has one
of the most advanced rapid prototyping
systems in the world.
The region’s educational institutions also play
a critical role in providing workforce training.
The region is committed to providing quality
programs relevant to businesses’ needs, and
state officials work closely with companies to
tailor these programs to their specific
knowledge and technical skills.
A good example of how universities and
industry work together is with Stark
Aerospace, a subsidiary of IAI North America,
the U.S. subsidiary of Israel Aerospace
Industries, Ltd. (IAI). Stark first located at
Mississippi State University’s Raspet Flight
Research Laboratory in Starkville, MS. The
decision to begin its manufacturing operations

Annual mean wage

$19,000 - $36,690 $36,710 - $39,530 $40,130 - $41,240
$41,490 - $43,850 $44,620 - $46,040 $47,260 - $53,900
Blank areas indicate data not available.

A good example of how an aerospace

company aligned their unique skill-base
needs with a regional workforce is
American Eurocopter. The company in
2007 expanded its Columbus, Ohio plant
from 92,000 square feet to 325,000
square feet to accommodate the UH-72
program. American Eurocopter took the
time to adequately evaluate the local
labor market capacity and skills capacity
to meet their expanding needs, which Source : Bureau of Labor & Statistics (BLS) and US News College Compass

Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012 7
at the Raspet Lab provided Stark with
access to the university’s research and
development capabilities and the other
resources the lab offers to aerospace and
aviation firms.
Another example is the Raspet Flight
Research Laboratory and its incubator
program for the production of composite
components for jet engines. The MSU and
GE team successfully produced carbon fiber
and epoxy resin composite fan platforms,
and in 2007, the company announced it
would construct a facility in Batesville to
produce these composite engine
components. When the facility opened in
2008, GE officials said the company’s most
sophisticated manufacturing processes
would be undertaken at the Batesville plant,
and they credited their successful
partnership with the Raspet lab as an
important factor in their decision to establish
a permanent site in Mississippi.
The aerospace industry as a whole, and
specifically Airbus, has defined the use of
new technology in its aircraft, from the
introduction of composite materials in the
A310 aircraft in the early 1980’s and the
A320 series of aircraft in 1998 with the first
an all-composite tail section. This focus on
technological improvements is supported
through the focus on technology at an
academic level in major higher education
institutions throughout the U.S.
Finish here with composites discussion,
composites are key innovation area (saves
on fuel, lighter etc.) for this industry and
schools that do this research are limited, will
need to research areas that can develop this
in their university or tech school programs.
Economic Climate & Regulatory
Dynamics
The Southern U.S. is frequently cited as one of
the most business-friendly regions in the
country. It not only possesses active
economic development groups dedicated to
attracting investment to their community, it has
fewer and streamlined regulatory processes
for new businesses. The region has attracted
a significant number of manufacturers over the
last 40 years, both relocations within the U.S.
and projects originating overseas. It now
boasts some of the highest manufacturing
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
employment as a percentage of total
employment in the country.
This region has performed well in a
number of metrics based on hard data and
company perceptions. Beginning in the
1970’s, the region attracted a
disproportionate share of manufacturing
operations, many at the expense of more
expensive locations in traditional
manufacturing belts in the Midwest and
Northeast. The low cost of doing
business was a product of the region’s
rural past, and is still largely in place
today. The same cost benefits and
optimal regulatory environment has now
attracted a large share of manufacturing
foreign direct investment, particularly from
industrialized countries in Europe and
Asia. The latest phase of manufacturing
activity has been the nascent re-shoring of
manufacturing operations that was
previously moved overseas to save on
labor costs. With the increase of
transportation costs, rapid increase in
labor costs and supply disruptions, no
matter where the location, the Southeast
has attracted companies taking advantage
of a diverse labor pool, increased labor
productivity and stable business
environment.
Reinforcing plant location activity is the
positive perception of the region from
independent rankings, site selectors and
These economic development organizations are collectively aligned to drive a coordinated
economic development front to the business community in the Southeast region.
Source : Newmark Grubb Knight Frank
company leadership. In recent years, the
Southeast has frequently enjoyed top honors
in state-level rankings. For example, Chief
Executive’s ranking of “Best States for
Business” has awarded seven of the top 10
spots to South-eastern states. Site Selection
magazine’s most recent annual report ranks
South-eastern states in eight of the top 10
spots.
