Friday, August 8, 2025

The Hidden Cost of Owning vs. Leasing: What Most Business Owners Miss


For years, I’ve helped business owners wrestle with one of the biggest decisions they’ll ever face about their real estate: Should we buy our building or lease it? 
 
At first glance, ownership might seem like the obvious winner—build equity, control your destiny, no landlord breathing down your neck. But like most things in commercial real estate, the decision isn’t black and white.
 
What many people don’t see right away are the hidden costs—financial, operational, and emotional—that come with each option. Here’s what I’ve learned over the past four decades.
 
Opportunity Cost: Where Is Your Capital Working Hardest?
 
Buying a building—even through an SBA loan with just 10% down—still requires capital that could be deployed elsewhere. That down payment, along with closing costs, reserves, and possible improvements, can total hundreds of thousands of dollars even on a modest acquisition.
 
Takeaway: The money you tie up in real estate could be your most expensive investment if it limits your flexibility elsewhere.
 
Monthly Cost: Lease vs. Mortgage Isn’t Apples to Apples
 
Many business owners compare lease rates to monthly mortgage payments and assume that ownership is the better deal—especially if mortgage payments appear lower than quoted lease rates. But that comparison misses critical details.
 
In today’s market—where interest rates remain elevated and property values are still adjusting—the cost of ownership is often more expensive than leasing. And the difference is even more pronounced when you factor in all the additional expenses:
                            Debt service (principal and interest)
                            Property taxes
                            Insurance
                            Repairs, maintenance, and capital reserves (think roof, HVAC, plumbing, parking lots)
 
Even with SBA financing—which only requires 10% down—these costs add up quickly and can exceed comparable lease obligations.
 
And let’s not forget: most industrial leases today are structured as triple net (NNN) leases, meaning tenants pay base rent plus property taxes, insurance, and maintenance. 
 
So if you’re comparing a lease rate to ownership, you must also account for the fact that those same costs will be your responsibility as an owner—on top of your mortgage.
 
Finally, SBA loans often come with variable interest rates after a fixed period, introducing future financial risk. And rising insurance premiums and unpredictable tax assessments only add more volatility.
 
Lease Flexibility Can Be Strategic
 
Leasing doesn’t mean “wasting money”—it means buying flexibility. If your company is growing, shrinking, or evolving, locking yourself into ownership may actually become a constraint.
 
Leases allow you to pivot: to sublease, renew, relocate, or negotiate tenant improvements. And in many cases, those improvements are paid for by the landlord, not out of your own pocket.
 
Takeaway: In a rapidly changing market, the ability to adapt might be worth more than a locked-in mortgage rate.
 
Asset Appreciation Is Not Guaranteed
 
Many people view real estate ownership as a no-brainer because of “appreciation.” But just like with any asset class, there are cycles. Industrial property in Southern California may have doubled in value over the past decade—but not all markets or building types are created equal.
 
If your business is relying on future appreciation to justify the purchase, you’re speculating, not just investing.
 
Takeaway: A good business decision should pencil out even if the building never appreciates.
 
Final Thoughts: The Right Answer Depends on the Right Questions
 
I’m not here to argue for or against ownership. I’ve advised clients to buy when it made sense—and advised others to lease when that fit. But too often, the decision is made emotionally or simplistically: “I hate my landlord” or “I want to build equity.” That’s not enough.
 
What’s your growth trajectory? How much capital do you need to keep liquid? How long will this facility serve your needs? What are your exit plans?
 
Owning vs. leasing isn’t just a real estate decision—it’s a business strategy. One that deserves more than a gut feeling.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Friday, August 1, 2025

10 Things I Learned While Writing a Book


After over four decades in commercial real estate brokerage and ten years writing this column, I thought I knew how to tell a story. Then I decided to write a book.
 
And I’m pleased to say it’s published and available on Amazon in paperback or Kindle. 
 
What started as a compilation of anecdotes turned into a deep dive into the systems, habits, and turning points that shaped my career. I titled the book The SEQUENCE – A Personal Journey and Proven Framework for Commercial Real Estate Brokerage Success, and along the way, I learned a lot more than I expected. About writing. About business. And about myself.
 
Here are ten lessons from the journey:
 
1. Writing a book is different than writing a column. A column is a sprint. A book is a marathon. In a column, you land your point quickly. A book requires structure, pacing, and a deeper connection with your reader.
 
