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Innovative Warehouse Strategies

Four Walls, Three Takes A consultant, integrator, and wholesaler share some warehouse wisdom.

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En In most warehouses, change is a constant – especiall y when you consider seasonal demand forecasts, supply exceptions, and inventory flows. Distribution centers (DC s) are critical sense-and-respond nodes within the supply chain. Warehouse management is about mediating variability so supply flows to demand as economicall y and efficiently as possible.

In today’s consumer economy, however, the warehousing function faces its own external changes. The e-commerce revolution has upended brick-and-mortar convention as companies explore better ways to pull product to consumers – not just retailers – faster. Retail and wholesale channels are converging.

Technology has played a significant role, all owing companies of all sizes greater flexibility in how they manage unique “time-to-consumer” requirements. But companies and third-party logistics (3PL) providers are also reconsidering distribution strategy, infrastructure design, and warehouse processes as they lay new foundations for future fulfill ment. Inbound Logistics asked a consultant, integrator, and wholesaler for their perspectives on how they and their business partners/customers are approaching warehouse and distribution strategy inside the four wall s and out.

THE CONSULTANT Removing Constraints of Convention
Sometimes it is difficult to see the warehouse for what it really is – a collection of pallet positions where inventory is put away and picked at varying frequencies. The key to distribution efficiency is making better use of warehouse real estate, according to Terry Harris, managing partner, Chicago Consulting. Companies often put away inventory without considering how that position impacts future processes. Without directed putaway, decisions are left up to the operator, or the use of a traditional zone structure.

Warehouse real estate demands a more common-sense approach to visualizing inventory turns within the facility – a term that Harris refers to as expected time to pick (ETP). In most warehouse operations, picking is more time-consuming than putaway. That’s where labor generally resides. Warehouses need to optimize slotting to ensure pallet positions and storage profiles match the flow of goods within a specific facility.

Harris’ premise is that traditional zone picking and putaway conventions do little to increase speed or efficiency within a facility. They force companies into using a protocol for prioritizing inventory that doesn’t go far enough. “Zones create groups of positions,” Harris says. “The theory is that every position in that zone has the same real estate value, but that’s rarely the case. By contrast, you can differentiate down to the pallet position within that zone. It’s the logical extension.

“Why not use pallet positions specifically, instead of forcing inventory into a zone with other positions that are fundamentally different?” he asks. With this thought, zones are a gross representation of warehouse reality – an artificial construction that generalizes needs rather than drilling down to specific time requirements. It’s not a matter of visibility to SKU, but visibility to pick.

Every facility has storage areas that are more accessible than others. Harris uses the analogy of a Rubik’s Cube, where warehouse positions can be viewed with left-right, frontback, and high-low dimensions.

The front face is completely accessible; the other sides less so. “Assume that aisles run front to back, and that pickers start at the middle of the front face at ground level,” explains Harris. “Then it’s easy to specify the accessibility of every storage position. Ground-level positions on the front face near the start have the highest accessibility. High positions in the back at the left and right extremes are the least accessible.”

Put away In the Right Place

For most companies, a few SKUs make up the majority of picks. Reason dictates that fast movers should be most accessible, while slowmoving items should reside in the back of the warehouse where they’re out of the way. Implementing an ETP approach requires indepth planning.

“First, assign an accessibility index or number to every position by identifying how long it takes to get to it,” explains Harris. “Then, sort and create a sequence of these positions by time.

“Second, put away received shipments in the right place,” he continues. “When you receive a shipment, calculate the expected time to pick, which is nothing more than calculating on-hand inventory divided by the forecast – data that is readily available from any warehouse management system. Then, map that time to a specific position dictated by fast picks and slow picks.”

The forecast addresses any variability in demand. And ETP provides a broad understanding of time-to-demand that can apply to different distribution scenarios. For example, if the ETP is either negative or zero, that means the facility has orders coming in and no inventory on hand, which favors putting inbound shipments into a crossdock position. The same apapplies for back-order purging or routine housekeeping where position accessibility migrates according to demand forecasts.

“ETP allows warehouse facilities to cut pick time in half,” says Harris. “Picking makes up 70 percent of warehouse labor tasks, so that savings is a big deal.”

While the ETP approach doesn’t increase or decrease capacity, it does distribute inventory and flow more evenly. Companies can pick up productivity gains elsewhere by concentrating activity in more visible areas – eliminating idle time and fostering labor accountability – or reconfiguring layout and racking infrastructure with greater understanding of SKU demand and performance.

“The theory of constraints is to get rid of them,” says Harris. In this case, it’s the challenge of getting past convention.

THE WHOLESALER Outsourcing to Meet Daily Demand
ITn 2002, United National Consumer Suppliers (UNCS) began as a wholesale distribution business that focused on manufacturer overrun and overstock. One decade later, the business is on the Inc. 5000 list of fastest-growing private companies, and aims to capitalize on the e-tail revolution.

UNCS’ value proposition is straightforward: it buys and sells product, says Michael Woo, vice president of logistics. “If Crayola changes its packaging from green and yellow to blue and yellow, it sends the old product to us, and we move it for them,” he explains. “We focus on pallet business in and out of secondtier retailers such as Marshalls, Bed Bath & Beyond, and Tuesday Morning.” Economic conditions over the past few years have favored wholesale distributors such as UNCS that provide retailers with a means to liquidate inventory and sell discounted goods. “Many consumers who used to shop at Macy’s and Neiman Marcus now buy from Marshalls,which increases demand for the type of product we sell,” Woo notes.

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To manage fulfillment, UNCS works with a network of regional 3PLs to coordinate warehousing. It uses freight brokers and forwarders to handle domestic and global transportation. UNCS’ distribution strategy is predicated on having at least two facilities in major markets where it operates so it has flexibility to keep costs down and quickly respond to customer demand. In 2007, UNCS began working with Aspen Logistics in Salt Lake City, Utah, and has since expanded to use the 3PL’s southern California facility as well. Recently, the two companies partnered on a pilot program specifically geared toward meeting the “deal of the day” phenomenon.

Deal with It
As more people shop online, many Web sites are marketing short-term deals on select products with limited supply. When a customer asked UNCS to assist in selling product online direct to consumers, it set about developing a pilot program. The speed-to-market demands associated with e-commerce, and daily deal bargains in particular, were unique for UNCS. “For a long time, daily deal sites were focused on services, as opposed to everyday products,” says Chris Ticknor, marketing director of Aspen Logistics. “The advent of this new service line was the perfect opportunity for growth.

UNCS and Aspen are well-versed in supplying excess inventories in short timeframes.” “Deal of the day” has become a commonly used and misleading moniker. Most Web sites create a five- or six-day sales period with limited quantities of a certain product. Inventory can be a mix of on-hand goods that haven’t sold or items that are specifically sourced for that purpose. “Procurement teams will locate a product and offer it on the Web site at 85 percent off retail,” says Woo. “As consumers start to buy, the orders are forwarded to us. We ensure we have correct shipping information, then send the orders to our warehouse to be processed and shipped.”

But this process creates some challenges. For example, once deals go live, consumers expect immediate delivery. “Expedited orders put a strain on the supply chain that didn’t exist before,” says Woo. “With B2B transactions, account managers can maintain relationships. But when selling direct to consumer, they have to handle thousands of customer inquiries about tracking and returns.

“Another challenge is that some daily deals are multiple SKUs of the same product,” he adds. “That means combining the complexity of a pickand- pack operation with expedited shipping.”

A good example of this complexity is the PHI hair straightener that Aspen Logistics and UNCS recently moved. The product comes in three different colors, so extra care is required to ensure customers receive the right SKU. Products can arrive at the warehouse in different kinds of case packs – which is fine for a retailer such as Marshalls. But when UNCS is shipping orders out to different buyers, those case packs have to be broken out and individually packaged. Aspen Logistics provided the level of expertise, attention, and seasonal labor necessary to identify and react to some of these demands. Moving forward, UNCS expects to rely on its third-party distribution partners to expand this part of its business, especially as e-commerce continues to grow.

“Daily deals have created a market that didn’t exist five or six years ago,” says Woo. “It’s easy to set up a Web site and sell to that market. But finding, preparing, and moving the product, and working with parcel carriers to ensure shipments are delivered on time to meet consumer expectation, is an entirely different challenge.”

THE INTEGRATOR Automating to Simplify
When the economy tanked in late 2008, and the malaise of credit insolvency and housing foreclosures spread into 2009 and beyond, capital improvement projects sank as well. Consumer spending contracted and companies cinched their budget strings. Many new projects were postponed rather than terminated – especially in the materials handling sector.

“There was pent-up demand in 2008 and 2009,” says Ken Dickerson, chief operating officer for Wynright, an Elk Grove, Ill.-based provider of materials handling systems. “Many businesses that had projects on hold had time to evaluate their plans. Coming out of the economic downturn, they had already made decisions to upgrade existing facilities and invest in automation.”

Wynright evolved at the right time. The company, which originated as Wynright Engineers and Integrators (WEI) in 1972, consolidated a collection of smaller materials handling acquisitions under the current brand in 2009. Its business is designing, manufacturing, integrating, and installing intralogistics solutions. These include conveyor and sortation systems, voice- and light-directed order fulfillment equipment, programmable logic controllers and robotics, and mezzanines and structures.

Industry demand for greater distribution efficiencies, improved inventory turns, and faster ROI have placed a premium on automated conveyor, sortation, and robotics solutions. These solutions are compelling to companies such as footwear company Skechers, which Wynright worked with to equip a new 1.8-million-squarefoot DC in Rancho Belago, Calif. The LEED-certified Gold facility is one of the largest projects Wynright has worked on. “It’s a greenfield build with an extensive amount of automation,” says Dickerson. “Skechers consolidated five California DCs into one location, which now handles both retail and ecommerce sales channels. It’s an example of a facility where automation is involved in virtually every aspect of operation.”

Projects the size and scope of the Skechers DCs are largely an exception in today’s economic environment. Many companies don’t have the capital or clout to command such investment, but still see e-commerce requirements growing faster than retail. “In some cases, shippers are going back to existing DCs that are strategically located to support brick-and-mortar business and adding areas in those facilities to manage e-commerce,” says Dickerson. “Usually this involves technology – such as automation, pick-to-light, or pick-to-voice software systems – that enables operational simplicity. Not every company is in a position to build greenfield facilities.” Automation serves to simplify operations and improve labor utilization.

One challenge Wynright’s customers often face is finding ways to empower warehouse workers. This means designing systems and warehouse architecture that enable better behavior. “Productivity and cost reduction are the two benefits that should result from automation,” says Dickerson. “You have to achieve productivity gains if you want to hit your expected ROI.” One example of how Wynright’s solutions facilitate DC efficiency is the use of its patented robotic truck loaders, which can cube out multiple trucks at the same time under the supervision of one staffer.

“The system loads trucks floor to ceiling without pallets,” says Dickerson. “You can ship five standard truckloads with four trucks, a 20- to 30-percent more efficient use of truck space. This has a direct impact on transportation costs.” Incremental automation progressions can have a marked impact on an operation. Rather than invest in a full migration, companies can reconfigure facility space. For example, Wynright recently retrofitted a 20-year-old facility for a customer. “Before expanding the footprint of the building, evaluate which space can be used more efficiently,” Dickerson advises. “Improving the layout might include changing the placement of certain goods or workstations.”

