How Clean Tech Companies Choose A Manufacturing Site

Posted on October 11th, 2011 by
   

David Bergeron, a Partner at T3, discusses what clean tech companies are looking for when they search for that next manufacturing plant.

Full Transcript:

 

Ben Lack: Company sustainability is really starting to hit the bottom line for many organizations all across the world and the result of this is that companies are beginning to look for a new workplace of the future. I wanted to get your thoughts about this emerging trend and see who’s really driving these efforts?
David Bergeron: The way we see it, through T3’s lens of working with the corporate users of space corporate sustainability decisions are aiming to drive 3 things; collaboration, productivity and recruiting/retention of your employees. These are all aspects that circle back to the bottom line and are core to any business that’s trying to grow and expand and continue to be successful. What we’re finding is that through many of the sustainability initiatives that have been laid out by the Department of Energy, the LEED certification process and other green building initiatives that you’re seeing a bunch of benchmark goals that people can strive to achieve through their real estate portfolio that promote a better workplace.  I think that what we’re going through right now is a transition and a learning curve in which a lot of the C-Suite executives are learning how this is effecting their business and culture and understanding that long-term its important to have in your company’s culture. The way we see T3 being involved in that movement is by becoming a catalyst and a thought leader within the conversation and helping our clients ask the right questions about these initiatives. What’s the payback on these improvements? What should I do today relative to tomorrow? What are other companies that have been in similar situations doing to become more sustainable in the work place?
Ben Lack: How much of a factor does cost play into this discussion?
David Bergeron: Cost is always core to the conversation and as much as people over the last 30 years have been trying to push this, whether it’s solar or green buildings or energy credits, the challenge always has been from the corporate side. You have 10% of the population that’s going to do it because it’s the altruistic, right thing to do for the environment. You have early adopters that jump on and are very progressive and innovative around what they’re doing related to sustainability and workplace of the future. But for everyone else, you need to build a compelling business case, like any good business decision they need to be convinced that this is the right thing for them to do at this appropriate time and at the end of day that’s going to tie back to ROI, payback period and how much money do I have to put up initially? I think the good news is both through accelerated progression in technology, especially in solar and other aspects of green buildings, in addition to a coupling of local and state government agencies and entities along with the government, we’ve created programs and subsidies and financial instruments that allow companies to invest in this in a way that makes sense for them and their required payback periods. So, I think cost has been the impetuous that has actually made this go-a-round of sustainability and clean tech stick more so than it has in the past.
Ben Lack: Your Cleantech practice helps a lot of companies identify where they should be putting their manufacturing. Give me the argument on when you help a company figure out whether they should do this domestically or internationally, what they should be looking for and what does this next round of clean tech companies wanting when they’re looking for a potential site?
David Bergeron: From T3’s perspective we want to evaluate 3 basic elements when you’re looking to, locate, a manufacturing plant. First and foremost, it’s going to start with infrastructure. Where can we get the power we need? Where can we get utilities we need? Where can we get access to ports to ship the produce and even IT connectivity all important things come into play along with the physical footprint of the building, clear height, ability to install cranes, load support of the floor, all these typical real estate aspects, these make up the first bucket. The second bucket that we evaluate are demographics, and demographics come from the company’s supply and demand side, so where can they find welders that are needed to assemble a wind turbine? Where can they find line workers to actually assemble the product? All these things are aspects that you want to evaluate before locating a manufacturing plant and trying to go out and hire 400-500 people to run it. On the demand side, you’ve got where are your clients? Where is this product ultimately going to be sent? What are the shipping costs to get there? These elements play into the feasibility of a location. And finally, there are economic incentives and the terms of the deal. So, if we look at it just from a financial decision standpoint, where can we find cheap real estate? Where can we find cheap labor? What sort of government incentives are available for a company of our profile and the certain sector and space we’re operating in can make it favorable for us to locate? That can be a combination of training grants for the employees. It can be a combination of actual tax deferred financing. It can be low interest loans. It can be subsidies to buy our product and get them up and running in a simpler easier way, permitting assistance, actual grants and cash or even free buildings.. So, all those elements come into play and make the up the 3 buckets of a manufacturing location evaluation. Those are the 3 pillars that you start with and from there we overlay that with the international question. From both a technology exposure risk, IT considerations, ability to innovate and make changes to your technology as you try and pivot based on feedback from customers, what’s successful and what’s not. Those all lead to an ultimate decision or assumption of where we want to locate and whether it’s domestically, China, India, Costa Rica, Singapore or somewhere else. All these places have different offerings that make sense depending on where you fall on that continuum of variables that contribute to the three buckets.
Ben Lack: Is the United States doing enough to incentivize Cleantech manufacturers to setup shop here in the States?
David Bergeron: In my opinion they are. It’s a tough time on the macro level for the economy. ICleantech, broadly defined is unfortunately a sector that requires an unbelievable amount of capital and infrastructure and assistance from people outside of the management teams of these companies. I think that both the state and the federal level, there has been a huge push to try and make this work and to try and invest in what we believe is fundamentally going to be a huge economy, where the winners will be big winners. Cleantech is fundamentally core to our energy independence and national security..  The United States most valuable contribution to the Cleantech movement will be though innovation.  Discovering disruptive ideas in technology is what we have a track record of doing, this trend needs to continue in Cleantech. I think that you can always want more and wish for more and ask for more but I think it’s been something that’s been pushed from the very beginning when we saw this cleantech movement bubbling up, it’s been promoted. You’re going to have some winners and losers and you’re going to have some companies that make mistakes that received a lot of money that didn’t pan out and others that because of that money they will ultimately succeed and go on to create jobs and continue to keep the United States competitive. Now it’s difficult when we’re comparing ourselves to China as they can do things so quickly and with such little red tape, that makes it tough for us to compete on a pure economics level when it comes to manufacturing.  But that may not be a fight that we end up continuing to fight in the long run, which is not a bad thing.. Could we do more to be more competitive than our international competitors? Yes. Is that the right and most fiscally responsible thing to do as a country given where we are today? That’s where the debate begins.