2. Structure matters more than you think. You can’t just throw stories on a page and hope they stick. My book follows a framework I call SEQUENCE—a step-by-step system I’ve used to manage deals. That structure kept me on track and helped readers follow along.
 
3. Your voice gets clearer the longer you write. At first, I tried to sound like an “author.” Eventually, I realized my own voice—the same one I use in this column—is what people want. 
 
4. The best stories are the real ones. Readers remember the deal that almost fell apart, the client who became a friend, or the early mistake that became a turning point. Vulnerability beats polish every time.
 
5. Time is the biggest hurdle.
Writing a book while managing a full-time career isn’t easy. But I treated it like a client appointment: scheduled, protected, and consistent.
 
6. Good editing is worth its weight in gold. My first draft was… fine. My final draft? Clearer, tighter, and much more readable—thanks to a professional edit and some tough love from early readers.
 
7. Legacy is a powerful motivator.
I wrote the book to help other brokers, yes—but I also wrote it for my grandkids. Every chapter is addressed to them. That perspective changed everything.
 
8. Publishing is easier—and harder—than ever. Technology makes it simple to self-publish. But standing out? That’s another story. Writing the book is just the beginning of sharing it.
 
9. Your network matters more than your launch plan. Colleagues, clients, friends, and family became my first readers, reviewers, and cheerleaders. A strong community beats clever marketing.
 
10. We all have a book in us. Whether it’s business lessons, life stories, or personal insight—everyone has something worth writing down. If you’ve been thinking about it, start. Even a page a day adds up.
 
Writing a book forced me to slow down and reflect. It reminded me why I love what I do—and how much I still want to share. 
 
If you’re on a similar journey, I’m cheering you on. It’s hard. It’s worth it. And you’ll learn more than you ever imagined.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Friday, July 18, 2025

Leverage: A Friend That Can Turn on You


Leverage is one of those concepts we throw around a lot in commercial real estate. It sounds sophisticated—like something whispered in back rooms by finance guys wearing French cuffs. But really, it’s simple: leverage means using someone else’s money to buy something you couldn’t afford on your own.
 
That “someone else” is usually a lender, and the “something” is typically real estate. Whether you’re buying an industrial building, an office condo, or a strip center, leverage is the reason you don’t need a million bucks in the bank to make it happen.
 
Let’s walk through it—and then I’ll explain why it’s both powerful and dangerous.
 
How Leverage Works
 
Say you find a building you want to buy. It’s priced at $2 million. You could write a check—if you happen to have a spare $2 million lying around. But most investors don’t.
 
So you approach a lender. The lender agrees to loan you 65% of the purchase price, or $1,300,000. That means you need to bring $700,000 to the table. With that $700,000, you now control a $2,000,000 asset. That’s leverage.
 
Why is this useful? Because you get all the benefits of owning the building—rental income, appreciation, tax advantages—without tying up your full net worth in a single deal. But, you’ve borrowed $1,300,000 which must be repaid. 
 
The Power of Cash-on-Cash Return
 
Now here’s where leverage starts to flex its muscles: cash-on-cash return.
 
Cash-on-cash is a fancy way of asking, “What am I earning on the actual money I invested?”
 
If that $2 million building brings in $100,000 in income after expenses and debt payments, and you only put in $700,000 to acquire it, you’re earning roughly 14% annually on your cash. (That’s $100,000 /$700,000.) Not bad.
 
But if you bought the building all-cash and still brought in $100,000 a year, your return would only be 5%. See the difference? ($100,000 / $2,000,000.
 
That’s why experienced investors love leverage. It makes the return on yourmoney better because you’re using someone else’s money to own more.
 
What Happens When the Math Goes Backwards?
 
There’s a flip side to this, and it’s become more common lately: negative leverage.
 
Negative leverage happens when the cost of borrowing exceeds the return you’re getting on the property—specifically, when your interest rate is higher than the property’s capitalization (cap)rate. Imagine paying 7% interest on a loan to buy a building that only returns 5.5% annually. That’s a losing equation from day one.
 
Unless you’re banking on major rent growth, redevelopment, or some other value-creation, you’re effectively paying to hold the asset. Your cash-on-cash return goes down, not up. And in that scenario, leverage isn’t helping you—it’s hurting you.
 
We saw the opposite for years when money was cheap. Investors could borrow at 3% and buy properties at 5%–6% cap rates all day long. But today’s reality is different. Many deals that penciled before don’t anymore—not because the buildings changed, but because the cost of capital did.
 