In some cases, companies might decide to go vertical and use automated storage and retrieval systems (AS/RS) to use space more efficiently, decrease energy consumption, and reduce the time to get products to various locations within a facility. Projects such as Skechers’ amplify ROI. Wynright went the distance with its mezzanine and AS/RS design, and the results were impressive. Skechers now processes approximately 17,000 pairs of shoes per hour – more than double the number handled in its old buildings – and the system is capable of handling expected growth of 25 percent.

The takeaway? Investing in materials handling solutions is one positive way to manipulate distribution space.

Launching a Sustainability Initiative can be as easy as 1-2-3

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Over the past decade, sustainability has evolved from a buzzword to an established component of good business. While some organizations and industries may have operations that naturally lend themselves to sustainability efforts, all companies should be empowered to review their shipping and supply chain operations through the lens of sustainability.

Sustainability programs are not one-size-fitsall endeavors, however. Transporting perishable food products requires a much different approach than shipping the latest high-tech gadgets, for example. Because each organization possesses unique needs, it is important to take a strategic approach to sustainability planning. Here are three steps to launching a sustainability initiative at your company.

1. Determine the effort’s primary purpose. While sustainability generates clear environmental benefits, it can also create long-term, bottom-line returns from reduced consumption. Identifying the program’s goal will help outline the vision, determine metrics, and garner the necessary internal support to proceed.

2. Create a plan. Once you establish a welldefined purpose, your organization must determine how to pursue it. Start by setting short- and long-term goals, and the appropriate budgets, staffing, and potential partners. Evaluate data related to sustainability to determine your company’s energy use and carbon impact. Using this information to create a baseline provides metrics for tracking the results of implemented sustainability efforts. Your product’s unique nature will determine which sustainable options are most applicable. If your company sells non-perishable goods, it can benefit from more fuel-efficient transportation modes, such as rail or ocean. If immediacy is critical to success, carbon-neutral shipping – which allows businesses to purchase carbon offsets to mitigate their environmental impact – may be a better solution. Recruit an experienced partner. Even with a strong internal team focused on creating greater sustainability, your company may need outside expertise to drive the greatest environmental impact reduction – especially if this is your first time creating a sustainability initiative.

3. Choose a partner with the logistics infrastructure to meet your needs. For example, global businesses should seek to partner with experts who possess a global network and can advise on which transportation modes will move materials most efficiently and with the least environmental impact.

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Your partner should also understand the intricacies of sustainability that may be foreign to your daily activities, such as how to purchase retired carbon offsets. Purchasing carbon offsets allows companies to mitigate the environmental footprint they create through transportation and shipping. Working with your logistics partner, you may be able to identify an environmental program that aligns with your company’s philanthropic interests. Your organization can examine its environmental impact and take steps to mitigate it. By establishing goals, creating a plan unique to your business, and enlisting the right partner, companies can be better stewards of the environment while still operating successfully. Following these three easy steps will put you and your company on the path to sustainability leadership.

ICSC, Retail Real Estate World Summit in Shanghai: The Globalization of Retail

Today, shopping centers are considered the driving force of economic and social development in many economies around the world.

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The Retail Real Estate World Summit, organized by the International Council of Shopping Centers (ICSC), took place in Shanghai, China, from September 12 to 14, 2012. It was a unique event of its kind, where outstanding leaders and visionaries of retail industry were present, and where the crucial function and the socioeconomic impact of retail markets were discussed.

The Summit in Shanghai has created a truly open environment to examine carefully new opportunities for this industry, as well as of the way to collectively implement positive and sustainable changes for the next years.

Brian Mulroney

The Honorable Brian Mulroney, Prime Minister of Canada

Steve Wozniak

Steve Wozniak, Co-founder, Apple Inc

Michael P. Kercheval, President and General Director of ICSC, acknowledged: “We are honored by the fact that the leading political representatives, of retail markets and of capital markets are present in a historic event, in which, we hope to define a path of long-term innovation and social and fiscal responsibilities”.

Wang Jianlin

Wang Jianlin President Dalian Wanda Group Co., Ltd

Daniel Latev

Daniel Latev. Global Head of Retailing Research. Euromonitor International

There has been a period of outstanding growth in retail real estate. 400 billion dollars were placed as a direct investment in retail real estate markets around the world, an increase of 25% since 2010, and this positive trend is expected to continue until the end of 2012.

Sandeep Mathrani

Sandeep Mathrani– ICSC Trustee

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Michael P. Kercheval, ICSC President and CEO

Leading executives and professionals from around the world were present, and gathered to do networking, share experiences, and learn from the highest authorities. The Retail Real Estate World Summit, which takes place every 5 years, first took place in Vienna (1990), and then in Hong Kong, Istanbul, and Cape Town. The retail sector is a powerful driving force for the creation of new jobs; it generates new income, sales taxes, and improves life levels.

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The Summit examined many of the main humanitarian, social, economic, and environmental issues that affect the shopping center industry. In fact, the Summit has come in a moment when the industry has never been more conscious of the role of shopping centers, since they are now recognized as catalytic in the economic and social development in many economies around the world.

Steve Wozniak y Erico García

Steve Wozniak Co-founder Apple Inc and
Erico García Managing Partner  Inmobiliare Magazine

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Among some of the sessions of interest, we can mention: Reinventing retail and the future of shopping; Global policies in a changing world; Global trends in commercial development; Satisfying future needs of global retail properties; Global investment strategies in real estate; Maintaining capital flow around the world; Trends for future growth: Emerging markets expanding globally – a Pan-European Outlook of retail and shopping centers; and, Global development perspectives of shopping centers for the next decade.

Likewise, great personalities were also present, such as: Steve Wozniak, Co-founder, Apple Inc; The Honorable Brian Mulroney, Prime Minister of Canada; Peter Lowry, Co-Chief Executive Officer, Westfield Group; Michael F. Moriarty, Partner, A.T. Kearney; and Renaud Girard, Chief Foreign Correspondent, Le Figaro.

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Keeping Surprises out of the Warehouse

Warehousing risks can spring out at any moment. Some are meant to be shared, others avoided. Successful warehousing operations strike a balance

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Warehouses and third-party logistics providers (3PLs) continually evolve their service offerings to differentiate themselves in the market and meet rigorous customer demands. As they take on more responsibility, however, they also assume more risk. But the same is true for the organization that contracted for those services. When it comes to the facilit y itself, and the technology and systems employed on behalf of a customer, 3PLs of ten look for some shared risk. “It comes down to the value proposition and the business case,” says Gary Allen, vice president of innovation and product development for global contract logistics provider Exel. “Risks change with the service of fering.” Unexpected surprises can pop up for both warehouse service providers and the companies using those services. But with a little planning and forethought you can mitigate their impact.

SURPRISE! LABOR MANAGEMENT ISSUES

With 100 million square feet of warehouse space around the world, Exel employs labor management systems in each facility it operates. Those systems, with their goal of continuous improvement, are crucial to Exel and its customers, says Allen. Because they manage down to the task and person, they provide metrics that not only measure performance on a specific customer contract, but also allow Exel to benchmark against its other operations.

Warehouse labor management is an area where 3PLs are often ahead of their customers busion the technology curve, Allen says. But then, warehouse labor management is an opportunity for a warehouse operator the size of Exel to significantly boost efficiencies.

PAY FOR PLAY

3PLs need to ensure they get paid for everything they do for a customer – whether it’s a transaction-based task, time spent, or even storage, notes Roger Falkenstein, senior sales representative for HighJump Software, an Eden Prairie, Minn.-based global provider of supply chain management solutions. 3PLs need to accurately capture every activity as it occurs, and ensure that information remains intact through the billing and auditing cycles.

Those key billing and audit trail systems not only provide opportunities to improve efficiency, they also ensure a 3PL doesn’t lose track of all the activities and transactions it performs for a customer. Any outsourcing business posting thin or non-existent profit margins indicates a 3PL has won a contract and brought on a new customer without fully understanding the cost of the service it is providing, Falkenstein says.

Supply chains change continuously, giving rise to the term “scope creep.” Nearly every 3PL has a story about how the scope of work it performed for a customer changed over time without being documented or billed. Sometimes the shift is not the 3PL customer’s fault; it can be the result of requirements the customer’s customer places on the 3PL.

SURPRISE! WHO PAYS FOR THE TECHNOLOGY?

3PL contracts covering conventional distribution facilities are often straightforward. But, if specialized materials handling and automation systems are part of the facility, a common approach is for the customer to pay a portion of the automation cost as part of its regular fees, or amortize the cost over the life of the service contract, explains Jim Handoush, co-chief operating officer for Landstar, a supply chain solutions provider based in Jacksonville, Fla.

Another way to ensure specialized materials handling systems don’t become a cost burden is to install scalable systems, according to Tony Barr, vice president of marketing and business development for Beumer Corp., which specializes in high-capacity conveying applications. Scaling can be as simple as adding more trays to a core conveying system to increase throughput. Systems are often specified to solve an immediate problem and provide some short-term gains, says Barr, but they should not impede the ability for future expansion or they could, in fact, constrain growth. Scalable systems drive volume growth and margins.

For the 3PL, scalable service may mean keeping pace with a customer’s growth or adding customers to a multi-use facility. But scalability may also be a condition of the contract or an unspoken value that can tip the decision.

SURPRISE! WHO´S LIABLE FOR THE INVENTORY?

Exel has expanded its services into areas such as demand planning, which includes actually setting inventory levels for customers. Exel handles some procurement tasks, but doesn’t acquire or take title to the goods. The issue of inventory ownership occasionally comes up, admits Allen, but usually in a supply chain where the customer is seeking to replace a distributor or part of a distributor network. In those cases, the distributor sells goods on behalf of the supplier, which is not a standard role for a 3PL.

Trade situations also occur when a 3PL handling international transportation and warehousing may provide customs brokerage and other services that include assistance with letters of credit or temporary financing on inventory, but these services do not typically include a transfer of title.

When you store goods with an outside entity, such as a warehouse, the agreement falls under bailment law, explains Ann Christopher, vice president and general counsel for thirdparty logistics provider Kenco Logistic Services, Chattanooga, Tenn. The customer, who owns the goods, surrenders them to the 3PL for a period of time, after which the goods are to be returned to the customer.

Legal liability is one of the most important issues warehouse customers should understand, says Christopher. Under Article 7 of the Uniform Commercial Code (UCC) the warehouse operator is held to a reasonable care standard. “It’s often called the negligence standard because warehouse liability is tied to the negligence of the warehouse operator,” she explains. That is an important point because a customer storing $1 million worth of inventory with a 3PL warehouse may be subject to some limitations in the event of a loss. The warehouseman’s liability is tied to negligence, notes Christopher, and the contract can specify a limit on the amount per occurrence, per pallet, or per unit.

In the event of a catastrophic loss, the warehouseman’s policy typically covers building and equipment losses, not the contents that are stored on behalf of a customer, unless the warehouse can be shown to be negligent. An example of negligence is a warehouse that is not maintained to building and safety codes, or is located in an area subject to weather extremes and does not take appropriate actions to avoid damage to the property and its contents. The language of the warehouseman’s insurance policy will be important in examining which risks are covered.

