Buying a Closed Industrial Plant: What to Check First

Closed industrial property looks cheap on a per-square-foot basis, and sometimes it genuinely is. The difference between a good buy and an expensive one is almost entirely what you learn before closing.

Environmental status is the first question and the biggest

Industrial property carries environmental risk, and the liability generally follows the property.

At minimum, a Phase I environmental site assessment — a records and site review identifying recognised environmental conditions. Where the Phase I flags anything, a Phase II with sampling.

Specific items to look for on any industrial parcel:

• Underground and above-ground storage tanks, registered or not.
• Historic uses that involved solvents, metals, fuels or chemicals.
• Floor drains, sumps, trenches and separators.
• Transformer locations, for PCB history.
• Evidence of spills, staining or disturbed ground.
• Prior regulatory filings, notices or open cases.

Buying a property with unresolved contamination without understanding it is the single largest risk in this category, and the cost is unbounded rather than merely large.

Hazardous materials in the building

Separate from soil and groundwater: asbestos, lead paint, PCBs in light ballasts and equipment, mercury in older instruments and switches, and any process residues left in tanks and piping.

An asbestos survey before purchase tells you what abatement will cost, and abatement on a large older industrial building is frequently a substantial number.

Structural condition

Buildings that have been idle deteriorate faster than occupied ones. Roofs leak, water gets in, and by the time a building has sat unheated and unmaintained for a few years the interior can be considerably worse than the exterior suggests.

Get a structural assessment, particularly on:

• Roof condition and any water damage.
• Corrosion in structural steel, especially near the coast.
• Foundation and slab condition.
• Any evidence of settlement or movement.

What equipment remains, and what it is worth

This is the item most often underestimated. A closed plant frequently contains transformers, switchgear, motor control centers, compressors, chillers, cranes, machine tools and material handling that carry real value.

An equipment appraisal before purchase can materially change the economics of a deal, and it is inexpensive relative to the transaction. On some purchases, the recoverable equipment value covers a meaningful proportion of the acquisition price.

Be aware that idle plants get stripped over time. Confirm what is actually still there rather than what an inventory from two years ago says.

Demolition and clearance cost

If the plan is redevelopment, the demolition cost is part of the acquisition cost and it should be quoted, not estimated.

Get a real number, including:

• Structural demolition.
• Abatement.
• Foundations and slabs to the depth your redevelopment requires.
• Below-grade structures, pits and tanks.
• Backfill and compaction to specification.
• Any environmental work identified.

Net of equipment recovery, which on an equipment-rich plant can be a large offset.

Utilities and infrastructure

What service is still connected, at what capacity, and what it costs to restore or upgrade. Heavy industrial electrical service is valuable and expensive to establish — an existing large service is a genuine asset on a redevelopment parcel.

Also confirm water, sewer, gas and telecom availability and capacity for the intended use.

Zoning and entitlements

What the parcel is zoned for, what the intended use requires, and what the entitlement path looks like. Industrial land being converted to another use frequently requires a rezoning process with its own timeline and uncertainty.

The pattern that costs people money

Buying on the per-square-foot price of the building, then discovering the environmental status, the abatement scope and the demolition cost afterward.

The order that works: environmental and structural assessment, equipment appraisal, demolition quote, then decide what the property is worth. All three of those are available before closing, and all three are cheap relative to the mistake.