The Pitfalls of Leverage
 
Leverage works great when things go well—when tenants pay rent, when rates stay low, and when property values rise.
 
But if vacancy creeps in, or interest rates rise, or your building needs unexpected repairs, that monthly loan payment doesn’t go away. It still shows up—every month, like clockwork.
 
I’ve seen more than a few deals that looked great on paper fall apart in practice because the borrower didn’t leave enough breathing room. That extra margin of return? It can vanish quickly when costs go up or income goes down.
 
And over-leverage can lead to overconfidence. I’ve watched folks stretch into larger deals just because the bank said “yes.” And when the market turned? That yes turned into a painful lesson.
 
Using Leverage Wisely
 
Leverage is neither good nor bad—it’s neutral. It’s how you use it that matters.
 
Here are a few guiding principles I share with clients:
                            Be conservative. Just because a lender will loan you 80% of the purchase price doesn’t mean you should take it.
                            Understand your debt. Know your payments, your interest rate, your amortization period, and what happens if rates change.
                            Stress-test your deal. If rents drop by 10%, can you still pay the mortgage?
                            Watch for negative leverage. If you’re borrowing at 7% to buy at a 5% return, you need a very clear reason for doing so.
                            Keep reserves. Surprises happen. Don’t let one roof repair or a missed rent payment jeopardize your investment. 
 
Bottom line? Leverage can be your best friend—or your worst enemy. Used with discipline, it can multiply your wealth. Used carelessly, it can multiply your mistakes.
 
Choose wisely.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Friday, July 11, 2025

Seven Things Owners or Occupants of Commercial Real Estate Should Do Before the End of 2025


With the Big, Beautiful Bill now signed into law—and with interest rates, tax incentives, and construction dynamics shifting in real time—2025 is shaping up to be one of the most pivotal years in recent memory for commercial real estate decision-makers.
 
Whether you own the building, lease the space, or advise someone who does, here are seven smart moves to make before the year ends:
 
Conduct a Cost Segregation Study
 
Why?
The new law reinstates 100% bonus depreciation on qualifying plant and equipment—but to access that benefit, you need to know which assets qualify.
 
What to do:
If you’ve invested in improvements or own industrial real estate, get a qualified cost segregation firm involved. It could unlock hundreds of thousands in immediate tax savings—legally.
 
Reevaluate Lease vs. Own with Fresh Eyes
 
Why?
Interest rates are still high—but so are lease rates. And with bonus depreciation back, the ownership equation may now tilt in favor of buying for some occupants.
 
What to do:
Run side-by-side comparisons again. Don’t assume yesterday’s numbers still apply. Small Business Administration (SBA) financing, ownership clauses, and creative structures may make buying feasible—even now.
 
Talk to Your CPA About the New Law
 
Why?
Too many owners and tenants assume their tax preparer will catch the benefits automatically. But the OBBB changed the rules—and proactive planning is essential.
 
What to do:
Schedule a strategic call with your CPA before year’s end. Ask specifically about:
                  Bonus depreciation eligibility
                  Section 179 limits
                  Impact on capital improvement planning
                  Energy-efficient upgrade credits
 
Consider Energy Improvements While They’re Incentivized
 
Why?
Solar, lighting, heating and cooling upgrades, and even electric vehicle charging installations are eligible for new federal tax credits. These incentives may phase out or tighten in 2026.
 
What to do:
If you’ve been postponing efficiency upgrades, now may be the ideal time. Look into financing programs that pair well with the new federal credits.
 
Review Your Long-Term Control Over the Property
 
Why?
Whether you’re an occupant or investor, control is more important than ever in a volatile market. Do you have extension options? Purchase rights? Favorable assignability terms?
 
What to do:
Pull out your lease or operating agreement. Confirm whether you have:
                  Renewal rights with clear timelines
                  Right of First Refusal (ROFR) or First Offer (ROFO) clauses
                  Protection against unwanted sale or transfer
 
If not, now may be the time to negotiate them in.
 
Prepare for Estate or Ownership Transition
 
Why?
With billions of dollars in commercial real estate wealth set to change hands this decade, 2025 is the right time to get ahead of who owns what and who will inherit what.
 
What to do:
If you’re an aging owner, review your trust, LLC structure, and succession plan. If you’re an heir or partner, ask questions now—before you’re suddenly managing a building you didn’t expect to own. 
 