Southern states typically consider a low-
regulation environment to be an essential
component in creating a favorable business
environment. Increasing cooperation
between separate but related agencies has
been another method for streamlining the
regulatory process. Best practices include
inter-department communication and pro-
business attitude regardless of their
traditional involvement in economic
development. Furthermore, some states
call upon state legislators to amend
outmoded regulation or address new
8
business activities. A champion in state
or regional government for economic
development can improve business
operation conditions for specific projects
to entire industry sectors.
Certified development sites are designed to
streamline the regulatory process by
performing major site testing and
environmental permitting prior to
designation. Companies developing these
sites benefit from reduced development time,
and other assets such as favorable highway
and infrastructure access.
Perhaps the most significant type of
regulation is related to a company’s labor
pool. Employee regulation ranges from
mandated worker’s compensation cost to
the number of breaks throughout a shift.
Manufacturers and employers in other
labor-intensive sectors frequently
consider a state’s right-to-work status as
a significant factor in location selection.
Right-to-work status is determined at the
not taxed,Their shareholders, members
and partners are subject to income tax on
their shares of income and deductions,
and take their shares of credits. The
same can’t be said for state taxing
jurisdictions, each sovereign state has its
own taxing system, but most states
impose a tax on the income of a
corporation and an individual. This tax is
generally imposed on the income
apportioned to the state. Additionally,
there are varying local jurisdictions that
impose a local income tax on top of the
sales and property taxes. Nonetheless,
there a several states that do not impose
an income tax at all but rather have
alternative taxes as noted in the following
table (Figure 7):
Figure 7 : Alternate Taxes to State Income Tax
Alternative State Tax to Income Tax
State Alternative Tax
Nevada None
Ohio Commercial Activity Tax
outside the state. The factors are generally
defined as:
 The property factor is the average value of
the taxpayer's real and tangible personal
property owned and/or rented and used in
the state during the taxable year, divided by
the average value of all of its real and
tangible personal property owned and/or
rented and used during the taxable year.
 The payroll factor is the total amount paid
for compensation within the state during the
taxable year by the corporation, divided by
the total amount paid for compensation
everywhere during the taxable year by the
corporation.
 The sales factor is the total sales of the
corporation within the state during the
taxable year, divided by the total sales
of the corporation everywhere during the
taxable year. A corporation's total sales
are its gross receipts, with the exception
of interest, dividends and gross receipts
from the maturity, redemption, sale,
exchange or other disposition of
securities.

state level and prohibits union Texas Margins Tax

Furthermore, Alabama and some of the
membership as a condition of Washington Business & Occupation Tax
bordering states impose sales tax on
employment. Union presence and Wyoming None
machinery and equipment and property tax on
influence is markedly lower in these
Source : Newmark Grubb Knight Frank inventory. The following state taxes are
locations, which typically results in lower
imposed on manufacturing companies as
wages and fewer work stoppages than The states that border Alabama all impose a follows (Figure 8):
non-right-to-work states. Many states in corporate income tax and personal property
the region are vehemently protective of tax, but not all the bordering states calculate Thus, a best practice and as part of an overall
their low union participation rates and income tax the same way. The way a state location strategy and site selection effort, a
companies entering in the U.S. should be calculates income apportioned to the state is company should perform a tax burden
aware of this philosophy. based on the state’s apportionment analysis to determine how the varying tax
methodology. This can vary from a single rates will impact the company at its inception
Taxes and Economic Incentives sales factor state, to a three-factor and as the company matures in the
apportionment methodology. Apportioned marketplace.
When deciding to locate and start taxable income is determined by utilizing the
operations in the U.S., a business needs statutory factor (Single Sales, Double Economic Incentives
to take into account the varying taxing Weighted Sales, Three Factor
authorities. The U.S. taxing system is Apportionment) to determine the sales, To offset the imposition of the aforementioned
multi-layered whereby taxes in the U.S. property and payroll within a state and taxes imposed, each entity of government has
can be imposed by the federal, state and
local government. Taxes that might be
imposed include taxes on income, payroll, Figure 8
property, sales, imports, utilities and
AL AR FL GA LA MS SC TN
telecommunications.