Ben Lack: What’s the initiative that you would ask of government to help make it easier for Cleantech manufacturing businesses to set up shop in the States?
David Bergeron: My ask would be to be on par with a lot of European counterparts in terms of our building requirements. I think that there still are a lot of loopholes and aspects of our building codes that aren’t being pushed. There are commercially viable products and solutions today that should be required that would drive company growth, and mass adoption of energy efficiency products that we all would benefit from.
Ben Lack: Can you give an example?
David Bergeron: I think lighting, for example, is a great place. Where you’ve got all sorts of great LED technologies and smart lighting systems that are really no-brainers in terms of payback period and adoption and very low technology risk. You can see the movement happening but it’s just not happening very fast. I think there’s a simple way to fix that, changing the building codes and raising the bar across the board for all developers. Their business is to build buildings in a way that is going to be most cost effective, they aim to win tenants, get people in and they typically going to only provide the bare minimum.. It’s not even inherently their fault, it’s just they’re doing what is being asked of them by the code. I think we are at a point, were the code to be upgraded and I don’t think it would be detrimental to these developers, I think there is really simple low-hanging fruit type of opportunities to make changes, but like any big set entity that’s in place, there’s a lot of friction to make that movement happen. Until it’s mandated, the incentives aren’t really there for them to do it. So I think that would be something that could really kick-start a lot of these great companies that could use momentum and use a level playing field with the European markets.
Ben Lack: Where are the strong clean tech communities in the US and what are some of the clear differences that T3 finds as you help your clean tech clients look for the right real estate.
David Bergeron: I think there’s great Cleantech clusters all across the country which is exciting for us. A lot of it comes down to, what’s the legacy technology that you’re most like and coming from. By that I mean if you are more of a hardware type or a solar chip-fab type of company, there’s a certain location you’d want to go versus if you’re more of a software building efficiency type of a company. Depending on that you’d want to go to where the legacy spaces exist and at T3 are big proponents of finding former locations of a technology that’s either out of date or moved on to a different facility and coming up with ways to effectively recycle that space. Who would be the most logical next user of a certain type of building and what sort of infrastructure already exists here today that we can piggy-back off of, to help keep costs, the capital expenditures down for both the landlord and the tenant in a way that everyone wins.
Ben Lack: Can you give me an example of a community that’s doing that?
David Bergeron: Fall River, in Massachusetts, is a great example. There is an old Kodak coding plant down there on a campus that has a very unique use and for all intents and purposes has now been abandoned. But, a company Konarka who’s doing thin-film solar and effectively rolling out solar onto these flexible sheets their technology and processes are similar to that of making the Kodak film, and they were actually able to go in and buy up a bunch of the old equipment and use it for their process in a way that’s been really cost effective for them and allowed them to get their hands on a lot more technology and sophisticated equipment in a facility that for most Tenants would be unusable.. That’s a great example of one company that’s done a good job of that and I think in California, you’ve got the same. It goes beyond just the physical real estate and it gets further up into the cluster being the community and how active you have people advocating for different areas and different parts of the country. I think both east and west coast have a really strong presence and want to be thought leaders both from a new technology perspective as well as promoting the companies that exist as well as from an investment perspective you’ve got a lot of venture dollars that come from California and stay in California.  In comparison to California the northeast is a relatively close second and pockets of New York and Texas and Oregon and Colorado and the research triangle all have very vibrant Cleantech communities which don’t always get a lot of publicity but I think have a lot to offer and a number of people, particularly tied to the universities in those locations spending significant time coming up with very progressive ways to improve either our infrastructure and existing technology or a completely new way of thinking how to create energy. It’s exciting and I think the winners, like I said before, are going to be huge. They’ll be billion maybe trillion dollar companies when they come up with these solutions. So the incentives are there, it’s now just up to us as an ecosystem to make sure we can support them and help them grow and transition through the iterations that will make them some of the most competitive Cleantech and energy companies in the world.
Ben Lack: David, why have you chosen to spend your time in this space and why ultimately are you doing what you’re doing?
David Bergeron: I chose to spend my time in this space, because of my experiences at Stanford, taking Earth Systems courses and having a bunch of friends majoring in Earth Systems was my entrée into Cleantech. When I initially got into the real estate world, I quickly realized both by getting LEED accredited through that educational process and just talking to companies that this is a space that has a very unique set of real estate needs. They are unlike any other sector in terms of a corporate user where they really need to combine not only basic infrastructure and real estate questions that can be highly sophisticated depending on the technology requirements, but they need the help of others, they need the help of investors, they need the help of our government, they need the help of our communities. So, bringing those parties together and implementing their own sustainability corporate strategies is what makes Cleantech a challenging yet rewarding space to work in. They need to walk the walk and they need to be a part of this solution ongoing. To me that combination of elements made this sector really attractive and something that I know that all of us at T3 are heavily invested in and very committed to and being around for a long time. It will have its ups and downs, its blips along the way. But, ultimately the goals that these companies are chasing are the right goals and these markets are sustainable and aren’t going to be a bubble. So, for me it’s an exciting space to work in with highly innovative technologies and really inspiring entrepreneurs across the country.


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