Additional areas of loss include crime and a category called “mysterious disappearance.” Under a crime policy, explains Christopher, it is important to verify whether the loss of goods stored on behalf of a customer is covered, or if the policy only covers the property of the warehouse. It is also important to note whether the standard set in the policy is “conviction” or “reasonable evidence of a crime.” An inventory shortage is not likely to be considered reasonable evidence of a crime unless documents, photos, or video can link the shortage to a criminal act – even in the absence of a conviction. Inventory management systems can be helpful in going back and tracing who had access to the system and who could manipulate the inventory data.

But about 80 percent of loss claims in a warehouse environment are mysterious disappearance, says Christopher. Mysterious disappearance is separate from crime coverage and may also have sub-limits. Warehouse operators don’t insure the goods they store; they insure their negligent acts, says Christopher. The warehouse has no insurable interest in the goods.

Another gray area is when goods are crossdocked – only handled in the facility and not stored. Are losses subject to cargo liability or the warehouse policy? Warehouse legal liability typically covers the goods within a specified distance from the facility, says Christopher. Again, it is important to examine the policy language. The proximity issue raises questions about drop trailers. Are the goods considered to be in storage in the facility? Is the drop trailer waiting to be unloaded or picked up, or is it being used for overflow storage? Many warehouse policies cover overflow facilities for a specified period, but some require that the facility have a fixed address. Such nuances in language can make the difference in the event of a loss.

¡SURPRISE! YOUR 3PL CLOSES ITS DOORS…OR YOU DO

In the current economy, another area of risk has garnered attention: What happens when a company is unable to pay its warehouse bill or files for bankruptcy? A warehouse lien is a powerful tool that allows the warehouse to hold or dispose of the goods to satisfy what it is owed. But in some cases, the customer may have used the goods as collateral with a lender. The 3PL should ensure those collateral agreements are contingent on paying the warehouse’s fees. If the warehouse files for bankruptcy, the owner of the goods should be able to claim them because the warehouse has no ownership interest. The owner of the goods may still be subject to a warehouseman’s lien, however, and will be required to pay all fees owed to the warehouse before being allowed to claim the goods.

It’s important to note, explains Christopher, that a warehouseman’s lien is much broader than a carrier’s lien. A carrier can hold goods for payment subject to a limit on payment of charges and fees for that load. A warehouse working as an intermediary needs to exercise reasonable custody, care, and control to ensure the entity actually storing the goods is doing an adequate job. This brings up another area of increasing interest as multiple logistics service providers may be involved under a lead logistics provider arrangement or through subcontracting for overflow storage. The list of real and potential risks for a 3PL warehouse or its customer is nearly endless. With some due diligence, many major areas can be addressed at the beginning of the relationship and during frequent reviews and renewals. Ensuring everyone understands the risks is only one part of the process. There should also be agreement on how all parties will share or mitigate those risks. That can help eliminate unwelcome surprises in the warehouse.

La lista de riesgos reales y potenciales de un almacén 3PL o de su cliente es casi interminable. Con un poco de diligencia, muchas zonas importantes pueden abordarse desde el inicio de la relación y durante las revisiones frecuentes y renovaciones. Asegurarse de que todo el mundo entiende los riesgos es sólo una parte del proceso. También debería haber un acuerdo sobre cómo todas las partes deberían compartir o mitigar dichos riesgos. Eso puede ayudar a eliminar sorpresas desagradables en el almacén.

10 Steps to a Safer Warehouse Injury prevention starts with leadership, training, communication, risk assessments, and metrics.

1 Start at the top

While everyone is responsible for their individual safe behavior, the company’s leadership team must own, lead, and participate in safety management. It’s not enough for leadership to merely support safety; they must exhibit behavior that clearly demonstrates to all associates that safety is critical to the success of the organization.

2 Training is paramount

From the first day of an employee’s tenure with a company, training is key to safer warehouse operations. Educate all associates on safety-related practices, requirements, and responsibilities. Once the organization’s vision and safety requirements are explained, the groundwork has been laid for continuous training.

3 Observe associates in action

After associates receive basic safety training, reinforcing workplace safety behavior is ongoing. Managers should observe, for example, how an employee drives a forklift during the first few days following forklift training, and be prepared to offer immediate and meaningful feedback. Good managers point out the positives of safe behavior, and coach areas that need improvement, often on an ongoing basis.

4 Get employees involved

Create cross-functional, in-house safety teams that meet at least monthly to focus on preventing accidents and injuries by identifying hazards and unsafe conditions in the warehouse, and ensuring proper controls are in place to bring all hazards within acceptable levels of risk. Teams should include warehouse workers, forklift drivers, supervisors, vendors, and customer liaisons.

5 Work schedules to match duties

It is important for employees to be safe, and for employers to create a reasonable workday and safe workplace to facilitate their duties. To avoid unsafe behaviors caused by fatigue, consider implementing ergonomic improvements; rotating job assignments; supplementing shifts with temporary or part-time employees; adding a shift; and providing adequate rest and beverage breaks, especially in hot and humid conditions.

6 Assess risk

Identify individual job activities, the potential hazards associated with each activity, and their existing controls. Then assign a risk rating to each activity by using a numeric formula that considers the probability of loss, the severity of loss, and the frequency of each activity. The risk rating will determine if additional controls are needed.

7 Perform site assessments

A group of health and safety professionals should work hand-in-hand with site management to seek out unsafe conditions and hazards, and create action plans to bring risk within acceptable levels before employees are injured or property is damaged.

8 Investigate accidents

After an incident, identify immediate and upstream root causes, and implement better controls to prevent a repeat occurrence.

9 Communicate

Frequent and consistent communication between all levels of management and associates regarding safety processes, performance, and expectations is critical to building an effective safety culture and successful safety performance.

10 Gather meaningful and timely metrics

Create metrics that reflect the presence of safety (leading indicators), not just the absence of safety (trailing indicators). Metrics must also be designed based on their intended audience. For example, metrics for safety managers will need to be very detailed and facilitate analysis of correlations and trends. Metrics for operating managers need to be at a higher level and help identify deficiencies the team can address. Stanley Stone, vice president, safety,Penske Logistics

SAFETY on the Loading Dock
Proper FORKLIFT PROCEDURES ARE NO ACCIDENT

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Moving forklifts in and out of trailers can be a safety hotspot. Good communication is crucial.

Nearly 100 workers are killed and another 20,000 are seriously injured in forkliftrelated incidents each year in the United States – about one every three days, according to a 2001 report from the National Institute for Occupational Safety and Health. One of the most common causes of forklift-related fatalities is when a forklift strikes a worker on foot. Good communication at the loading dock can help prevent many of these accidents. Forklift drivers need to be aware of what’s happening at all times as they move around the dock area, and in and out of trailers. But pedestrians also need to be cautious because they are often out of the forklift driver’s view.

Focusing on the dock

The shipping/receiving/staging area is one of the most difficult places to operate a forklift. It typically only occupies around 20 percent of the facility, but that is where approximately 80 percent of the activity takes place. The job of servicing trailers is even more challenging when restricted vision is considered.

The vision issue is a twofold problem. First, a driver’s ability to watch for pedestrians is impaired when the forklift moves into the trailer, where it is essentially operating inside a tunnel. The result is a dangerous blind spot that is only diminished when the forklift is fully backed out of the trailer. The problem is compounded with multiple dock positions because a pedestrian would then potentially be in the blind spot of multiple forklift drivers.

The other issue is the inability of pedestrians and other forklifts in the dock area to see a forklift operating inside a trailer, which is even more difficult when the trailer is approached from the side. A wide range of operating conditions is another major factor. One example is when pedestrians and visitors enter the dock area without the forklift operator’s knowledge. It’s also not uncommon for pedestrians and visitors to step outside of zones designated for pepedestrian travel. Other challenges range from difficulty hearing audible warning devices to the amount of stopping distance needed for a traveling forklift.

Keeping communication open

The solution to these loading dock issues can be simple – improved operator training and clear, status-at-a-glance communication to loading dock personnel. Start with mandatory forklift operator training that includes clear rules of the road – and put some policing and enforcement behind them. There’s also a great deal of value in basic safety devices, such as forklift-mounted mirrors, convex mirrors, and traffic control signs.

Next, take advantage of forklift-pedestrian safety technologies, some of which are designed specifically for loading dock environments. One system, for example, uses lights and an alarm to communicate the status of forklifts inside the trailer. It lets forklift drivers and pedestrians know when a forklift is working inside the trailer so they can exercise proper caution against that forklift backing out.

Lights can also be used to communicate vehicle restraint status to the forklift operator, adding another level of protection against potentially catastrophic trailer-separation accidents. A variety of other technologies also provide a broad level of safety. An example is proximity laser scanners that create forkliftsafe zones throughout the plant or warehouse. Another is the use of motion sensors or infrared systems that alert pedestrians to approaching forklifts. The bottom line is to ensure everyone working in and around the dock is on the same page – especially when trailers are being serviced. The best advice is to develop and maintain open lines of communication.
Joe Manone, vicepresidente de Rite-Hite

Cushman & Wakefield/New global dynamism

Cushman & Wakefield/New global dynamism

Cushman and Wakefield
Vice Presidents and Directors Team of  Cushman & Wakefield Mexico

Over the last 20 years, Cushman & Wakefield México has consolidated as one of the leading firms in the national real estate market.

During this time, not only did it integrate new business areas to its operational structure, but it has also managed to widen its presence in different regions in the country, with its own offices and through alliances with strategic partners, such as those developed for the Western region and for Central America.

The relevant moment for its operation is linked to the international financial situation and to the organizational changes the firm has made in order to face it. This new operation architecture, mentions Victor Lachica, president of the firm in Mexico, is connected to changes in the organizational philosophy, to new technology in the operation, and to different tools that have been designed for the development of different services. “IT tools were redesigned, which generated a change in the IT platform through which we operate. Therefore, any technological problem is shared via Blackberry and the respective area takes care of it in no more than 10 minutes “, explains the executive. And not only that; regarding human resources there has been an advancement towards staff standardization and training, and as a result of that, an employee should be ready in 3 months.

Cushman and Wakefield

Corporate staff of Cushman & Wakefield Mexico

This new business philosophy allows some departments to generate undeniable leadership. This is the case of the property management department that currently provides service to a 500-property portfolio.

In the same fashion, the standardization of presentations, of service formats and other subjects have brought about global corporate identity. “Our clients receive a presentation in Mexico, and it is seen in the same way as if it had been requested by an office in the United States or by any other office where we carry out our operations”, he details. An additional step that breaks old paradigms has to do with internal networking in different offices around the world. “We have a record system and an internal network to request support, especially when tending to global clients, and now we have information from a colleague who has made some deals. This represents a big change, because we benefit from the know-how and we create a harmonious working environment with a coordinated team, which gives us strength before our competition.” Victor Lachica says that this new business ideology is directly related with the existing vision of the company. “We do not want to be the largest but the best ones. We want to be a firm that operates with transparency, consistency, reliability, cooperation, and coordination.”

Cushman and Wakefield
Lic. Víctor M. Lachica Bravo President & CEO Mexico and Centroamerica

Moreover, he mentions, we now have a different team, depending on the deal or operation we have to develop. For this reason, the universality of brokers who used to deal to customer services, no longer exists.

Today, there are experts who specialize in different areas to make the level of attention more efficient. At present, the firm has a total amount of 500 employees, 100 from which are located in their corporate offices, and the rest, in the buildings the firm is managing.