Income Tax Rate 6.5% 6.5% 5.5% 6.0% 8.0% 5.0% 5.0% 6.5%
Sales Tax on
Tax Structures and Rates Machinery & Yes No No No No Yes No No
Equipment
Inventory Tax No Yes No Yes Yes Yes No No
Under the U.S. Internal Revenue Code,
Double Double Double Double
Federal income tax is imposed on Apportionment 1 Weighte Weighte Weighte Single Sales Single Sales 3-­‐Factor Single Sales Weighte
individuals, corporations, estates and d Sales d Sales d Sales d Sales
Sourcing Rule 2 Market COP COP Market COP COP COP COP
trusts, however S-Corporations, Limited
Liability Companies and Partnerships are Source : Newmark Grubb Knight Frank

Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012 9
the ability to offer economic development
incentives. States tend to offer economic
incentives as a way to support the
development of a target industry cluster and
close the gap in the cost of operations
between two or three states vying for the
same investments — all for the purpose of
creating quality job creation, investment and
economic growth.
The aforementioned incentives can be
offered primarily through three channels:
 Statutory credits/exemptions – tax-
based off-sets authorized by statute and
administered usually by a department of
revenue and based on investment or jobs
and sometimes on place of business
activity
 Employee training grants/assistance –
states and the federal government offer
off-sets (cash or tax credit) to employers
for training employees to improve
productivity and competitiveness
 Discretionary incentives – state and
local jurisdictions offer “negotiated” or
“discretionary” tax and financial off-sets to
entice business activity and gain the
resulting economic benefit when another
jurisdiction is competing for the
investments.
These incentives can be lucrative, but
may not be useful. Thus, it is extremely
Source : Newmark Grubb Knight Frank
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
important to understand how these new
facility/capacity development decisions
will impact overall costs of goods sold
and especially tax burden when you are
making a location decision.
However, it is important to note that not
all incentive packages actually lower the
cost or fill the gap that they are intended.
Thus, it is important to understand what
the costs are up-front and to negotiate a
proper incentives package. For example,
in Alabama there is the Capital Tax
Credit. This incentive is a five percent
tax credit for 20 years based on all
project-related capital costs. It sounds
great, but the credit is not refundable and
does not have a carry-forward period. As
previously mentioned, it only reduces the
current year Alabama state liability. If a
taxpayer has no liability, then the credit
is worth virtually nothing. It is paramount
that a company understands the true
value of the incentive to their bottom line
as they begin to negotiate an incentive
package.
Nevertheless, a great incentive package
usually does not make a bad location good,
but a great incentive package can make a
good location great.
Transportation Logistics & Cost
While Airbus sources 70 percent of its
components externally, transportation logistics
and the associated cost are one of the key
factors in providing an exceptional supply
chain for the Final Assembly Plant in Mobile,
Alabama. With access to the site via air, rail
and water, Airbus will continue to focus on
how best to reduce cost, cycle time and risk
with every aspect of the supply chain
supporting final assembly, and transportation
methods and costs will certainly have an effect
on all of these. Approximately $24 billion in
aircraft spending goes to U.S.-based
suppliers, which is divided into major aircraft
assemblies/modules:
 Airframe – 38 percent
 Engines – 27 percent
 Systems – 14 percent
 Avionics – 11 percent
 Interiors – six percent
 Landing Gear – four percent
Transportation cost considerations have
grown in importance among manufacturers as
a major contributor to total operations cost,
especially given global resourcing of major
assemblies given the size and risk of shipping
large assemblies long distances. Further, with
increased focus on sustainability, integrating
the supply chain to reduce both cost and
environmental impact is increasingly important
in the aerospace industry, and particularly at
Airbus. The increase in length and complexity
of the global supply chain has affected even
those companies with relatively simple
transportation needs. Portfolio alignment with
basic logistics principles helps to insulate
companies from cost spikes and product
delays related to fuel fluctuations or supply
chain disruptions.
