December.
The last month of 2025. Soon, families across Southern California will be lighting
candles, trimming trees, gathering for Hanukah, Christmas and Kwanzaa, and
counting down the seconds to a brand-new year. It’s a festive season - one that
always seems to arrive earlier and earlier, but I digress.
December
also brings something else: perspective. A reminder that 2026 will be here
before you know it, and with it a new set of opportunities and challenges for
commercial real estate owners and occupants.
While
many industries begin to slow down as the holidays approach, December is one of
the most consequential months of the year for anyone who owns, leases, manages,
or invests in commercial property. The final weeks of the year serve three
essential functions:
Planning
for the Year Ahead.
This
is the time when landlords evaluate rent rolls, upcoming renewals, debt
maturities, and operating expenses - and make strategic decisions for the
coming year. Occupants, meanwhile, revisit headcount projections, space needs,
and whether their current footprint still aligns with how they operate in a
post-pandemic hybrid world. In short, December is when next year’s real estate
strategy is set into motion.
A
Meaningful Recap of 2025.
Every
year tells a story, and 2025 was no exception. For owners, rising construction
costs, fluctuating interest rates, and evolving tenant expectations shaped the
narrative. For occupants, efficiencies, supply-chain recalibrations, and
shifting labor patterns influenced real estate decisions. A December recap
helps frame what worked, what didn’t, and what trends are likely to carry into
2026.
Preparing
for Critical Deadlines.
From
tax planning to lease notice periods to budgeting cycles, December is full of
dates that matter. Missing one can mean financial consequences - or missed
opportunities - well into the new year. Many companies don’t realize that
decisions made (or delayed) in December often determine whether next year’s
real estate costs rise gently, or spike dramatically.
As
we turn the page on 2025, December offers a rare moment to pause between what
was and what will be. Whether you own commercial real estate or occupy it, the
decisions you make in these final weeks set the tone for the year ahead. Take
the time to assess, adjust, and anticipate. With thoughtful planning and a
clear-eyed view of the market, 2026 can be a year of opportunity rather than
uncertainty. Until then, may this holiday season bring you peace, perspective,
and a prosperous start to the new year.
The Background:
I provide location advice to owners and occupants of industrial real estate in Southern California. Frequently, this advice results in a company buying a building to occupy. With prices at historic lows and cheap financing, this in many cases can result in a "rental" rate cheaper than a market rental rate. The "rental rate" I am referencing is the debt service achieved when applying the purchase price financed at today's low interest rates. When an ownership structure involves the owners of the business that will occupy the real estate...a terrific union is formed. The "company" pays the rent (debt service), and the owners benefit from the appreciation, depreciation, and stability of facility costs. What happens if the owner decides to sell the company (tenant)? Should the real estate be retained?
The Misconception:
When the owner of the company and the occupant of the real estate are identical...but defined by entity...the owner of the real estate controls the decisions of the tenant...length of lease, annual increases in rent, tenant improvements considered, etc. When an owner of a company decides to sell the company (tenant) and retain ownership of the real estate some misconceptions occur.
The new tenant will run the business the same as the original owner
The new tenant will decide to stay in the real estate for many years
The new tenant will pay rent in a timely manner
The new tenant will care for the real estate the same way as the original "tenant"
While owning real estate and the company that occupies the real estate may prove to be a sound financial decision, owning real estate while not owning the company may not be as sound. As an example, I encountered a closely held company that purchased a 50,000 square foot building for their use. The company occupied the building for eight years until the owners decided to sell the company. The owners retained the real estate and signed a five year "leaseback" with the new owners of the company. The owners of the real estate enjoyed a nice cash flow for five years. At the end of the five years, however, the company decided to vacate the building and relocate to a facilty in another state. The owner of the real estate was now forced to compete with other owners of 50,000 square foot buildings...in many cases better capitalized...to secure a new tenant. The owner could not secure a tenant and the owner was forced to sell the building in an undesirable dip in the real estate cycle.
The Solution:
We advise many owners in this situation to sell the building as a leased investment upon the execution of the new lease to an owner whose core assets fit the criteria. We then suggest reinvesting the proceeds through a tax deferred exchange into an asset class with less risk...IE a multi tenant project OR simply paying the tax on the proceeds and investing in a non-real estate asset.