CUSHMAN & WAKEFIEL D MEXICO , WITH THE PASSING OF TIME

1992 Beginning of the Partnership of C&W/GCI and brokerage services.

1993 In June, its first C&W/GCI offices in Polanco open with 8 persons, who one year later would amount to 25 employees.

1995 Real Estate Administration operations start, which today is CIS, and opens its offices in Ciudad Juárez in May.

1998 Near May, Monterrey offices open; they are currently 5 persons. In August, Guadalajara offices open, and in Mexico City, its 50 employees are transferred to their corporate offices in Montes Urales 505.

2000 In January, operations in the City of Tijuana begin; they are operated from San Diego, California.

2006 They transfer to Corporativo Arcos Norte B, Paseo de los Tamarindos No.60, 2nd floor, where 100 people are currently working.

2009 In March, a strategic alliance is signed with Tecni Real Estate Intelligence, located in the City of Guadalajara, to provide service to the Western Region of the Country.

2011 Near September, a strategic alliance is signed with Baz Advisory Group, located in Costa Rica, to provide coverage to Central American markets.

Cushman & Wakefield

Cushman & Wakefield first offices in New York, 1917

Interview

Global Vision

The past 2 years have been crucial for Cushman & Wakefield’s new image, through which it faces the demand for real estate global services. Glenn Rufrano y John Santora share their opinion with us.

GA (Guillermo Almazo): 
How have you adapted during these years of global financial crisis to provide service to your clients? Which is your new strategy?

Cushman & Wakefield
John C. Santora CEO of Client Solutions, Cushman & Wakefield

C&W (Cushman & Wakefield) – John Santora: 2 years ago, we mentioned here that Cushman & Wakefield had a name but globally, it required two important initiatives. One of them consisted in managing on a global basis, and the other one meant having adequate services in our offices with the appropriate staff, in order to provide it to our clients. Sometimes, giving different and efficient answers to each case. These two initiatives have prevailed over the last two years. We believe they answer to subjects that were dealt with since 2008-2009, they allowed us to do more with less; the world had to do more with less. Therefore, we provide services to help our clients do more with less, and in many occasions, our clients are seeking to optimize their properties and capital. The leading group is aware that great corporations are looking for specialized outsourcing companies that will cover the work of real estate departments in the same way we do, will minimize their costs, and will optimize benefits through services.

Cushman & Wakefield
Glenn Rufrano CEO Cushman & Wakefield

C&W (Cushman & Wakefield) – Glenn Rufrano: Essentially, what we have done regarding corporate services is to look for a way to leader and strengthen the team that will satisfy those needs; our strength also exists for Facilities Project Manager, people who can deal with existing services for our clients. The situation is the same in Europe than in any other place. We have a strong platform that makes us leaders in South America. Here in the United States, we changed the leadership so that management teams could give support to our clients through outsourcing services. In the end, everything is related to costs, and to technology level.

GA :
What happens in the capital market?

C&W: We are positioning ourselves in the market at the appropriate time.

GA: 
Are global clients demanding lower cost services and capital return?

C&W: There is a value, sometimes it is low, and some others it is a combination. But we are ready to provide any type of service because we have many options, investing time and understanding that we can do our best to provide these services.

GA :
What are your strategies for Latin America and for the Mexican market, that is one of the biggest?

C&W: If we watch the world, we can see that Mexico is doing very well regarding growth, the world is growing at a slower pace than Mexico. More mature markets, such as the United States, the Euro zone, Japan and other new markets will not grow as fast; even those markets that were showing an accelerated growth are slowing down; China, India, Brazil, are showing less growth, so it seems the world will grow less. In this context, if we observe Mexico, we can see it is doing very well, they have energy, and movement in the “maquila” industry, and it is even competing with China. There is more productivity than before. The big issue in Mexico is safety; we are just a little worried. The economy is growing 3.5%; to us, this is amazing, especially regarding what was generated during the second trimester, whereas in the United States it was 1.75%. Thus, economic growth and inflation have shown positive trends in the last 6 months; Mexico is being more positive compared to the rest of the world.

GA: 
En México, “maquila” industries are transferring to the central region, due to the situation in the North and to have adequate infrastructure. That is the case of aerospace industry, such as Bombardier, Audi, and others that cannot find adequate conditions in Brazil or Asia.

C&W: Undoubtedly, the Mexican industrial market offers good conditions.

Who is C&W? Cushman & Wakefield is the world’s largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world’s major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917 it has 243 offices in 60 countries and more than 14,000 employees. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $5.5 billion in assets under management through its wholly-owned subsidiary Cushman & Wakefield Investors. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www. cushmanwakefield.com/knowledge.

Cushman & Wakefield

Interview in Cushman & Wakefield HQ, Nueva York

GA :
How did you decide to open the office in Mexico whose head is Víctor Lachica?

C&W: 20 years ago, our partner found an opportunity. We knew that we had to be in the market, and that there were clients. We did this through him; we needed to have the right team with the right partner, as it was the case of GAcción. They shared a partnership of 50% each, for a long time. Any partnership we carry out in the market allows us to operate. That has been the case with other partnerships, such as O’Connor in the industrial market; they are different channels, and that is what happened with AMB. Investments from the government and pension funds have opened new opportunities; CKDs and Fibras worked really well and generated new external activity.

GA: 
They are using their resources to buy properties or to purchase land to develop infrastructure or the industrial market. Do you believe 2013 will be better for the commercial sector?

C&W: There is a mixture, Europe will be better, but the shopping center market will be more difficult in Asia. Most of the retailers are trying to understand Brazil, which is very expensive; Mexico is being taken into account. That market will grow, especially in some cities in Mexico because it is more mature. Other important matters are Web networks, where we have observed considerable growth in their infrastructure, as well as industrial growth and its distribution.

GA :
What is the message to the office in Mexico for the following 20 years?

C&W: We have a lot of faith in people and we hope the office will generate high revenues for the firm in the years to come. We believe that what we have invested in talent in our office will allow us to grow and to find more talent to lead the market and to create more services for our clients

Cushman & Wakefield
John C. Santora CEO of Client Solutions, Cushman & Wakefield and
Glenn Rufrano CEO Cushman & Wakefield

Sustainability and sports

Sustainability has permeated many areas of construction business, among them sport facilities, which operation, maintenance, and eventual demolition force to consider their impact during their life cycle.

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As a continuation of our previous article –Green Stadiums-, I will expand on the issue of adoption of sustainability in the design, construction, operation, and deconstruction (let me use the word) of the sports facilities. Fortunately the issue of sustainability has permeated many areas of our business, and every day grows the number of economic and social agents that become aware of the impact of their activities. In the case of sports facilities, it may seem that once assumed the environmental cost of its construction and start-up has taken place, the problem of sustainability can be evaded, however their operation, maintenance, and eventual demolition, force to consider their impact during their life cycle as in the case of any other building.

Recent cases, both relevant, exemplify this and allow us to identify how the focus on the impact on the environment has an effect on the buildings themselves. I will Begin by referring to the structures erected on the occasion of the Olympic Games in China and England.

In the case of China, where the message to the world was one of economic strength, development, modernization and openness to new formal concepts amalgamated to an aesthetic ancient tradition, the Olympic Stadium with a multimillion-dollar investment and resource consumption (ie environmental footprint), is a landmark building that certainly did justice to the intent of the message, now generates substantial outlays for maintenance, with limited useful occupation for their society. The quota of 80,000 visitors a day taken at its best moment, has lost meaning due to the limited number of tourists because the remoteness of their location and lack of public transport.

Although far from the media impact obtained by the Chinese, the British position allowed them to generate a sporting infrastructure that will remain useful, which had a smaller environmental footprint, regardless of all the criticism of environmentalist groups. The main site was a brownfield nearly 100 years ago, its recovery involved the rehabilitation treatment of 800,000 tons of contaminated soil. The roof of the Olympic Stadium was built with 2,500 tons of recycled steel pipe. The Velodrome has a natural ventilation system and during the day only uses natural light, collects rainwater on the roof, and the track was built with wood of controlled growth.

sustentabilidad y deportes
Antonio Zamora   Business Development Director, VFO architect

The Water Polo Arena was built with PVC and demolished after the Games to recycle the material and use it in other constructions. The side stands of the Aquatic Center will be removed, and the materials will be reused. The 20,000 m2 Basket Ball arena’s metal frame and cover will be demolished and recycled immediately. The installation for handball and badminton competitions has a facade of 3,000 m2 of recycled copper, and 88 chimneys that take daylight to the interior saving 40% of the cost of lighting, and like the velodrome the roof collects water, saving 40 % of the service cost. The facilities for the equestrian and shooting events were temporary.

These examples are not unique to international sporting events. The joint actions in benbenefit of the environment can be taken for event, broken down by sport, and have a broad scope. While the Omnilife Stadium example we describe in the previous issue has features that allow it to have a lower carbon footprint than any other stadium in Mexico, the benefits it can generate go beyond the building itself, as evidenced by the “Green Sports Alliance” which is a nonprofit organization whose mission is to help teams, arenas and sports leagues to improve their environmental performance. Alliance’s members represent over 100 professional sports teams, and facilities of 13 different sports leagues.

As in the case of the Olympic premises, the vision with which these activities are being developed is what makes it viable for the owners of teams and facilities, who understand the expenses incurred as an investment opportunity that will be recovered in the short term and will generate immediate business and social dividends.

Although the regulatory instrument to which the Alliance adheres is the LEED Certification, The areas in which the Alliance focuses its strategy, are:

  1. Efficient energy management.
  2. Reduction in the use and efficient water management.
  3. Efficient management of waste.
  4. Use of organic cleaning materials.
  5. Sustainable management of purchases, preferably local, organic, without packaging or recycled packaging, and with deliveries scheduled to reduce the number of trips.
  6. Education of the fans.

sustentabilidad y deportes

Aside from the millionaire savings in energy use, water consumption, and waste treatment, adherence to sustainable practices has helped attract sponsors that match their environmental principles, it has attracted new customers and corporate partnerships interested in conducting events on sustainable facilities. It has expanded the fan’s experience by involving them in activities like collection of the waste produced during their stay in the park, on provided bags, which are collected by the teams themselves at the end of games.

Besides the practical aspects, this has strengthened its ties to the community that values the efforts of the teams, and adopts them as a reflection of their own values. At the same time the investment by the use of sustainable technologies not only benefits the environment but also contributes to the maintenance and creation of jobs, and encourages the development of clean technology manufacturing. All Commissioners of professional sports leagues have committed to the management and control of the negative effects of sport and are actively encouraging all their league teams to incorporate sustainable measures in their operations.

All Commissioners of professional sports leagues have committed to the management and control of the negative effects of sport and are actively encouraging all their league teams to incorporate sustainable measures in their operations.

Of the alliance members, 15 professional stadiums or arenas have LEED certification, 18 have installed solar panel arrays and virtually all have developed or are developing recycling or composting programs. Of the 126 teams in the five major professional leagues in the United States, 38 have switched to renewable energy to at least some of their operations, and 68 have energy efficiency programs. All major dealers, which collectively feed tens of millions of people every year, have developed organic menus at least for one of their dishes.

All stellar events like the World Series of Base Ball, The Super Bowl, the finals of the National Basket Ball League and All-Star Games, incorporate sustainability initiatives into their planning and operations. All leagues educate their fans about environmental issues, particularly the need to recycle and reduce the use of energy and water.