When developing an integrated supply chain
strategy that looks to reduce cycle time for
delivery of key components and assemblies, a
transportation network optimization is critical in
the overall location strategy. Integrated supply
chain sourcing also involves defining the
demand and supply profiles of the various
assembly components required of the supply
chain. For example, a supplier contributing to
50 percent of all inputs will have a larger pull
on the optimal location than a company
supplying only five percent of inputs. The
same logic applies to customers. Once these
10

Figure 9: Supply Chain Transportation Network Analysis
Source : Newmark Grubb Knight Frank, Airbus
are defined and a sensitivity analysis is
undertaken, best practice requires the
creation of a baseline logistics model, and
then modeling of the candidate
transportation networks. Through this
comprehensive process, a holistic supply
chain analysis can be created, which
becomes a component of the location
selection along with labor, academic and
education infrastructure, tax and incentives,
economic climate and regulatory dynamics
and of course, real estate.
Industry experts expect that elevated fuel
prices will be a long-term reality. A more
efficient logistics network better insulates
companies from today’s high prices and
rising costs in the future. One of the best
ways to improve transportation efficiency is
to consider alternative forms of
transportation — specifically rail and water
transportation for long supply chains. Rail to
truck intermodal centers have grown in
popularity because they allow goods to
remain on more efficient modes of
transportation, in this case rail, for a longer
period of time. Water shipping is an even
more efficient mode of transportation, but it
is accompanied by slower shipping times
and reduced flexibility.
Other macroeconomic forces such as re-
shoring, which is the repatriation of
operations to the U.S., has gained in
popularity as fuel cost, supply chain
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
disruption and rising overseas wages have
reduced some of the advantages of
overseas manufacturing operations, despite
typical labor cost savings. Recently, more
manufacturers have come to the conclusion
that North America is the most appropriate
place to supply North American markets,
which has led to significant activity in plant
expansion and relocation across the U.S.,
with the Southeast being one of the largest
beneficiaries due to customer access and
the pro-business environment.
Facility Requirements & Real
Estate Conditions
Once a company selects a regional
location, the focus shifts to finding specific
sites or buildings that will meet the
operational needs of the company. While
manufacturers typically favor existing
buildings, the facility attributes for
aerospace companies often require greater
capital intensive operations and often
create limits on available real estate.
Across the U.S., the industrial vacancy
rate continues to dip from a peak of 10.9
percent in 2010 and absorption is expected
to remain high.
Aerospace product development and
manufacturing pose a number of unique
constraints on overall real estate
requirements, thus making them a challenge
during the site selections process. Access
to airport testing, dimension requirements and
transportation are some of the many issues
that pose constraints on both land and facility.
With aircraft manufacturing ranging from large
sub-assemblies all the way down to
component manufacturing, the complexity and
technology of the manufacturing process is
common. The following is an overview of
typical physical land and facility requirements
for non-manufacturing and manufacturing
associated with aerospace companies.
During the product development and
engineering phase, the majority of the work
completed is performed in engineering
centers. These centers are typically office
environments either owned or leased
depending on the market commitments and
complexity of the operation. With greater
integration into aerospace OEMs, one key
supplier consideration will be with engineering
space and the extent of engineering functions
that will be located, if any, on-site with the
OEMs. This will determine the level of
secondary office space needed.
In the U.S., office space is typically developed
and marketed towards standard office
functions. In some cases, aerospace
engineering functions require unique space
types such as:
 High Speed Fiber Networks – This is
critical for transfer of CAD and math data
 Power Requirements – Rapid
prototyping, CAD and math-based
11
 simulations require a large need for
data processing and storage. Ample
and reliable power is critical in
supporting engineering development
functions
 Prototyping Space – In some cases both
small rapid and large-scale prototyping
space is required for mock-up of
component and modular assemblies
 Data Security – Data security is a critical
criterion both from building access to
surrounding tenants
 Space Compartmentalization – This is
particularly important given branding and
government military protection
 Clean Rooms – The need for clean room
conditions for development of electronic
systems and avionics.
These attributes are pointed out to make
potential entrants aware that challenges
may exist when it comes to finding
suitable buildings in the office market.
Suppliers will have to consider other uses
such as Office-Technical or Office-
Engineering. The following map identifies
market availability of these office
classifications.
Aerospace manufacturing facilities have a
completely different level of requirements
when it comes to real estate. Aircraft
manufacturing facilities tend to have more
constraining requirements at the site and
building level when it comes to site
selection than traditional manufacturing.
Sites, whether they are existing or
greenfield, have a set of characteristics
that include both on- and off-site
requirements in most manufacturing
settings. These unique requirements can
be segmented into site, facility and
environmental.