Line Up a Deal Team Before the Rush
 
Why?
As more buyers, sellers, and tenants look to capitalize on 2025’s tax environment, the demand for lenders, inspectors, brokers, CPAs, and attorneys will intensify.
 
What to do:
Build your team now. That includes your:
                  Commercial broker
                  Real estate attorney
                  CPA or tax strategist
                  Cost segregation firm
                  Lender or SBA contact
 
Deals that close smoothly in December started planning in August.
 
Bottom Line: Be the Active One
 
You don’t need to be the biggest player in the market to win in 2025—you just need to be the one who’s paying attention.
 
The best opportunities this year will go to those who prepare early, ask the right questions, and surround themselves with people who know where the landmines—and the leverage points—are buried.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Friday, July 4, 2025

The Big, the Beautiful, and the Bill: What It Means for Commercial Real Estate


I’ve seen a lot of legislation in my decades as a commercial real estate broker—but few come with a name as audacious as the “One Big Beautiful Bill.” It sounds like something you’d hear shouted over the din of a campaign rally or stitched onto a souvenir T-shirt. But behind the marketing glitz lies a bill that, if passed, could reshape the commercial property business—particularly for those of us who live and work in the golden state of California.
 
Let’s break it down.
 
At its core, the bill proposes a return to 100% bonus depreciation. In plain English: property owners and developers would once again be able to expense the entire cost of certain building improvements in the year those costs are incurred. Think HVAC upgrades, lighting retrofits, or a full-blown tenant improvement package. For owners sitting on aging assets or brokers like me helping clients reposition their properties, this is a game-changer. It’s fuel for reinvestment—and it arrives just when many buildings need a refresh to stay competitive in a post-pandemic world.
 
But wait, there’s more. The bill also boosts the Qualified Business Income (QBI) deduction for pass-through entities—including many real estate partnerships—and raises the cap on the SALT deduction for individuals earning less than $500,000. For Californians, who have long borne the brunt of SALT limitations, that’s more than a footnote. It’s meaningful tax relief that could free up capital for additional investment.
 
Of course, every rose has its thorn. And this one comes in the form of Section 899—a “revenge tax” aimed at foreign investors from countries with so-called discriminatory tax laws. The details are still fuzzy, but the risk is clear: if foreign capital dries up, so too may some of the momentum behind major commercial developments, especially in coastal markets.
 
And then there’s the rollback of green energy incentives. As someone who’s witnessed the growing appetite for ESG (Environmental, Social, Governance)-friendly buildings, this move feels like a step backward. Cutting 179D deductions and other sustainability carrots might please certain constituencies, but it runs the risk of dulling progress just when tenants and investors are demanding greener spaces.
 
As of this writing, the bill has passed the House and is under active consideration in the Senate. With several provisions drawing bipartisan attention—both supportive and critical—the coming days will determine whether this sweeping legislation becomes law, gets trimmed down, or stalls altogether. CRE stakeholders are watching closely.
 
So, is this bill truly beautiful? That depends on where you stand. For investors, developers, and brokers who appreciate certainty, tax relief, and pro-growth measures—it’s attractive. For those relying on foreign capital or green incentives—it’s a mixed bag.
 
Like any piece of sweeping legislation, the devil is in the details. But if you work in commercial real estate—or if you occupy a building, own one, or hope to invest in one—this bill deserves your attention.
 
Because love it or hate it, “beautiful” bills don’t come around every day.

Friday, June 20, 2025

My Legacy Project. A Commercial Real Estate Journey


They say everyone has a book in them. Mine has been rattling around for over a decade, occasionally tapping on the inside of my skull and whispering, “It’s time.” Well, that time has finally arrived.
 
Yes, folks, I’ve embarked on a project that more than a few of you have encouraged for years: I’m writing a book. There. I said it.
 
Some of my peers have chuckled knowingly and offered congratulations. Others have asked, “What took you so long?” And a few have raised eyebrows and muttered, “After all, that’s what old guys do.” I’ll admit, I resemble that remark.
 
But this isn’t a memoir filled with nostalgic tales of the ‘good old days’ (although there might be a few of those, because let’s face it—some of them are just too good not to share). Nor is it a textbook of dry theory or recycled motivational fluff. This book will be part personal, part tactical. A blueprint of sorts—for those interested in understanding how one broker carved out a successful commercial real estate practice by focusing on fundamentals, relationships, and a few contrarian bets.
 