The achievements are important both in terms of millions of tons of CO2 emissions avoided, or the millions of gallons of water that were not spent, or not used cardboard for packaging, and waste that is recycled, however we believe that the greatest value of a position as that taken by professional sports in the United States lies in the educational message conveyed to fans through all means at its disposal, from integrating them in collecting their own waste during games, and the production of informational pamphlets, to the production of television spots instructing and motivating people to adopt the sustainability’s culture as their own, without compromising the economic, politic, or religious beliefs.

In my view there are two lessons we can learn from these examples. The first refers to the difference it makes the way in which we understand the expenses made in order to achieve energy efficiency, that is as a mediumterm investment, recoverable with immediate benefits, which will remain throughout the life of the property, and the second is utilize the value of the bonds that develop between fans and their teams to inform and inculcate in the former the benefits of a respectful and responsible attitude regarding the conservation of the environment through the rational use of energy, decreased water consumption and waste reciclyng.

Mexico’s Industrial Real Estate Market

Mexico’s Industrial Real Estate Market. First semester of 2012 promises growth
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Mexico’s strong second quarter fundamental predict a strong second half of the year. The country’s annual GDP grow published in May was 4.6 percent, which is greater than the predicted 4.2 percent and also than the 4.1 percent of the same period in 2011. The annual reduction for inflation changed from 4.0 percent to 4.34 percent. The exchange rate floated from 12.85 pesos per dollar on March to 13.1 pesos per dollar in August, helping exports.

The construction, automotive, transportation and food industries were the key sectors during this second quarter. Central and Bajio Regions The Central and Bajio regions have been benefited from new car manufacturing, industrial agriculture and food processing plants. New industrial parks are being built in Querétaro, Guadalajara and Silao and are expecting to receive more business from new suppliers and from suppliers already installed in those sub-markets that need more space to expand their operations. In these Regions, land prices and rents showed an increase from last year due to higher demand. The Toluca Citi industrial market keeps growing, especially in the area nearby the Airport. The

Doña Rosa industrial park was very success¬ful in attracting almost all the new tenants looking for big boxes. The Puebla City industrial market grew with the expansion of FINSA’s (a Mexican based developer) Supplier Park for Volkswagen. The Mexico City industrial market has received new requirements for 30,000 plus square meter buildings; developers will have to compete for these built to suit and lease requirements.

Northeast Region

During the first semester of this year, the northeast markets have shown very slow activity mainly due to the current global economic situation, the Mexican presidential election, as well as the violence and the security matters that have affected the region.

Monterrey has been one of the most attractive and active markets in the northern region yet it has only presented absorption of 2 million square feet this quarter. The few construction projects that started during the last quarter of 2011 are now finished and have increased the options for new tenants of the relocation of others.

Ciudad Juarez started to show some activity during the second quarter but a very slow pace. Expectations for this year are increasing; however activity is not expected to reach pre-crisis levels. This market has 15 percent vacancy and it will take some years to recover even with lease rates below market and landlords’ aggressive incentives for their clients.

The most active market of northeast Mexico remains to the Saltillo/ Ramos Arizpe/Derramadero corridor (south of Monterrey), where most of the activity is located in the Derramadero area. The growing tendency for this industrial corridor is expected to continue due to the new FIAT plant which is under construction. It is important to note that these submarkets are expanding only with built-to-suit and lease projects. In all other northeast submarkets, vacancy rates remain high and conditions continue to be tenant favorable. Developers are lowering lease rates and providing economic incentives such as free rent and above market improvements to attract new projects or relocations.

Gerardo Ramírez

Gerardo Ramirez Jones Lang LaSalle Corporate Industrial Services

Northwest Region

The northwest of Mexico has shown the continued trend of a long term commitment by corporations such as Plantronics that has switched from leasing to owning well positioned manufacturing facilities. These type of acquisitions and consolidations of existing multiple sites have been on the rise, supported by the more knowledgeable groups that realize that today’s low real estate values will not remain a constant within the industrial marketplace. Surprisingly the smaller industrial markets, such as Nogales, that historically have moved at a slow pace of perhaps one transaction a year, are now witnessing increased activity for vertical development. Today it seems better to acquire as opposed to leasing.

Some corporations with long term commitments to Mexico are taking advantage of the low priced real estate by establishing a strong operational position for the future. Mexicali and Hermosillo differ in this region when considering current activity, as they show more activity of a sustained footprint over the last year.

Also there are some minor cases of existing manufacturing expansion and absorption of vacancy under leasing and long term commitments such a Pilkington with a fifteen year obligation.

Something to watch

Corporations other than the automobile manufacturers, such as agro-industrial and consumer product companies, are looking to expand their foot print in Mexico. The political transition from the right wing party (PAN) that governed 12 years to the central party (PRI), who has returned to the president’s office will usher in new policies on a range of issues.

Outlook

The Country´s strong association with US business exposes its outlook to any deterioration of the US economy. This may impact negatively the business at the Border States. On the other hand, Mexico´s economy keeps presenting strong results, propelling new business in the Central and Bajio Regions.

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Industrial Property Clock Reading the clock

The second quarter of 2012 was slightly better than the prior quarter, especially at the Northern markets.

Peaking Markets:  Mexico City, Guanajuato, San Luis Potosí and Guadalajara keep growing industrial business. New car manufacturing plants and suppliers have occupied vacant spaces and generated new industrial areas. Agro industrial and consumer products business are growing and competing for space in these markets. Third party logistics and distribution requirements need more space but developers in these markets are slow in supplying new buildings. Land prices and rent prices are increasing in these markets. Centro Logistico Jalisco Park in Guadalajara will attract business looking for big boxes and rail.

Rising Markets:  Saltillo / Derramadero has been active due to the new Fiat plant in the market. Queretaro continues to grow the number of new buildings and new parks for automotive, manufacturing and aerospace. Consumer products and white goods businesses also need space to grow. While the Monterrey markets experienced lower healthy absorption levels, new buildings have been raised.

Falling Markets:  Northern markets, especially Ciudad Juarez have had more activity, filling vacant spaces. Tenants have taken advantage and migrated to newer facilities with better rents. At the border, Maquiladora markets are still waiting for the U.S. economy to grow and speed up business.

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FINSA placed the first CKD’s issuance in the Mexican Stock Market: 2.75 billion pesos.

FINSA – one of the main industrial developers in Mexico – successfull y placed the first CKD ’s issuance in the Mexican Stock Market, raising 2.75 billion pesos..

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FINSA’s first issuance of Capital Development Certificates (CKD’s for its acronym in Spanish) has been one of the most relevant events in the company in the last years, thus allowing the firm to face up the greatest growth and investment expectations in Mexico.

This issuance, acquired by one of the main pension fund management organizations (AFORES, Administradora de Fondos para el Retiro) in the country, represents capital income of $2.75 billion pesos, that will be destined to an industrial real estate development and purchase program in Mexico.

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This transaction that was performed with their partner, Walton Street Capital, and Banorte-IXE and Goldman Sachs as brokers, guarantees FINSA’s capacity to develop and acquire more than 1,500,000 square meters of industrial property. Such capital injection accelerates growth projects in strategic markets, such as the Bajío, Central, and Northern regions of the country, at the same time as strengthening FINSA’s leading position in markets where the firm is already present.

Sergio Argüelles emphasized on the importance of this placement as proof of the great growth expectations of Mexican economy and the commitment of Fondos de Ahorro Mexicanos (Mexican Savings Funds) to continue giving support to industrial growth in Mexico: “This is clear proof of the faith that AFORES has in the industrial sector in our country, and goes hand in hand with the foreign investments given during the past years in different manufacturing sectors”.

About FINSA: Founded in 1977, FINSA is one of the largest and more experienced developers in Mexico, managing one of the largest portfolios in Latin America, with more than 1.5 million square meters in leasing, and more than 6.0 million developed square meters. The firm provides integral real estate solutions to a wide variety of sectors in the industrial field through strategically located developments in Mexico, the United States, and Argentina.

VESTA quotes as a public enterprise

Corporación Inmobiliaria Vesta, “VESTA ”, is the only company of its kind to make an initial public offering through the Mexican Stock Exchange. During an interview for Inmobiliare Magazine, Lorenzo Berho, CEO of the company tell s us about some details of this operation.

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Inmobiliare Magazine (IM): When was Vesta founded and what is its main activity?

Lorenzo Berho Corona (LBC):
Corporación Inmobiliaria VESTA “VESTA” is one of the leading industrial real estate companies in Mexico. It was founded in 1998, and since then the Company has grown its real estate portfolio and has now 85 properties, with presence in 11 Mexican states, and owns more than 11.4 million square feet of industrial buildings for lease. VESTA has over 75 multinational clients focused in industries such as food and beverage, automotive, logistics, aerospace and medical devices, among others. Some of our customers include: Nestlé, BMW, Bombardier, Mercedez Benz, Mann, Kimberly Clark, Kraft, Daewoo and Safran Group, among others.

IM: What is your opinion on the great moment Mexico is going through right now?

LBC: 
25 years ago Mexico had one of the world’s most closed economies. Today it is one of the top countries in terms of commercial agreements, and it constitutes one of the most open economies in the world. Due to the economic crises we had in the past, Mexico has, over the last 15 years, developed strong tax and monetary disciplines, which has allowed to become one of the world’s highest ranking economies. Mexico’s public debt is about 30% of its GDP and its deficit is below 3%. We have international reserves for over 160 billion dollars, a controlled inflation, and a growth rate of about 3.8% in 2012.

Mexico’s economy depends on the economy of the United States in an important way, and they will still be the world’s largest consumer market for many years. Our country today faces the challenge of continuing to win a large participation rate of our imports to the United States, which has already been happening over the last several years, when Mexican exports have grown faster than those from Canada and China. Bilateral commerce between Mexico and the United States is over 1.3 billion dollars per day. This commercial trade will become stronger thanks to the near-sourcing trend, which makes American businesses prioritize Mexican suppliers over the other suppliers. The rising prices of oil and labor in China make Mexico the perfect platform for the supply chain.

Mexico has one of the world’s best population pyramids. The average age in Mexico is 27 years old and our country produces more engineers per year than the United States in relative terms, and more than Brazil in absolute terms. Mexico is going through a democratic consolidation process right now.

However, already for the last fifteen years we have had institutions like the Federal Electoral Institute integrated with citizens, which has given certainty to our voting processes. There is also a growing balance between the legislative, executive and judicial branches.

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IM: Tell us about the process of becoming a public company? What are the goals of the IPO?

LBC: 
When we founded VESTA 14 years ago, we already had the goal of becoming a public company. For that reason, we instituted corporate governance with a board of directors that includes independent members and committees with international members who have broad experience in the financial and real estate sectors. This has given great transparency to our operations.

Due to the interest of investing in infrastructure and industrial real estate, companies in our sector have recently submitted certificates for development known as “CKD´s”. Last year, for the first time in Mexico, there were certificates submitted under an investment trust structure called “Fibra”, which is a very similar structure to the real estate investment trust (REIT) in the United States. VESTA is the first company of its kind to make an initial public offering through the Mexican Stock Exchange. This global offering was allocated 69 percent in Mexico and 32 percent among international investors.

Our process was successful because of the solid economic perception nationally and internationally, and also because the industrial sector has strengthened and grown very fast due to Mexico’s positive opportunities for receiving larger foreign investments.