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
The following are typical site factors in the
site selection process:
 Access to Open Airspace Airports –
Proximity to airports with open airspace is
often required for testing of aircraft
components and assemblies
 Rail Access to the Site – Inbound
components and outbound assemblies
 Major Interstate Highway Access –
Inbound components and outbound
assemblies. This can be a critical
location factor when large system sub-
assemblies requiring special
transportation requirements like wings,
engines and fuselage transportation
 Deep Water Ports – In the case of
Airbus, most of the parts produced in the
U.S. are exported to CoE’s located in
Europe. If this remains the pattern or
aircraft assembly movement this will
become a critical location requirement
 100 to 200 Acres Sites - Appropriate
dimensions for aircraft or aircraft
components movements among
structures.
Aerospace manufacturing facilities have
their own set of unique requirements on
both the technology and infrastructure
side of aircraft production. These
requirements often pose constraints on
site selection relative to the current
typology of manufacturing facilities in the
marketplace. The following are typical
considerations in manufacturing facilities:
 Facilities Size – Range between 500,000
SF to 1,000,000 SF
 Electrical – Service that is dependable,
reliable and has redundancy
 Natural Gas – Standard and specific to
process requirements
 Water/Wastewater – Standard and
specific to process requirements
 High Speed Fiber – Communication with
engineering, production and delivery
sequencing
 Floor Loading – Special equipment and
the weight of aircraft assemblies require a
greater floor loading. Eight to 16 inch floor
depths are common with isolated floor
loads where the process requires
 Column Spacing – With the movement of
large aircraft assemblies, larger bay
spacing is required for movement and
assembly. Common spacing is 50 ft. x 125
ft.
 Clear Ceiling Height – Movement and
manipulation of aircraft assemblies require
greater vertical space. Common ceiling
heights can range between 30 and 50 ft.
 Overhead Cranes – Something that has all
but disappeared in modern manufacturing
facilities remains a critical asset in moving
aircraft assemblies around the facility
 Paint and Clean Room Requirements –
These space types are unique to current
manufacturing facility types and drive
special mechanical requirements.
Another area that is drawing much attention
is the environmental or sustainable issues
in aerospace manufacturing. Many of the
OEMs are taking a hard stance on the
environmental impact of their real estate
footprint. These environmental positions
are also being passed down to the supplier
base to assure that the aerospace product
meets the OEM’s green standards. The
following are key areas of concern during
the site selection process and need to be
understood relative to the various restraints
and permitting required:
 Air Permitting – CO2, VOC’s are concerns
as it relates to production process, paint
booths and material girding
 Wastewater – Quick prototyping, milling
and production processes generate the
need to treat wastewater before returning
to waste water systems
 Hazardous Waste – Fuels, oils and other
contaminates are typical hazardous waste
that require detainment, treatment and
disposal
12
 Noise Level – Engine and aircraft testing
and large production equipment are a few
factors that pose problems with local
regulations.
A tight supply of industrial space and
capital intensive real estate needs will
drive most suppliers to consider
greenfield sites, which will mean new
buildings on never before developed
sites. Unexpected findings on location
infrastructure can delay construction
timelines and thereby jeopardize
operational deadlines and commitments.
This will demand examination and due
diligence of the municipal utility
infrastructure, transportation access,
physical site conditions, regulatory
permitting requirements and construction
timeline before a final site can be
selected. When considering green-field
sites, suppliers should consider the
number of “Shovel-Ready” or certified
sites in the U.S. as a way to mitigate risks
with green-field development. These
sites are developed to meet state and
local requirements. Understanding and
including the development characteristics
and any potential constraints are required
of the location analysis.
Community Capacity and “Fit”
Within a defined search area, it is possible to
analyze the strategic, operational and financial
success factors mentioned above for new
investments and facility locations. However,
intangibles such as community capacity and
“fit” are often overlooked. Not all communities
have the same ability and desire to address
specific concerns from prospective
companies, such as a new access road or tax
abatements. Certain states and regions have
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
developed a reputation for going the distance
to attract companies. Others take a more
reactive approach, which typically extends the
project timeline and results in fewer economic
incentives.
