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Plant Construction: New Vs. Retrofit (Part 6)

Bruce Beggs |

Your company is weighing its options for plant construction. Should you build new or retrofit?American Laundry News recently invited several engineering, construction and consulting firms with laundry services expertise to respond to some questions about this debate, and identify some of the factors in making the decision.What about financing? Is one project type financed more easily than the other? Are there any incentive programs available that a facility can take advantage of?Matt Alexander, president, Pertl & Alexander, Jamesville, N.Y.
A retrofit or new construction requires similar credit hurdles to fund, however, economic development incentives such as job creation grants, tax abatements and utility rebates may be available for certain projects. New construction may easily qualify for job creation grants or other economic development incentives that a retrofit may not.
The opportunity to lease a facility and equipment can significantly reduce capital demands. The opportunity to partner with a developer that is prepared to fund all elements of building development and construction can make such a project financially viable for a client with limited capital.Glen Phillips, president and senior associate, Phillips & Associates, Minneapolis, Minn.
The success our firm has had over the years in obtaining financing can be attributed to the business plan prepared by our firm. A strong, detailed business plan that is professional, complete, financially sound, and answers every question that a bank or CFO may ask is the best ‘silver bullet’ going forward with a laundry project.
But the business plan by itself won’t carry the day. Having a strong, qualified management team and a board structure is always heavily considered by lending institutions. Success will always come to those projects where a solid business plan has been prepared and refined.Elliot J. Mata, Laundry Division manager, ARCO/Murray National Construction Co., Oakbrook Terrace, Ill.
In today’s economy, one project type is not necessarily financed any easier than the other. Financing is difficult on all levels right now, especially in comparison to restrictions a couple years ago. More and more laundries are leasing buildings and retrofitting the space into a laundry facility. Some laundries are even working with developers to build a plant for them from the ground up and then lease the building to them for a set number of years with an option to buy. This prevents the client from raising the up-front capital on new construction projects.
Some incentives are available that can be applied to new construction or a retrofit. In the construction industry, as in the laundry industry, there is a strong push toward ‘being green’ and sustainable design. Government program EPAct (Energy Policy Act of 2005) offers an incentive in the form of tax deductions for energy-efficient design and construction as it relates to the building envelope, interior lighting and/or the HVAC system. Grant money is sometimes available from local municipalities or entities that have an interest in new construction projects that achieve LEED certification.
Another new-construction option available is the concept of cost segregation as it relates to tax depreciation of the laundry construction. This allows for faster depreciation of certain building elements, which helps the bottom line.Gerard O’Neill, president/CEO, American Laundry Systems, Haverhill, Mass.
An existing building has an equity factor that makes project financing much easier. The banking industry is much more stringent today than 12 months ago, and we are seeing lending institutions being friendlier when an existing building is used to house the laundry. Many of these facilities are in foreclosure, so good deals are being made when it comes to purchasing or leasing an existing facility. Some incentive programs for being green are available for either option.Doug Rose, business development manager, Turn-Key Industrial Engineering Services, Charlottesville, Va.
There are a number of financing options. Some expenses must be handled in certain ways, though some can be grouped under a construction loan. We’re not financial representatives and don’t offer financing programs as part of our services. Rather, we encourage starting with your local bank representatives who are familiar with your business. They’re in a far better position to offer financial advice, and they can let you know of the programs available through their institutions.
We are aware of other resources. Depending on your risk tolerance, there are alternative funding opportunities from outside investors to equipment loans to grants (such as those listed at www.grants.gov, or those available through your state government). Rural Business Enterprise Grants, for example, may be available to certain businesses that meet the federal criteria. Again, do your homework and choose wisely.Any other comments you would like to share about plant construction or retrofitting?Rose: It bears repeating that you should seek professionals who can help you determine the potential return on investment and project cost of everything you consider. Defining the project goals, the scope, and the plan are critical. This is the specialty of licensed professional engineers. The better the planning that takes place initially, the better the project will turn out, logistically and financially.Phillips: By considering several consultants, the planning team can surely flush out the ones with the strongest credentials and most experience. One other point to consider is retaining the services of a consultant that also provides construction management services.
Unless a client has someone on staff with experience in managing a laundry construction project, it’s best to retain a consultant who has that experience. Having someone on site that knows the laundry business, the construction business, and has knowledge of all the equipment to be installed is an inexpensive, wise decision.Mata: When undertaking any project, whether it’s new construction or a retrofit, be sure to understand the total cost and time that it will take to fully complete the project. It should be a fun, exciting experience for the client and the project team. This concept commonly correlates with on-time, on-budget projects. This can only be done when the proper amount of due diligence, planning, and coordination is completed by a design and construction professional and client, taking a team approach to construction solutions.O’Neill: With the present state of the economy and the incentives available, going to an existing building first is definitely the way to go. Any laundry can be made to work well in most existing facilities. Both options can be easily explored. When sufficient information is made available to them, operators/customers will choose to go with retrofit nine times out of 10.Alexander: We have had, on more occasions than we would like to see, clients circumvent the planning and analysis phases of a project by seeking to piece together industry norms and apply them without engaging in the kind of far-reaching due diligence that we recommend. This is often driven by a wish to save money in consulting and other fees and also to compress project timelines. All too often, this results in surprises that can be costly, interrupt client operations and customer services, and even threaten the project’s economic viability.
Proper analysis, planning and design are the foundation of a successful project – time and money spent in these areas help assure the client’s goals are reached and that expectations are balanced against reality.
Click here for Part 1.
Click here for Part 2.
Click here for Part 3.
Click here for Part 4.
Click here for Part 5.Matt Alexander, Pertl & Alexander, can be reached at 888-419-3444, matt.alexander@pertl-alexander.com.Elliot J. Mata, ARCO/Murray National Construction Co., can be reached at 630-599-9100, emata@arcomurray.com.Gerard O’Neill, American Laundry Systems, can be reached at 978-373-1883, goneill@eomech.com.Glen Phillips, Phillips & Associates, can be reached at 763-231-9950, gpp@phillipsandassociates.com.Doug Rose, Turn-Key Industrial Engineering Services, can be reached at 434-227-2613, drose@turnkeyengineering.com.
 

About the author

Bruce Beggs

American Trade Magazines LLC

Editorial Director, American Trade Magazines LLC

Bruce Beggs is editorial director of American Trade Magazines LLC, including American Coin-Op, American Drycleaner and American Laundry News. He was the editor of American Laundry News from November 1999 to May 2011. Beggs has worked as a newspaper reporter/editor and magazine editor since graduating from Kansas State University in 1986 with a bachelor’s degree in journalism and mass communications. He and his wife, Sandy, have two children.

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