The proceeds of the initial public offering are being used for the development of industrial real estate infrastructure and for acquisitions of industrial portfolios in Mexico. We strongly believe that this will allow our company to take advantage of the great opportunities that Mexico is having in different sectors. Our country has become more competitive, which has led to certain sectors, such as aerospace and automotive, being strengthened and showing growth in Mexico.

IM: Mexico has achieved a strong solidification of the aerospace and automotive industries. Howdoes this benefit your company?

LBC: 
The development of the aerospace sector has been a priority for the Mexican government for the last 10 years. This has made Mexico one of the world’s largest investment recipients in this sector. The annual growth rate is 20 percent. Our country has over 250 aerospace companies located in 16 states. The center region of the country is the fastest growing region today and VESTA is the leading developer there. The Querétaro Aerospace Park is one of our landmark projects and it hosts renowned multinational companies like Bombardier (Canada), Safran Group (France), and Meggit (United Kingdom), among others.

Automotive projects were recently announced for about six billion dollars. Companies like Nissan, Mazda and Honda are building their new facilities in Mexico’s center states. Volkswagen, Ford and General Motors are also expanding their presence in the country. Today, Mexico is the eighth auto parts producer and the fifth biggest exporter in the world.

VESTA is focused on providing real estate solutions to the many suppliers that are already in Mexico, and to those who will soon arrive, by offering Park-to-suit and Built-to-suit projects. I can tell you that almost 24 percent of our clients are part of the automotive sector; not the big assembly companies, but their suppliers: Tier 1 and Tier 2 companies that need buildings like ours. We believe our company has a great opportunity due to the growth in the supply chain that these investments are providing.

Vesta Facts

  1. Over a million square meters in industrial buildings.
  2. 85 industrial buildings in 11 states, located in the main trade corridors in Mexico
  3. Over 75 multinational clients.
  4. Diversified portfolio among Mexico’s fastest growing sectors like automotive, aerospace, logistics, food and beverages and medical devices.

Fibras and Sibras

Real estate investment vehicles with attractive tax advantages

Background

As a result mainly of the investors’ and real estate developers’ access to the capital markets, the real estate sector has experienced accelerated growth during the past few years in Mexico. Such growth has been made possible, to a large extent, thanks to the legal reforms that have created suitable means and granted attractive fiscal stimulus for investments in the above-mentioned sector. One of the most important legal reforms related to the real estate sector is the creation of the Trusts and Societies of Infrastructure and Real Property (FIBRAS and SIBRAS, respectively, for their Spanish acronyms).

In Mexico FIBRAS and SIBRAS were created in 2004 following the reforms to the Mexican Income Tax Law (MITL) that described the characteristics that the investment vehicles must have, and trusts and societies were deslegignated as the sole vehicles for structuring investments. The names FIBRA and SIBRA are not mentioned in the MITL or any other law. These concepts have been adopted by the market, as the legislation referred to above only contemplates the characteristics required to obtain the tax treatment set forth in articles 224 and 224–A of the MITL.

Legal requirements

The MITL establishes the requirements that the FIBRAS must meet in order to obtained preferred tax treatment; among such requirements are:

  1. To be incorporated in accordance with the Mexican laws

  2. To have as a primary purpose the acquisition or construction of real property intended to be leased or the acquisition of the right to receive income from the lease of such property

  3. To have at least 70% of the trust wealth invested in real property, rights, or credits

  4. To have participation certificates issued by the fiduciary and representing the assets that make up the trust wealth, and that such certificates be placed in the country among the large investing public or acquired by a group of investors made up of at least 10 persons

  5. To provide that the fiduciary shall distribute to the holders of such participation certificates at least once a year, no later than March 15, for no less than 95% of the profit of the next preceding fiscal year generated by the assets that make up the trust wealth

Moreover, article 224-A of the MITL provides that companies that want to be incorporated as SIBRAS should just meet the requirements indicated in paragraphs 1,2, and 3 above.

Functioning

In a general manner, FIBRAS and SIBRAS are created and function as follows:

  • The company or trust is constituted, observing the requirements of article 223 of the MITL.

  • The investors contribute to the FIBRA/ SIBRA real property and/or resources to acquire and/or develop real property and/ or credit rights backed by mortgage guarantees.

  • The FIBRA/SIBRA issues participation certificates or shares, as the case may be.

  • Such participation certificates (FIBRAS) or shares (SIBRAS) may be placed through the Mexican Stock Exchange (BMV), in which case, additional requirements would apply to the issuing trust or commercial company.

  • The certificates and shares may be traded in secondary markets, depending on the limitations established to that end.

  • In the case of FIBRAS, the rents of the properties and investments will be distributed on an annual basis among the beneficiaries. This requirement does not apply to SIBRAS.

  • The properties may not be disposed of sooner than four years following the date of their acquisition or construction.

legal inmobiliare

Applicable tax regime and incentives

As discussed above, the birth of these conceptsis based on the MITL, specifically on the Title on fiscal stimulus. As to the analysis of the tax implications, it must be done in terms of the various factors involved; that is, who contributes property, what the investment instrument is (trust or company), and the investors.

Tax regime applicable to the contribution of real property

Deferral of Income Tax and IETU

The most important tax incentive is that, those who sell real property to a FIBRA or a SIBRA, receiving in exchange participation certificates or shares, respectively, may defer the payment of Income Tax, or the accumulation of the profit until they sell their certificates or shares, or until the trust or the company, in turn, dispose of the property in the same proportion as in the sale (articles 224 (XIII) and 224-A(I) of the MITL).

In the case of SIBRAS, their shares should be disposed of through the Mexican Stock Exchange. Consequently, for the contribution of real property to public SIBRAS, the benefit will be the deferral of the payment of IETU, but this limits considerably the use of this concept. The profit for purposes of Income Tax for the disposal of the property upon the contribution thereof will be determined in accordance with the MITL, depending on whether the contributor is an individual or a legal entity, and the price of sale shall be considered as the value given to those certificates or shares.

If the property contributed to the FIBRA or SIBRA is immediately leased out to the trustors that contributed it, the deferral in the terms mentioned above may only be taken during the effective term of the lease, without exceeding 10 years.

VAT

The contribution of real property to a trust is a transaction that is subject to the payment of the VAT (except for some specific cases). If the property thus contributed is levied for VAT purposes, the trustor will be obliged to transfer the tax, and the trust will be obliged to receive such transferred tax and pay for it.

Tax on the acquisition of real property

The transfer of the ownership of real property to the trust is levied with the tax on the acquisition of real property.  This is a state tax that is levied on the purchaser of the good, that is, the trustee. The rate varies depending on the state where the property is located, and some states have granted incentives related to this tax in the case of FIBRAS.

Tax regime applicable to FIBRAS

In the case of FIBRAS, the general rule for trusts with a business activity is applied. As a trust has no legal capacity of its own, it is not levied with the Income Tax or the IETU, while the beneficiaries, that is, the holders of the participation certificates issued by the trust, are the ones that must pay those taxes. For the purposes mentioned above, the trustee shall:

  1. Determine the accounting profit or loss and the IETU base for each fiscal year, resulting from the income generated by the goods, rights, credits, or values that make up the trust assets, and the holders will accumulate such income until it is distributed to them and they can credit the Income Tax paid by the trustee. In this case, no withholding will apply upon the distribution of that part of the profit.

  2. Withhold from the holders of the participation certificates, for Income Tax matters, 28% on the amount of the profit distributed, unless the taxpayers are exempted from the payment of Income Tax for such income (if the certificates are placed among the large investing public, the financial intermediary with whom the certificates have been deposited will do the withholding)

  3. Keep the accounting of the transactions performed in the trust, issue invoices for the income obtained, and ask for the receipt of deductible expenses (as a fiscal stimulus, the trust will have no obligation to make provisional payments of Income Tax during the fiscal year). Contributions in goods or cash to the trust are controlled in a capital contribution account that the trustee carries for each beneficiary, and capital reimbursements will be deemed tax-free when they come from such account.

Tax regime applicable to SIBRAS

A SIBRA is applied the general regime of a legal entity; some particular things resulting from its nature are:

  1. It has no obligation to make provisional Income Tax or IETU payments.

  2. If it has shareholders that are foreign pension or retirement funds that meet the legal requirements, it shall give such funds a tax credit in an amount equal to the result of multiplying the tax for the fiscal year times the average daily share participation that the funds had in the same year, or times the share participation at the end of the year, whichever is smaller.
  3. The SIBRA may credit the tax credit delivered against the tax for the respective fiscal year.

  4. It shall provide such information as established by the SAT through general rules. Except for the foregoing, the regime of a SIBRA for Income Tax, IETU, and VAT purposes is that same as that of any commercial company.

FIBRAS y SIBRAS also offer a clear, propitious tax regime that makes them attractive. In this sense, the tax regime is another element that contributes, in one way or another, to such profit.

Tax regime applicable to Investors

FIBRAS and SIBRAS investors can be quite different; legal entities or individuals, Mexican residents, residents abroad with a permanent establishment in Mexican territory, or residents abroad without a permanent establishment in Mexico. Furthermore, investors can be institutions or individuals; funds can be private mutual funds, foreign investment funds, domestic or foreign pension and retirement funds; mutual funds specialized in retirement funds (SIEFORES), etc. In the case of SIBRAS, the model applicable to the shareholders is the general regime for any of them. For this reason, we will limit our comments only to the treatment of the investor of a FIBRA.

The tax regime applicable to trustors of FIBRAS will depend on each particular case and on whether it is the income obtained by the trust from its operations, or through the sale of the certificates. To this end, it is worthwhile remembering what was said above, a trust does not pay the Income Tax or IETU, but their beneficiaries, that is, the holders of the participation certificates do have to pay them.

Individuals or legal entities residing in Mexico

For a FIBRA, a requirement to enjoy the preferential tax treatment is for the trust to distribute annually at least 95% of its profit; such distribution triggers Income Tax withholding. As a general rule, if the investors are individuals or legal entities residing in Mexico, any income they may receive in cash from the trust will be cumulative in the fiscal year when they are actually received. In the case of individuals, such receipt shall be considered as income from leasing. They may credit the withholding tax withheld by trustee or the tax paid by the same, as the case may be, against the Income Tax that may be determined as a consequence of the cumulating of the income.

In connection with the IETU, as with the Income Tax, the trustee has the obligation to determine the taxable base and to inform each beneficiary of the amount corresponding to them as a result of their participation, so that each may accrue, acknowledge the amount, and pay the IETU once the respective Income Tax has been credited. Now, if the investors sell their participation certificates, the trustee will determine the profit obtained from the disposal and, as applicable, will pay the Income Tax for such profit. The profit is determined by subtracting the average cost of the certificate from the price received for the titles. The average cost is the cost of acquisition of the certificates or, in the case of certificates issued upon the contribution of goods, the value assigned to the same. If the seller is a legal entity, it shall accumulate the profit to its other income; if it is an individual, it shall consider it as income from a disposal of goods. As to individuals, the buyer will have the obligation to withhold 10% of the price covenanted, without any withholding that the individual may consider a PP. The sale of participation certificates is a transaction free of the payment of IETU and VAT.

Residents abroad

For foreigners without a permanent establishment in Mexico, the income derived from the operations of the trust and from the sale of certificates will be income with a source of wealth located in Mexican territory and, therefore, will be levied with the Income Tax in our country. Foreigners will pay the tax resulting from the returns on the trust assets through the trustee’s withholding, and such payment will be deemed final. Such income is not subject to the payment of IETU. As to the profit from the sale of participation participation certificates, foreigners will be subject to the payment of the tax for such profit, and the issuing trustee has the obligation to calculate and pay the corresponding tax.