Influencing the concept of community
capacity is government’s continuing
struggle with limited resources and fiscal
challenges. This reality has required a
focus on highest and best use concepts,
targeted industries and support of
economic activities that align with
community strategic planning. The world
is filled with examples where a location is
selected primarily on the basis of real
estate and years later the company
struggles with a locality that no longer
wants their industry type. This often
happens in former heavy manufacturing
districts as communities begin to attract
higher value-added industries or
knowledge-based industries. Reference
what has happened in Pudong, China,
over the years — massive displacement
of industries that invested substantially to
accommodate commercial development
and government growth plans. Often this
issue of community capacity and attitude
is manifested in land use plans and policy
development that presents an awkward
situation of, “we don’t want to invest in
your industry anymore.” We caution all
companies that address multiple locations
to pay heed to this intangible.
Fortunately, the importance of labor pool,
supply chain cost and other attributes
frequently exceeds the benefits of locating
in a specific community. Once an optimal
region is identified, companies have the
advantage of considering a number of real
estate options and municipalities with little
to no change in key attributes such as labor
pool composition or access to key
suppliers. Concern about community fit
can be solved by selecting a more
industrial-centric community with a history
of proactive business development.
Bringing it All Together – Best
Practices in Location Strategy
To adequately make holistic business
decisions based not only on cost, but on the
strategic, operational, financial and intangible
business case factors, a comprehensive
location modeling process must be
undertaken. Best practice location strategy
processes utilize Multi-Criteria Decision
Analysis that systematically breaks down the
issues into critical location factors, enabling
the decision-maker to assign weights to
criteria and scores to alternatives. Weighting
and scoring techniques integrate both
quantitative and qualitative factors into the
analysis, and provide a forum for consensus
building and driving to an actionable
recommendation. While uncertainty and risk
exist in the implementation of location
strategies, best practices model uncertainty
using sensitivity analysis that undertake
changes in the assumptions to characterize
risk and probabilities for success. The result
from a comprehensive model approach serves
as the basis for a defensible business case
that mitigates capital risk and meets the
strategic goals of any relocation decision. The
following are key issues to consider in the
Southeast U.S.:
 Location strategy; not a single dimensional
process
 When and how to engage EDC’s
 Knowing the right level of data to support a
multi-phased decision process
 Knowing when and how to position
negotiations
 The science behind location decision
analytics
Making the final location selection, whether
within the Southeast or elsewhere, and to
what extent operations are established in the
region, requires sophisticated modeling of the
13
 asset types, three to four alternative locations
The Site Selection Process: Why it Matters
provide sufficient data to compare costs and
Within a defined search area, we screen location options based on critical location criteria and
gradually eliminate those with fatal and/or serious flaws. Unless we find a perfect location, we service levels to arrive at a recommendation.
develop strategies for locations with controllable flaws to make them viable for the project. Typical components of the business case
would include all qualitative and quantitative
Filter 1: Fatal Flaws aspect of the business operations discussed
Location 1 Location 2 Location 4 Screen out locations with fatal flaws e.g.
Locations with insufficient connectivity
and evaluated in the sections above.
Location 3 Location 5 Filter 2: Serious Flaws
Location 6
Quantative Analysis and Rule out Locations with serious flaws Using a Multi Criteria Decision Analysis
Desktop Research e.g. Locations with key attributes but
inadequate infrastructure process framework, the team should evaluate
Location 1 Location 2
Filter 3: Controllable Flaws numerous variable and disparate quantitative
Site Due Diligence Location 3 Location 4 Consider Locations that meet all critical
and Qualitative Date criteria but have manageable issues – and qualitative information, thus providing a
Gathering flaws that can be remedied or mitigated
through negotiations with government
company with a robust, transparent, and most
Location 1 Location 2
officials importantly, objective decision-making
Short List of Preferred
Location 3
Finalized Sites
Locations and Sites framework for operations and administrative
real estate strategy, culminating in a strategy
presentation to senior leadership, or even as
Location 2
Location 1 necessary, the Board of Directors.

