Insight: Location, location, location: U.S. manufacturing boom has a real estate problem

Agile group

13/04/2023 11:00

By Timothy Aeppel, Ben Klayman and Nichola Groom
       April 13 (Reuters) - Volkswagen's off-road brand Scout
Motors studied 74 different parcels of land across the U.S. last
summer as it hunted for a place to build a $2 billion assembly
plant.
    It quickly eliminated almost all of them. In one case, they
learned it would take six years to build a needed rail link.
Others lacked access to clean power - crucial for a project for
"green" electric vehicles. Some did not offer enough nearby
skilled labor.
    "We were hitting a deadline," said Scott Keogh, Scout's CEO,
so they settled for a parcel in South Carolina that has all
their desired features but is a bit smaller than they initially
wanted - 1,600 instead of 2,000 acres.
    Scout's scramble highlights a challenge facing dozens of
global manufacturers. Fueled by a combination of hefty
government incentives, a transition to new transportation and
energy technologies, and national security concerns about
relying on distant suppliers, especially in China, there's a
factory-building boom taking place across the U.S.
    But all that new construction has a real estate problem.
More specifically, a "megasite" problem. While the U.S. has
plentiful land, there are not that many places to quickly plunk
a billion-dollar-plus factory.
    The factory renaissance could soon hit a barrier because of
the scarcity of ready-to-go megasites, according to 25 economic
development groups, state and local officials, utilities, and
companies interviewed by Reuters. 
        That would be a problem for the Biden administration,
which has pushed through legislation to fuel the developments.
Corporations have announced dozens of projects since the passage
of the Inflation Reduction Act and the CHIPS Act last year.
  
        A White House official said it was a "high-class
problem" to have, adding: "Folks are finding places to build. I
don't think I've heard of one company abandoning plans to go
forward because they're not able to find a site."
    
        AGGRESSIVE TIMELINES
  
        There’s no single definition for a megasite, but it
generally refers to a very large plot — one common threshold is
1,000 acres — tied to transport, low-cost and preferably
renewable energy, and a nearby supply of skilled labor. 
  
    Local economic development agencies and states have long
cultivated big industrial developments by assembling land and
installing utilities in the hope of luring the next big auto
assembly or steel plant with the promise of fast-track building.
    Speed is often key. When electric vehicle maker Rivian
Automotive Inc. was hunting for a place to build a $5 billion
plant, it considered a spot just outside Fort Worth, Texas. 
    But the EV-maker "had some pretty aggressive timelines as
far as when they needed certain elements of the transportation
infrastructure in place," said Robert Sturns, director of the
Fort Worth Economic Development Department. Fort Worth could not
meet those, and the project jumped to Georgia in late 2021.
    The requirements on megasites can be very specific. Intel
Corp's $20 billion semiconductor plant going up in Ohio could
not be situated too close to a rail line, since passing trains
can create unacceptable vibrations, according to the company. 
    Even smaller factories can find it difficult to build
quickly in this environment.
    CubicPV, which makes silicon wafers used in solar panels,
launched a nationwide search for a 100-to-130-acre site
immediately after the IRA passed last August. They have a tight
time frame, said Todd Templeton, the company's chief commercial
officer, since IRA tax incentives start to phase out at the end
of this decade.
    They studied hundreds of sites but constantly hit
roadblocks. Some locations said it would take two or three years
just to get utilities installed, said Templeton. They are
choosing from two good possibilities and are aiming to have the
plant open by 2025.
    One site selection executive, Gregg Wassmansdorf, a senior
managing director of global strategy consulting with Newmark
Group Inc., estimates fewer than two dozen true megasites are
still available across the country at widely varying stages of
development. 
    "Every company, of course, wants shovel-ready megasites,"
said Christopher Chung, chief executive of the Economic
Development Partnership of North Carolina. "But those are more
or less pretty picked over with a couple of exceptions here or
there." 
   
    A POWER PROBLEM
    Didi Caldwell, president of consultancy firm Global Location
Strategies in Greenville, South Carolina, uses a database from
fDi Markets, a London-based firm that tracks major cross-border
investments worldwide, to gauge how fast demand for megasites
has grown in the U.S. 
    According to that source, she said, there were 20 industrial
projects with investments over $1 billion and a promise of
creating at least 1,000 jobs announced last year in the U.S. -
up from 15 the year before, and only eight the year before that.
    In the decade and a half before the recent spike, the annual
average was just over five and many years saw just three or four
large projects announced.
    One major constraint, particularly for energy-hungry
factories such as battery plants, is the need for large amounts
of electrical power. 
    "Some of these projects require hundreds of megawatts," said
Caldwell. "At the same time, we're shutting a lot of coal
plants."
    While the U.S. is investing heavily in building green power
sources, those projects also face delays. A report by Lawrence
Berkeley National Laboratory found that a typical project built
in 2022 took five years from the initial request to interconnect
it with the electrical grid to commercial operations, up from
three years in 2015. 
        The cost and difficulty of building new long-distance
transmission lines has also soared in recent years, said Rob
Gramlich, president of Grid Strategies LLC, an engineering and
economic analysis firm focused on the power industry.
  
    There's a rush to prepare more megasites. Michigan just
created four. The governors of South Carolina, Virginia and
North Carolina have each proposed to spend hundreds of millions
of dollars on readying industrial sites in the coming years.
Illinois this year will allocate $40 million in grants to
prepare existing sites for companies seeking to move quickly.
    But creating new megasites is inherently difficult.
Environmental regulations often limit developments, local
communities sometimes oppose them, and the sheer scale of the
projects often require just the right mix of conditions to make
it feasible.
    To be sure, companies want more megasites for pocketbook
reasons. 
    "The reason they would like more megasites, of course, is
that then they could compete for better pricing" when they have
more options to choose from, said Mike Tracy, principal of the
Agile Group, which advises companies like automakers.
    There are also the intangibles. 
    The VW Scout plant, for instance, is situated in clear view
of a major interstate highway connecting South Carolina's
coastal regions to the upper Midwest. That means putting the
Scout name, being revived by VW after four decades of dormancy,
in sight of tens of thousands of passing motorists a day.
    "We have a lot of people who are coming from the north or
from the Midwest down that highway that would drive right by
that facility as they go to the beaches of South Carolina and
Georgia and Florida," said Harry Lightsey III, South Carolina’s
secretary of commerce. "That was all important."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Industrial 'megasite' projects since 2018    https://tmsnrt.rs/3nLnYni
U.S. manufacturing 'megasite' land rush    https://tmsnrt.rs/4322Zg1
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 (Reporting by Timothy Aeppel in New York, Ben Klayman in
Detroit and Nichola Groom in Los Angeles;
Editing by Dan Burns and Claudia Parsons)
 ((Tim.Aeppel@thomsonreuters.com;))