Shipping Containers Are 'Green' Moneymakers for Commercial Development

Posted on September 8, 2014

When Gravitas Development Group started planning 25th and Larimer, an 8,200-sq.-ft. mixed-use development in Denver, the firm was looking to be green in more ways than one.

The company built the project using old shipping containers, thousands of which languish in port cities nationwide thanks to trade imbalances. These projects are clearly sustainable because they re-use a material that would normally be sitting idle, rusting in a lot somewhere.

But shipping containers are also “green”—as in moneymakers. The misconception is that the savings come because as building materials, shipping containers are cheaper since they are previously used. While containers can be had on the cheap—even for as low as several hundred dollars each—that’s not the whole story.

“At the end of the day the construction costs were just as much as conventional steel construction,” says Ryan Diggins, a partner at Gravitas, noting that finishing work, including refinishing, reinforcing, and insulating needs, to be done to make containers habitable. “But where you really see a savings is in construction time savings.”

At 25th and Larimer, the construction timeline was cut by 15 percent to 20 percent, Diggins says. As with most container projects, the containers are usually retrofitted at the contractor’s location and then trucked to be put together on-site.

“That saved us about 5 percent of total project costs due to reduced general condition fees,” says Diggins. “Not to mention we were able to generate positive cash flow for our project much quicker too.”

Boxman Studios, a Charlotte, N.C.–based container designer and developer, is completing a mixed-use retail project called Assembly Row in Somerville, Mass., for Federal Realty Investment Trust, which has corporate headquarters in Rockville, Md., and offices in four states. It should be open by the end of this month.

“A traditional construction project can take between two and five years,” says Vinay Patel, digital marketing strategist for Boxman. “A pre-fab job can be done in six to eight months and you don’t have to worry about as much on-site costs, weather delays.”

With the Gravitas project, construction began in May of 2013 and the first tenants moved in about eight months later. The two-story structure that was created from 29 shipping containers includes a coffee shop, office space, an outdoor apparel company, and a restaurant. The smallest rental space is 160 sq. ft. and the largest is 1,800 sq. ft.

In this case, Gravitas didn’t hang out a “for lease” sign; instead, the firm pursued tenants who fit in with the project’s hip vibe.

“Another real benefit of using containers is that you are creating very efficient micro retail and office spaces,” says Diggins, noting that brick-and-mortar retailers need to be small and lean to compete with big box stores and Internet sales. “So our per dollar per square foot was much higher than market rents.”

Additionally, he says the open format and flexibility created when using containers makes re-leasing costs low.

“We’re going to save a ton of money on the second and third generation, and there is way less material waste,” he says. The containers are a blank canvas, making it easier to give one tenant 10 private offices, and the next one an open office layout.

Boxman’s Assembly Row project will include a brewery and a restaurant, but because a shipping container project can literally be packed up and moved, anything could come next.

“If they choose, everything is interchangeable,” Patel says. “They can rebrand the space and move the entire environment around. Let’s say you’re Nike and you have a pop-up store in Florida in the summer selling flip-flops and trunks. When winter rolls around you can pack up that shop and move it to Aspen and sell gloves and goggles.”

Russ Joyner, general manager of Assembly Row and a vice president with Federal Realty Investment Trust, says his firm went with containers not necessarily as a cost savings, but for flexibility down the road.

“We’re looking at relocation, if not expansion,” he says. “There are things we don’t have the answers to today, but we definitely have options based on how the development and construction project evolves. We’re supporting that with shorter-term leases that enable us to experiment and grow.”

Another plus is that shipping container developments have greater density. At the 25th and Larimer project, one tenant, a soft goods retail shop, has a healthy 640-sq.-ft. space with a 30-ft. glass wall advertising their wares on a busy street.

“They got great exposure with a small footprint,” he says. “Not many places have a space that size, so they’d be forced to take, say, 1,800 sq. ft., and go out of business because that’s too big and too expensive for them.”

Still, one difficulty that often has to be overcome can be in financing. “They did ask a lot of questions,” Diggins says of Gravitas’ lender, Centennial Bank of Denver. “But we convinced them that it’s just a standard two-story steel wall and concrete foundation project. Being pre-leased too always helps.”

At Assembly Row, Joyner notes that commercial developers who want to use containers should be mindful of the fact that putting in restaurants adds layers that retail and office does not. “You need to put a fair amount of focus and attention into infrastructure,” he says, pointing out that bathrooms and kitchens add complexity to plumbing.

But yet another factor in the plus column is how the buzz around the chic factor can boost rents and fill spaces. “If this was not a container project there is no way we’d be pre-leased, and we would not have gotten the rents we got,” Diggins says. “You’re getting a better quality of tenant and there is a premium for that.”