Participation certificates

When the participation certificates are placed among the large investing public and are sold through the renowned markets referred to in the Federal Tax Code, those residents abroad that do not have a permanent establishment in the country will be exempted from the payment of Income Tax, and the individuals residing in Mexico will be exempted for the profit they may obtain from the disposal of such certificates if made through the Mexican Stock Exchange.

Pension and retirement funds

As discussed before, the distribution made by the trust of at least 95% of its profit triggers an Income Tax withholding that is not applicable when the holder of such certificates is exempted from the payment of that tax for such income.

In general terms, the main subjects that, has holders of the certificates may eventually be exempted from the payment of Income Tax for the income obtained from the trust or from the sale of their participations in the same are:

  • The pension and retirement funds constituted abroad and exempted from the payment of Income Tax in their country of residence that are registered to that end with the SAT.

  • The SIEFORES.
  • The pension funds established by companies in Mexico for their employees in terms of article 33 of the MITL.

If any of the above-mentioned cases occur, the trust would make no withholding at the time of distributing its profit.

There are other hypotheses where these types of entities are deemed exempted from the payment on income from the FIBRAS or SIBRAS, but in general the main ones have been pointed out herein.

Conclusions

FIBRAS and SIBRAS are excellent instruments to gather funds through the capital market or a group of certain investors for the development of a real estate project intended to be leased. These instruments have to meet certain requirements, and also grant a tax stimulus in the sense of deferring the payment of Income Tax and IETU to the people that own the real property contributed in exchange for a participation in these vehicles in order for them to be developed.

FIBRAS y SIBRAS also offer a clear, propitious tax regime that makes them attractive.

This is especially relevant as the main element for making a decision to invest in this type of structures will always be the expected return that may be generated. In this sense, the tax regime is another element that contributes, in one way or another, to such profit.

Industrial Market in Mexico

Industrial market of Real Estate in Mexico has become institutionalized during the last 10 years through association models between owners of land or regional and local developers working jointly to main institutional investors, or actively searching new available financing sources in Mexico, as CKDs and FIBRAS. Without a doubt, this situation has created a business’ dynamic without precedents in those markets distinguished as leaders within the industrial investment’s attraction.
Industrial Market in Mexico

Considering that Mexico is in a clear growth related to industrial topic and, according to global statistics, our country will become become the seventh world economy in 2020 contributing with the 7.8 from the global GDP, and it is currently one of emergent markets with a bigger growth potential thanks to its privileged geographical location and production and distribution’s costs difficult to likened to in the American continent, we can understand that Mexico has positioned itself as a place more and more strategic for global enterprises, especially for the American ones. Within this context, we can understand this growth of industrial market in real estate sector, and even the industrial parks’ growth throughout the Mexican Republic.

Due to that, let’s considerate some of the main factors that have contributed to this accelerated growth in the last years. Industrial real estate market in Mexico has become institutionalized in the last 10 years, through association models between owners of land or regional and local developers working jointly to main institutional investors, or actively searching new available financing sources in Mexico, as CKDs and FIBRAS.

Without a doubt, this situation has created a business’ dynamic without precedents in those markets distinguished as leaders within the industrial investment’s attraction. Currently, the national industrial market, with parks and class A projects – that fulfill world class standards to install plants of production or distribution centers-, is mainly established in 11 markets distributed in the center area and throughout the line border of the country, adding up more than 30 million square meters (320 million square feet) of industrial buildings and a growth expectation of 30% in the next five years.

Even if throughout the country, growth and development of industrial parks is evident, there are profiles of manufacture, supply, storage and distribution in specific regions of the country. Specifically, we can see a remarkable development of two regions that have distinguished themselves due to their accelerated growth and attraction of investment for parks and industrial projects in the last five years:

industrial_market_in_mexicoFrancisco Muñoz First Vice President at CBRE Logistics & Manufacturing Real Estate

El Bajío, where Querétaro has become an aerospace Hub leaded by Bombardier and a suppliers’ chain installed surrounding the airport, and expanding through industrial parks close to the city of Querétaro and more recently, Guanajuato. Besides, San Luis Potosí and Aguascalientes, with the establishment of 3 of the main automotive assembly plants in the region (Mazda, Volkswagen Motors, Toyota) and the already existing plant of Nissan in clear expansion, without a doubt, will carry a revenue of suppliers that will make this area of the country one of the most important automotive Hub in the world.

On the other hand, in the center country, the metropolitan area of Mexico City, Toluca in the State of Mexico, Puebla and Hidalgo have become the main focus of parks development dedicated to regional, national and even international storage ad distribution, reaching Central America for the main firms of consumer goods in general. Together, these states add up more than 5 million square meters of class A buildings, made in less than 7 years; and today, it is without a doubt, the biggest area of growth in the country projecting a rate of unemployment under 5%, and average prices of rent of 5 dollars per square meter.

Rules and Regulations for Sustainable Building in Mexico

Sustainability is a topic, which is gaining continuous relevance every day in all fields, including the real estate sector. In view of the urban growth existing worldwide, we need to see such growth practicability without jeopardizing the quality of life and the  environment.

There are several regulations, programs, and technical standards that have been issued on this matter. However, at the Federal level, the regulations that are deemed perhaps the most important are those referring to energy efficiency, since they provide not only  evident environmental benefits, but also represent a marked opportunity to reduce expenses. In addition, with regard to the development of regulations, this subject is of Federation jurisdiction, since other subjects pertaining buildings are regulated at state and/or municipal level through the urban development and construction laws and regulations. This represents a problem for having a uniform legal system regarding sustainability, since the construction is mainly of local competence. Therefore, the enactment of a  Federal law would be difficult, given that several topics do not fall within its jurisdiction.

For example, in the case of construction waste, the same is not deemed as hazardous and therefore will fall within state jurisdiction (as special management waste) or of municipal jurisdiction (urban solid waste) depending on the specific type of waste. Please bear in mind that for certain effects, it is important for regulations regarding construction to be of local jurisdiction. This helps to attend environmental issues and conditions that are specific of a certain region or location, which could not be attended to with a general law or regulation for the entire country.

Therefore, the development of environmental and urban land use regulations and programs (depending on the place where the real state will be developed) focuses on the characteristics of a determined zone to establish sustainability elements and requirements that should be implemented during the property construction and occupation. This is important, because what may be sustainable for a  building in a specific zone may not be sustainable for another region.

Despite the above, we must emphasize that, although local governments reserve many regulatory powers in construction matters, there are areas of opportunity for issuing national general regulations, such as those relating  to energy efficiency, which have actually
been a priority of the current Federal administration. Such relevance may be evidenced with the creation of the National Commission for Energy Efficiency (“CONUEE” for its Spanish  initials) and the issuance of a variety of laws and regulations, beginning with the Law for the Sustainable Use of Energy (“LASE” for its Spanish initials), which was published in the Federal Official Gazette on November 28, 2008, as well as its Regulations and the 2009-2012 Program for the Sustainable Use of Energy (PRONASE for its Spanish initials).

The PRONASE identifies several costeffective areas of opportunity to increase the country’s energy efficiency and reduce the national energy consumption in the middle andlong term. Some of those areas of opportunity are given precisely in the construction field,dealing with opportunities of energy saving as a result of an improvement in construction practices. For those purposes, the  development of construction regulations is being contemplated within PRONASE. Energy efficiency in buildings is considerably important, especially in the northern and coastal zones of the country where the consumption of electricity for air conditioning represents significant energy costs due to climate conditions. Contributing to reducing energy consumption represents great environmental benefits (such as a reduction of greenhouse gases –GHGs-, helping therefore to mitigate climate change) and economic benefits (mainly if it is possible to avoid the high consumption tariff).

As a result, the CONUEE has channeled its efforts into developing several projects of  Mexican official standards (NOMs for its Spanish initials) concerning energy efficiency, some of them specifically in the real estate sector or others that are related. Some of these  standards attend to energy efficiency requisites for residential and non-residential buildings, buildings’ thermal insulation, general  purpose lamps and LEDs, as well as for lighting systems, air conditioning and heating for domestic and commercial use, among others.

Likewise, in the 2012 National Standardization Program, a NOM concerning thermal and optical characteristics of glass and glass  systems for buildings appears as a project to be discussed for this year. It is important to comment that in a field where technology and  design innovation prevail, as in the case of energy efficiency or sustainability, it would appear that regulating this matter through  mandatory official standards is not a good strategy, since one could think that the developers must implement the technical guidelines  of these official standards by the book, as specified in the standards. However, in view of the above, many NOMs determine only  expected results, and not exactly the use of a specific technology. In addition, article 49 of the Federal Law on Metrology and Standardization (law regulating precisely the  elaboration and issuance of standards by Federal ministries) establishes that when a   NOM requires the use of materials, equipment units, processes, testing methods, mechanisms, or specific procedures or technologies,  the recipients of such official standards may request authorization from the agency that issued the official standard to be able to use  other options.

Naturally, they will need to prove that their alternative methods or technologies it will be feasible to comply with the purposes of the  official standard in question, and that procedure may be long and complicated. In addition to the NOMs on the subject of energy  efficiency, there are other NOMs that are important for sustainable buildings, such as those that regulate wastewater discharges or water consumption efficiency. These official standards are issued by various authorities, and unfortunately they may result even  contradictory between them in certain cases.

Finally, please remember that NOMs do not include penalties (as they cannot do that in strict legal terms), so lack of compliance will be  punished pursuant to the provisions of the Federal Law on Metrology and Standardization, irrespective of the existence of other penalties that may proceed in view of any other specific law. It is common for many developers to not comply with the requirements  of applicable NOMs, as they may deem them of voluntary compliance or given that they do not determine a penalty, but then they see  their projects affected when sanctions, such as fines or even a closure in some cases, are imposed by the authorities.

Sustainable Construction in Latin America: Current Status and Perspectives

During the past lustrum, Latin America’s building and construction industry has given significant attention to topics relevant to  environmental protection, energy efficiency and social responsibility. New building and infrastructure projects, due to norms or  market competition, seek to incorporate design concepts, constructive solutions and operating systems that guarantee a reduced  negative impact on their natural surroundings, while being economically viable. Most frequently, we find concepts which directly or  indirectly, are already modifying the way we plan, design, build and operate our cities. Life Cycle, Ecological Footprint, Integrated Design, Sleek Building, Biomimetism, Energy Modeling, Regenerative Construction, LEED Certification, Integrated Project  Management,  Net Zero Energy, amongst other concepts, are beginning to incorporate themselves dynamically to our gremial lexicon.

And this is not in vain; we’re effectively changing our way of  thinking and behaving in relation to our participation as protagonists in  the creation of our built environment. High performance systems and materials technologies have advanced dramatically during the past years. New “green” and “eco” paradigms offer an attractive and unlimited array of options for investors and building  professionals.

Sustainability is today’s emerging and most developed field in the building and construction industry. Thus, we’re setting our priorities in tune to those of other industries which, as a whole, have a large impact on the global effects of climate change. Latin America  responds to this enormous commitment and challenge. The sector’s leaders and protagonists in the region have acquired a sensibility for sustainability topics.

