Switching sites, revising drawings and redesigning systems three months into the project schedule for a complicated, 282,000-square-foot state-of-the art distribution center should have stressed the project’s schedule and budget. Yet the refrigerated, LEED Gold facility in Puslinch, Ontario, was completed on schedule and on budget. In April 2014, the Maple Leaf Foods Distribution Centre was named Industrial Development of the Year by NAIOP Greater Toronto at its annual Real Estate Excellence (REX) Awards Gala.
Developed by Morguard Investments Ltd. in partnership with design-builder McKay-Cocker Construction Ltd., the Maple Leaf Foods Distribution Centre stands out not only because of its innovative sustainable design, which enabled it to become the first refrigerated warehouse in Canada to receive LEED Gold certification under the more stringent 2009 standards, but also because its development process overcame a unique set of challenges.
A Complex Project
In December 2011, through a competitive request for proposals (RFP) issued by Royal Bank of Canada (RBC) Capital Markets, Maple Leaf Foods (MLF) selected Morguard’s development and investment teams, in partnership with McKay-Cocker, to design, build and lease back a 282,000-square-foot refrigerated distribution center (DC). Maple Leaf Foods is a leading Canadian meat and packaged foods company with international operations and a market cap of $2.4 billion.
Innovative racking technology and a racking system that uses the structure’s full 40-foot clear height enable Maple Leaf Foods to optimize the distribution center’s storage capacity. The facility is lit entirely by LEDs.
The goal for this new DC was to consolidate and improve productivity within MLF’s distribution system as well as to serve as a hub for MLF’s Eastern Canada distribution network. The project had tight timelines, as the DC had to be ready to ship product to customers by July 2013. After beginning design work on fully serviced lands in a business park in Guelph, Ontario, Morguard’s due diligence process revealed environmental concerns regarding noise attenuation. In March 2012, notwithstanding advanced design and site plan application, the team decided to relocate the project to a new unserviced site in Puslinch.
This move required the introduction of self-contained underground services for the site and the design of new mechanical, electrical and refrigeration systems. It also created serious challenges for the schedule. Despite what could have been a debilitating setback, the Morguard/McKay-Cocker/MLF team completed an exemplary industrial development on budget and on time.
The building consists of a 40-foot-clear warehouse, 24-foot-clear shipping docks/building services and a nine-foot-clear office/laboratory center. There are 182 truck and trailer loading spaces, 138 car stalls, 38 loading doors complete with vertical dock levelers and one drive-up ramp with a roll-up door. The project has received recognition not only for its innovative sustainable design, but also because of the exceptional project and process management that have enabled it to yield solid returns for its investors.
Innovative and Sustainable Design
Working with over 15 consultants, McKay-Cocker designed the facility to ensure that it would adhere to the principles of “lean production,” a method that strives to eliminate waste in order to pass on maximum value to the end user. This involved working closely with MLF to understand its supply chain, in order to develop a facility that would reduce operational complexity and increase productivity.
The Maple Leaf Foods Distribution Centre features 182 truck and trailer loading spaces as well as 38 loading doors with vertical dock levelers.
For example, the DC’s racking system utilizes the height of the warehouse and innovations in racking technology to optimize storage capacity. The system is comprised of 3.7 million pounds of structural rack and components, 206 different racking component types and 620,000 fasteners/floor anchors. Like most new DCs, it incorporates multiple racking systems to accommodate multiple product types. Compared to the competition, however, this DC takes multiple storage systems to a higher level: the 40-foot-clear warehouse makes the most of vertical space and economizes on building footprint costs.
To improve cube utilization, the warehouse also incorporates two-deep, three-deep and four-deep pushback systems, permitting products to be stored up to four deep. Three-deep pushback racking also was incorporated into the pick tunnel, which was designed for high-volume picking, providing pickers with efficient and easy access to multiple SKUs. A layer picker, an even more productive picking system, was installed in both the freezer and cooler sections of the facility, allowing operators to pick one or more entire layers or levels of cases from a pallet. This layer system, working with the pushback racking and the pallet flow feeder system on the ground, results in some of the highest and most economical case pick throughput rates possible.
Implementing lean production methods also resulted in green innovations that enabled the facility, initially designed as LEED Silver, to qualify for LEED Gold certification under 2009 standards. Its ammonia-based refrigeration system not only improves efficiency, but also reduces the structure’s impacts on global warming and ozone depletion. Wasted heat captured from the cooling system heats administrative areas as well as domestic hot water.
The team also elected to pursue a full LED lighting solution in the warehouse. These lights have lower ambient temperatures, are controlled by occupancy sensors, and result in 76 percent savings over traditional fluorescent designs. The LEDs will last longer and require fewer bulb changes, saving operational efforts and cost. The refrigeration scheme utilizes a state-of-the-art water filtration/reverse osmosis system for condensed bleed water to minimize water usage. The bleed water from the system is treated and used as grey water for the toilets. This innovation helped reduce the facility’s total water consumption while also reducing septic system requirements. In addition, substantial energy savings and reduced life cycle costs contribute to the facility’s sustainability.
Integrated Project Delivery
Making major changes three months into the project schedule for this complex facility should have stressed the project’s schedule and budget. The facility’s on-time and below-budget delivery is a testament to the team of over 18 parties’ incredible cohesiveness and collaboration, immense trust in each other and the employment of integrated project delivery (IPD). This approach involves early contributions from each expert and collaboration among all parties from the earliest planning stages in order to optimize project results, increase value to the owner, reduce waste and maximize efficiency through all phases of design, fabrication and construction. To adhere to the tight timelines, the team rallied around the values of transparency, information sharing, collaboration and everyone “having each other’s backs.”
Maintaining the schedule required unconventional risk taking: Revised drawings were commissioned and site work commenced prior to the executed lease and closing of land acquisition. Consequently, Morguard, McKay-Cocker and MLF entered a triparty agreement, working closely to share but also to mitigate risks. Overcoming the construction timeline challenges required the sequencing of the work to be predictable. To ensure this, the team worked to identify long lead times and operational conflicts, and sequenced the trades to optimize performance. The team also used 3-D modeling as a tool to troubleshoot and ensure that everyone fully understood the building design.
Groundbreaking at the Puslinch site took place on September 14, 2012, when the building construction schedule for the over $46 million facility began. The redesign of the mechanical and electrical systems was completed in parallel with the start of building construction to maintain the schedule. Permanent power was running by May 31, 2013, in time for substantial completion by June 7, 2013.
The Maple Leaf Foods Distribution Centre also has been a major win for the team as a business precedent. When RBC took this opportunity to the market, prospective investors were evaluated based on their financial capacity, development capabilities and, most importantly, pricing that would drive the rental rates proposed over a 15-year term. The challenge for Morguard’s acquisitions team was how to capitalize the development costs at a rate suitable for the investors, but also ensure appropriate and competitive rental rates.
McKay-Cocker aggressively tendered and secured sharp pricing that contributed to the project’s financial success. Morguard, for its part, was equally aggressive on the going-in cap rate with a deal structure that reflected strong rental growth over the term to enhance income and value. As a result, MLF was content with the proposed first-year net rental payment and with the corresponding escalations over 15 years.
With a solid lease and the strong MLF covenant in place, Morguard Corporation and the Morguard Industrial Fund II backed the deal, each taking a 50 percent interest. Over the 15-year term, leveraged cash returns and leveraged IRR are forecast to produce competitive returns. In the end, this opportunity has been a huge windfall for Morguard, from development to investment to property management, and has resulted in a first-class LEED Gold facility for a Canadian icon, Maple Leaf Foods.