Source : Newmark Grubb Knight Frank RoadMap Development

Once senior management and, as necessary,
the Board of Directors agree on a
Develop the Business Case
recommended location strategy, it is
Once the team has prioritized the incumbent on the stakeholder team to develop
opportunities through a comprehensive a road map for implementation. This road map
process that encompasses both the would include both internal and external
quantitative as well as qualitative aspects of stakeholders in manufacturing operation,
selecting a location, building a business human resources, supply chain logistics,
case then becomes the final aspect of the capital planning, real estate, architectural and
decision-making process. The result will be engineering design, and above all, a team of
Souce : Newmark Grubb Knight Frank
recommended target opportunities along program managers with diverse skills in
variety of data inputs. Similarly, with any with a recommendation that serves the managing the necessary capital project
modeling, a sensitivity analysis must be future business needs. For manufacturing activities. The road map should define the
undertaken that models changes in the
assumptions in order to characterize the
investment while risk must be modeled Scenario Scenario 2 Scenario 3 Scenario 4
1Remain Southeast Expanding Facilities in
accordingly as well.
Key Decision Criteria with Growth Option Southeast Southeast
Total Cost (10-Yr. NPV) $61,071,023 $82,802,844 $74,884,372 $73,404,682
Additionally, there may be dependencies
between real estate, government incentives, One Time Capital No Capital
$4,348,066 $4,098,066 $4,098,066
+Relocation Costs Requirement
operational timelines or capital investment,
and these can be evaluated along with their Annual Total Cost $2,622,001 $1,634,15 $1,469,182
No Charge
Savings/Increase Increase Increase Increase
risk in a stochastic model. Similarly, the
location selection team should map various
real estate and business scenarios to a
Stochastic Cash Flow Model, which
incorporates the uncertainty referenced
above. For each location option, a Monte
Carlo simulation of random iterations should
be used to quantify the cumulative
uncertainty faced by a specific set of
underlying location conditions, thus enabling
a higher confidence level in the location
decision-making process and final location
Source : Newmark Grubb Knight Frank
selection.

Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012 14

Source : Newmark Grubb Knight Frank
work breakdown structure, timeline, financial
requirements and the necessary resources
to implement the required facilities and
infrastructure while incorporating a risk
management plan.
Using Professional Exclusive
Representative Services at No
Direct Cost to the Client
Your primary business is running your
company. How often do you lease or
purchase business real estate? The fact is
companies rent or purchase business real
estate only a few times in their entire
business life. Landlords, developers and
owners on the other hand rent and sell
business space over and over again. In
most cases, they hire a professional agent
to market the property and advise them. Do
they have an unfair advantage? You bet
they do if left unchallenged. How do you
balance this unfair advantage? You engage
the services of your own commercial
broker; a qualified exclusive representative
for tenants & buyers. Exclusive
representatives are highly specialized
commercial brokers who advocate and
represent only the interests of tenants &
buyers. Exclusive representatives negotiate
against landlords, developers and owners
to achieve the most favorable terms and
conditions on behalf of their clients, the
tenants and buyers.
Many tenants and buyers fear that by
engaging the services of an exclusive
representative they will end up having to
Newmark Grubb Knight Frank & Southeast Commercial Real Estate Services Group, December 2012
pay more in rent or purchase price
because the landlord compensates the
exclusive representative. This is a fallacy
as evidenced by the majority of major
corporations use exclusive
representatives to manage their business
space matters as a valuable professional
service that saves them money.
When it comes to negotiating for business
space, there is no question that a good
Exclusive Representative will not only
save you money, but equally as
important, they will also make sure that
you are properly informed to make
prudent decisions so critical mistakes can
be avoided.
Typically there is already a real estate fee
built into the asking price. This is paid
whether or not you have representation.
Most often the fee, usually a percentage of
the value of the transaction, is split between
the exclusive representative and the listing
agent of the landlord, developer or owner.
There really is no additional fee tacked onto
the lease rate and you won’t save anything
by not having representation. The listing
agent, who represents the Landlord,
Developer or Owner, - no matter what they
tell you - , will receive the entire fee paid.
What about lease renewals? Should you
also engage the services of an exclusive
representative? Absolutely! The same
dynamics of negotiation and market
awareness are a necessity to make the best
informed financial and operational
decisions.
How will an exclusive representative
save you money?
 The leasing and buying process is
generally complex. After labor, the expense
for business space may be your most
costly line item and the decisions you make
will have a significant impact on your
company’s profitability. The exclusive
representative is your professional
advocate to assist in navigating through the
process.
 Market knowledge and experience is a key
ingredient in which an exclusive
representative can make a big difference.