The tentative title? SEQUENCE: A Commercial Real Estate Success Formula – How I Became a Successful Producer and How You Can Too!Yes, it’s a mouthful. But I’m not writing this for literary awards. I’m writing it to help people in our business—especially those who are just starting out or struggling to find their stride—shortcut a few of the lessons I had to learn the hard way.
 
At its core, the book is built around a framework I’ve developed over 40 years in the trenches: SEQUENCE. Each letter stands for a key stage in the commercial real estate transaction cycle, from sourcing opportunities to expanding your practice. I’ve also included another acronym, QUALIFY, to help readers better assess the viability of a deal and the motivation of a client. (Yes, I like acronyms. No, I’m not sorry.)
 
The book will be peppered with real-life anecdotes—some triumphant, some humbling—all intended to reinforce the lessons I’ve taught in seminars, shared in columns like this one, and practiced day-in and day-out with my clients. It will also spotlight the tools and mindsets that helped me break through ceilings, bounce back from setbacks, and build a sustainable, scalable career in this wonderful and maddening business we call commercial real estate brokerage. 
 
Now, before you start placing Amazon pre-orders, I should level with you: This will take time. My goal is to finish by the end of 2025. I’ve learned that writing a book is a lot like a commercial lease negotiation—there are drafts, redlines, delays, and the occasional moment where you question everything. But there’s also joy in the process, especially when you know the outcome will serve others.
 
So, why now?
 
Because I believe we don’t just owe our clients our best—we owe it to the next generation of brokers, entrepreneurs, and business owners to pass along what we’ve learned. This book is my attempt to do just that. A legacy project, maybe. But also a practical toolkit that I hope will help someone—maybe you—get from where they are to where they want to be.
 
Stay tuned. I’ll keep you posted on the progress. In the meantime, if you’ve ever considered writing a book of your own, I have one word for you: start.
 
After all, that’s what old guys do

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Friday, June 13, 2025

What’s Really Holding Back Manufacturing in California? My Readers Had Thoughts.


When I asked whether manufacturing could make a comeback in California, I expected opinions. What I didn’t expect was how many of you would write back—with passion, perspective, and firsthand experience.
 
Several longtime brokers, business owners, and property operators reached out with stories spanning decades—many with a shared theme: California doesn’t make it easy to build or keep things here.
 
One former industrial broker recalled relocating factories throughout downtown Los Angeles in the 1980s. Then came the state’s cap-and-trade policy. Practically overnight, his relocation business dried up. Later, when he purchased a company that tested gas meters for regulatory compliance, he experienced the same policy from the other side—as a required vendor. “I saw the devastation of that rule from both careers,” he said.
 
Another reader, an industrial property owner and operator, offered this blunt assessment: “If I were younger, California wouldn’t be high on my list to start a manufacturing plant.” He lost his first building to a Caltrans eminent domain action, spending five years in court to get fair value. After relocating, his new site was downzoned for residential use, leaving him with a conditional use permit and uncertain future.
 
And then there were the comments about outsourcing—not just of jobs, but of environmental impact. One reader pointed out that many of the regulations we impose on manufacturers in California are simply sidestepped when products are made overseas. Industries like plating, painting, and circuit board production face strict scrutiny here—but far less abroad. “We all buy the China goods,” he said, “but we should at least admit we’re contributing to global environmental problems.”
 
It’s not all frustration, though. What stood out to me wasn’t just what these readers had endured—but how much they still cared. They aren’t bitter. They’re tired. Tired of unpredictable zoning, endless permitting delays, and policies that seem to penalize job creators.
 
In my previous column, I outlined five priorities for reviving manufacturing in California: regulatory reform, land use stability, energy reliability, workforce development, and targeted incentives. Based on your feedback, I’d add one more: listen to the people on the ground.
 
The decisions we make in city halls and state agencies ripple outward—sometimes for decades. Want to grow clean tech? Preserve industrial zoning. Want local jobs? Support the employers who are already here. Want sustainable supply chains? Don’t offshore our pollution.
 
California doesn’t need to be the cheapest place to manufacture. But it does need to be competitive, reliable, and forward-looking.
 
Manufacturing won’t return on sentiment alone. It requires trust, coordination, and smart policy. We still have the talent, the infrastructure, and the entrepreneurial spirit. What we need now is the will.
 
Let’s not lose the manufacturers we still have while we wait for the next reshoring trend to arrive. Let’s make California a place where building things is still possible—and worth it.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.