Clear boundaries and barriers that halt a more fficient construction, one respecting nature and human beings, have been identified.  Along the same lines, in equal measure, the numerous benefits from sustainable construction or green building have been accounted for.

We can begin by recalling  the fact that, amongst all industries on a global scale, it’s building and construction where we have the  greatest potential for diminishing the negative impact on greenhouse gas emissions, in the shortest time frame and with the lowest  cost. Not only do we hold a great opportunity, but also a major responsibility to contribute in constructing a new order that will  impulse the model for sustainable development on our planet. Going back to our innovative actions that could defeat the static friction  stopping sustainable practices in Mexico and Latin America, we find, without a doubt, opportunities for change in regulatory  framework and current financial schemes.

In August 2011, Mexico’s Green Building Council, in collaboration with the World Green Building Council and UNEP’s Sustainable  building  and Climate Initiative, hosted the first Continental Summit focused on the exchange of best practices in public policy and  economic models.

The top 10 challenges identified by dozens of specialists from the Latin America region include:

1. Urban Planning & Land Management.
2. Natural Disaster Adaptation and Recovery.
3. Mobility & Transport in Urban Areas.
4. Solid Waste Management.
5. Air Quality and Green House Gas Emissions.
6. Efficient Use of Energy and Water.
7. Update and Enforce of SB Norms & Codes.
8. Tax Incentives: Focus on Affordable Housing.
9. Labeling for Green Products & Materials.
10. Country-level Vision (National Agendas) for SB.

Deriving from the previous list, 6 Strategic  Actions have been proposed for Latin America:

I. ‘Regional Cruzade’ for Awareness, Promotion, Education and Training in Sustainable Building (SB).
II. Country/Regional Diagnosis (state of play and future vision) and National Agendas for SB.
III. Deploy Urban Planning Best Practice in LatAm’s Major Cities.
IV. Create B&C Norms, Regulations and Certifications under Standardized Protocols.
V. Incentives based on green technology’s efficiency.
VI. Establish Regional R&D Centers to Enhance SB Capacity and Collaboration.

It’s worthy to celebrate – and imitate – the startup of diverse programs and projects, joint by private initiative and the public sector. In Argentina, Brazil, Chile, Colombia, Mexico and Peru it is possible to find discreet national and local projects that incentivize  sustainable building. Collaborative schemes on the forefront that can be found include tax exemptions, density bonuses, awards and media exposure, speedy permit authorization, preferential funds or loans, discounts and reimbursements, etc. Some outstanding model public programs  include: Colombia’s Green Building Code + Sustainable Building Seal; Brazil’s ‘Bolsa Verde’ in Rio de Jamaica and the incentive for LEED certified stadiums for the World Cup 2014; Mexico’s Integrated Sustainable Urban Developments Federal Program, Sustainable Building Norm NMX-ES (in progress), amongst others.

In Mexico’s specific case, the recently approved law for public-private investment projects presents an attractive panorama for  housing developments with a sustainable focus. It can now count on greater certainty and a jurisdictional shield necessary to secure feasibility and financial payoff for long-term projects. It’s possible to visualize the implementation of transcendental actions which involve all players in society, leaning towards creating scenarios which can catapult more resilient building and cities. This will represent the necessary scaffolding for a global green economy, one which results in improved quality of life for all.

Let’s form part of this necessary and unstoppable transformation…

Bioconstruccion y Energia Alternativa is Latin America’s leading and pioneer consulting firm, specialized in LEED certification and  ecotechnologies for construction. Your expert partner in sustainable building.

www.bioconstruccion.com.mx

GREEN STADIUMS, Sustainability reaches sports facilities

Awareness about environmental conservation has increased to all areas of real estate development, and the stadiums are taking  actions to reduce the high impact of their location and operation, which are shown in the facilities in the London Olympics.

Without the global exhibition that gives them the aforementioned event, football and baseball teams which are those who demand larger stadiums, and are taking steps in their existing or planned facilities. In fact the “Green Sports Alliance” has been recently constituted and promotes principles of sustainability in the construction and operation of sports facilities. Due to the high impact of its  operation,  caused by the frequent concentration of 50,000 people on average, most of these stadiums belonging to this stream of sustainability are taking actions oriented to environmental education programs of their fans, and acquisition, management and disposal of goods and services required during the sports event.

In VFO we are proud to have designed and collaborated with the contractor, on the realization of the stadium OMNILIFE (Guadalajara
soccer club). In the design, we integrated sustainability solutions that will keep it at the vanguard for several years.

The Stadium originates from the idea of team owner to create an enclosure for the fans where prevailed a sense of unity and positive energy around the team and the event, which is manifested in a large atrium and single access for all attendees, and in the interiors  perception of an area of continuity without visual barriers between the audience, and between these and the event. Located in a small valley at the foot of La Primavera hill, the image of the building disappears and merges into the environment, trying to break as little as  possible on the natural landscape. This unique feature prevents the building “die” on days there is no event, while the day of the match  it will lit up like a volcano eruption that exudes energy, positive energy of the fans that come together for one purpose: the football game.

Antonio Zamora – Director de Desarrollo de Negocios
– VFO arquitectos

Based on these ideas, the formal concept by Studio Massaud / Pouzet, Paris, led to the proposal of  a truncated conical body covered with grass surrounding the stadium structure that resembles a mountain or a volcano, and is crowned by an ellipse covering the stands and looks like a cloud or a fumarole floating above the volcano.

In VFO (before HOK Mexico) we adopted these ideas and translated them to architectural and engineering concepts that might materialize constructively, contributing with our knowledge and  experience in solving complex  projects, having designed a stadium that meets all international standards. Although the stadium was not built with the intent of achieving an environmental  certification, the design integrates the best practices in sustainable design, and for its  development cutting-edge technology was used. These produce cost and efficiency benefits in the  construction process.

The sober prefabricated structure was built on the site itself and the few coating materials are local, or fabricated through processes and using raw materials, and colors that do not contribute to the generation of greenhouse gases because of the generation of “ heat islands”; this is reinforced by the construction of a parking lot for the owners of the suites throughout the area  under the bleachers.

The design of service areas includes space set aside for collection and temporary storage of  organic and inorganic waste to be recycled  later. The demand, use and disposal of water is the second issue to which we paid particular attention. The stadium does not generate additional demand for municipal potable water as the amount it uses is obtained from a well in the same location. Even this availability, the demand is 70% lower than in a similar building with a traditional design because in the bathro oms only basins use water from the well,  toilets are served by treated water within the same project, and urinals are dry. The water served  by the use of the stadium is treated on its own wetlands, and rainwater runoff is channeled and stored in storm tanks designed for that purpose. This is the water used to  irrigate the field, the volcano and the surrounding green areas. Regarding the demand and energy use, the stadium also has a superior  performance related to stadiums designed today.

The stadium is designed so that it can operate under the rules of FIFA, with adequate lighting for local meetings, with energy generated
by their own plants, and only requires additional requests to the municipal system to conduct international meetings (FIFA levels 5 and 6) or exceptional event as it was during the Pan American Games.

This achievement is possible through the  design and use of automation and control systems, and lighting equipment of last generation,
that allow the light level required for each occasion, both on the court and in public areas and the suites with only 50% of the fixtures that require a conventional project, generating energy savings of over 60%. These achievements are the result of project  implementation in accordance with  principles of “Integrated Project Delivery (IPD) around the technology to create Information Models for Construction (Building Information Modeling or BIM).

The first is the participation of all who have some responsibility for the project throughout the formulation of the same, so you have  the opportunity to participate in decision-making in the subjects that have any relation with your own work, and to know and provide  feedback on the decisions of other members of the integrated team on themes where you have some experience or that affect your own  performance.

This will expedite the implementation of the project as it eliminates the traditional loops in a traditional process of generating projects,
in which each participant develops his theme in isolation, and with a substantial degree of progress makes it known to the team, which
issues its opinions, this usually results in revisions to integrate information from their own specialties. 

Usually this creates an iterative process that lengthens the execution time and causes no consensus, nor commitment of everyone  with a solution; leaving the possibility open to everyone’s better alternative, creating uncertainty for customer’s decision making at  the time of execution of the work. We implement this Integrated Project Delivery approach through the utilization of a System of computing programs (REVIT) that facilitates the collaborative participation of all those involved in developing the project. In such way every member in the project team may proceed in parallel with updated information about the rest of the specialties linked with his own, at the same time he can provide information to facilitate the accurate progress of the rest of the team, reaching all in less time and with consensus information to project completion.In this way the entire project team can proceed in parallel with updated information of the other topics which are linked his own, while providing information to help feed the rest of the team successful getting all in less time and with consensus information to complete the project in less time and with greater certainty that the  implementation will be expedited by reducing the time and making more efficient use of client resources.

Union Investment takes care of the environmental

Union Investment is one of Germany’s first major property portfolio managers to have conducted a comprehensive analysis of its global real estate fund portfolio according to sustainability criteria. The results were unveiled in Berlin last May, at the German Property Federation (Zentraler Immobilien Ausschuss e.V., ZIA) Real Estate Industry Day. “This analysis gives us the first detailed
overview of emissions and resource consumption within a major portfolio. Representative of our wider holdings, we will be making  this data available for professional benchmarking purposes,” says Dr. Reinhard Kutscher, Chairmanof the Management Board of Hamburg-based Union Investment Real Estate GmbH.

Metrics serve as  reference for overall portfolio of 282 properties with a market value of EUR 18.7 billion. Union Investment previously used its Sustainable Investment Check in 2009 and 2010 to qualitatively examine its portfolio and property acquisitions in  terms of their economic, ecological and sociocultural sustainability. In addition, the real estate investment management company has created its own quantitative rating system in order to show emissions and resource consumption stemming from its real estate portfolio based on actual consumption data, enabling regular reporting. “Embedding the system into our standard asset and property management processes allows ongoing monitoring of building-level consumption data. It also enables us to track and manage the impact of our sustainability upgrades to existing buildings effectively,” adds Kutscher.

Sustainable portfoliomanagement the next step

With the aim of further improving the environmental performance of its internationally diversified holdings, in spring 2012 Union Investment assessed a total of 187 office, retail, hotel and logistics properties from its open-ended real estate funds with regard to ecological aspects. The portfolio selected has a market value of some EUR 14 billion and contains 4,274,253 square metres of floor space, equivalent to 78 per cent of total space in the company’s portfolio. In terms of composition – uses, property age, regions and fund breakdown – it is representative of the overall Union Investment real estate portfolio (valuation: EUR 18.7 billion; 5,459,181 square metres). The evaluation drew on five key performance indicators (KPIs): final energy consumption, primary energy  consumption, CO2 emissions, water consumption, and the volume of waste produced. Extrapolated for the complete portfolio of 282 properties, this first in-depth audit gives a CO2 footprint of 351,487 tonnes per year. The water footprint is some 2,356,006 cubic metres per year. “This first in-depth audit of our portfolio underlines its quality from an energy-efficiency and ecological standpoint. Based on extremely detailed data, we will now identify potential for optimisation and formulate an action plan by the end of 2012 that will deliver continuous, measurable improvements in the environmental performance of our buildings and portfolio going forward,” says Kutscher.

Union Investment intends to publish an annual report on its progress: “We want our reporting to reflect our pioneering role on the sustainability front.” Union Investment is one  of the first companies to have submitted a sustainability report that meets the reporting  requireme nts of the German Property Federation’s (ZIA) sustainability code for the property industry.