Having a grasp on asking rates versus
actual deal rates along with incentives and
available concessions is important in order
to maximize the best terms available.
 An exclusive representative understands
the numbers and is able translate data into
implications for your business. For
example, advising on growth strategies
within a particular building or market.
Tenant representatives are also able to
perform financial analysis to assist in
identifying the most cost effective locations.
 Expert negotiation skills are critical for a
favorable outcome. Expert representation
gives you subtle leverage during
negotiations, informing the landlord that
you are professionally represented and
undoubtedly advised of alternative sites
and comparable lease rates. As an added
benefit, your exclusive representative may
know the temperament of a particular
landlord and/or landlord’s representative,
and recognize how far to push the
negotiations without jeopardizing the
transaction. This is a definite advantage
when it comes to lease renewals, too.
 Familiarity with the transactional
documents is a must. Experienced
exclusive representatives have a solid
knowledge of the typical documents
necessary to conduct transaction. These
documents include, but are not limited to,
requests for proposal, letters of intent,
lease agreements, purchase contracts,
surveys, site plans, and work-letters, but
can vary from market to market.
15

Closing
Foreign direct investment in the Southeast
U.S. requires a holistic understanding of the
dynamic economic geography of the region,
which is derived from comprehensive data
collection, analysis and evaluation. As with
most every aspect of the aerospace industry,
having a robust methodology and process to
evaluate options, reduce risk and develop a
cost effective business case, are key to
success. The same is true in foreign direct
investment and location selection of the
supply chain to support the A320 Final
Assembly in Mobile, Alabama. And as with
any investment, evaluating risk through a
rigorous feasibility and alternatives modeling
process is a key best practice in location
selection.
References
1. The states vary in the methodology on sales
factor sourcing. Of the 46 states with corporate
income taxes 23 states have adopted the
Uniform Division of Income for Tax Purposes
Act. Approximately 30 states use the cost-of-
performance method to sources receipts. Under
Cost-of-performance the receipt is sourced to
the state if the greater proportion of the income-
producing activity is performed in the state than
in any other state, based on cost of
performance. UDIPTA Rule 17. Under market
based sourcing, the rule looks at where the
market-or customer base is located. The
Implementation of ‘Market’ Sourcing Rules:
Practical Concerns by Pilar Mata and Melissa
Smith tax analysts a pinch of SALT September
6, 2010
2. Single Sales Factor is 100% sales
apportionment; 3-Factor is: 33.33% Sales,
33.33% Property, and 33.33% Payroll; Double
weighted sales: 25% Payroll, 25% Property,
50% Sales.
3. COP – Cost of Performance
Clearwater Corporate Finance, Aerospace
Global Report 2011
Deloitte, Three keys to M&A effectiveness for
A&D executives, 2012
Deloitte, 2012 Global aerospace and defense
industry outlook, 2012
Alix Partners, Preparing for Takoff: The 2012
Aerospace & Defense Industry Outlook
US Bureau of Labor & Statistics –
Please recycle,
Whenever possible
Sustainably
Southeast Commercial Real Estate Services Group
2012http://www.bls.gov/home.htm
US Census – 2010, www.census.gov
US News Engineering School Compass – 2012
http://grad-
schools.usnews.rankingsandreviews.com/best-
graduate-schools/top-engineering-
schools/aerospace-rankings
Airbus, www.airbus.com
Aerospace Industries Association,
http://www.aia-aerospace.org/
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Authors
ROBERT HESS, Executive Managing
Director at Newmark Grubb Knight Frank
Corporate Global Services, is a preeminent,
sought-after service provider and respected
leader in corporate location strategy and site
selection across multiple industries and
asset types in North America.
CARL QUESINBERRY, Senior Advisor/
Principal at Southeast Commercial Real
Estate Services Group, is highly valued in
transactional negotiations, site selection &
project consulting.
THEODORE SOLTIS, Senior Managing
Director at Newmark Grubb Knight Frank
Corporate Global Services.
TIM WALDEN, Managing Director at
Newmark Grubb Knight Frank Corporate Global
Services.
BRAD MIGDAL, Managing Director
at Newmark Grubb Knight Frank Corporate
Global Services.
MICHAEL MCDERMOTT, Managing
Director at Newmark Grubb Knight Frank
Corporate Global Corporate Services.