By
the time you read this column, Thanksgiving will be relegated to leftovers and
gridiron scores. You’ve all enjoyed family and possibly gone to Irvine regional
Park to have your annual Christmas image made. Maybe you’ve even ridden the
Christmas train.
But
as the leaves continue to turn and fall, I wanted to take this opportunity to
give thanks for an amazing commercial real estate year and those that made it
so.
I’m
thankful for the folks at the Southern California News Group, especially my
editor, Samantha Gowen for your continued confidence and allowing me to publish
my missives here on a weekly basis.
I’m
grateful for all of the offices throughout the Lee & Associates network,
which allowed me to take their valuable time and deliver seminars on the
QUALIFY framework.
This
year found me publishing my very first book, The SEQUENCE. The reception among
friends, family, colleagues, brokers throughout the United States, and clients
has been remarkable. The book has resonated exactly the way I pictured it, as a
personal journey and framework for building a successful career and commercial
real estate. The title really hits as it is a double entendre. The first
meaning of SEQUENCE are the steps of a commercial real estate transaction. The
second and more important meaning, in my opinion, are the steps you take and
the decisions you make, that allow you to build a foundation to be successful
in our business. Thank you to all who have purchased the book, read it, and
taking the time to send me a note.
I’m
thankful to my clients who have trusted me with their precious commercial real
estate assets. That e-commerce distributor who expanded their footprint by
triple in the in the Inland Empire, that plastic bottle distributor who made a
flight to quality, and the national material handling company, who has trusted
me with their real estate business for the past 20 years and continues to grow
and amaze.
I
attended some memorable conferences this year, including the SIOR fall
conference in Louisville, Kentucky. Thank you to all who made it an
unforgettable conference.
And
finally thank you to my wife of 46 years, my confidant, traveling partner,
mother of our three children, grandmother to our six grandchildren,
accomplished author and tremendous friend. The life we’ve built together has
been nothing short of spectacular and I am forever humbled to be your husband.
My wife and I have been on a mission
since 2017 to visit all fifty states. After this weekend, we’ve now reached
forty-four, including Alaska and Hawaii. The only ones left are the great
plains states, Virginia, and Vermont. We were so close to Vermont last summer
but decided instead to spend a few days in western Massachusetts. In hindsight,
we should have crossed that border when we had the chance. Next year, we’ll
have to make a special trip to the northeast to finish the list.
This past weekend found us in the
Steel City, also known as “The Burgh”- Pittsburgh, Pennsylvania. When we drove
in from the airport and emerged from the I-376 tunnel, an incredible panorama
of skyscrapers opened before us. Framed by three rivers, the Pittsburgh skyline
is one of the most impressive I’ve ever seen. From our base there, we were able
to visit Steubenville, Ohio; Cumberland, Maryland; and Weirton, West Virginia -
all within a short drive.
You may be wondering what any of
this has to do with commercial real estate. If you’ve followed my column for
any length of time, you know I can’t help but look for real estate lessons in
everything I experience. This weekend was no exception. Let’s take a look at a
few takeaways from the Allegheny River Valley.
Steubenville, Ohio:
Protecting the Foundation. Just
across the Ohio River from West Virginia sits the historic town of
Steubenville. It began as a frontier fort designed to protect surveyors mapping
new land. Without those early surveyors, the land could not have been divided,
titled, or developed. In many ways, they laid the groundwork - literally and
figuratively - for the future economy.
The lesson for commercial real
estate is clear. Before any deal can progress, the groundwork must be done
properly. That means understanding zoning, confirming ownership, verifying
building conditions, and doing your due diligence before you commit. Much like
those surveyors, we protect our clients by defining the boundaries and
identifying the hazards. Skipping this step can leave you exposed, just as the
early pioneers would have been without a fort to retreat to.
Pittsburgh: Reinvention at
Scale. Once the beating heart of
America’s steel industry, Pittsburgh suffered a severe economic collapse in the
late 1970s and early 1980s. But instead of fading away, the city reinvented
itself. It invested in education, technology, and healthcare. Today, Pittsburgh
is home to world-class universities, robotics startups, and medical research
centers. Its economy no longer depends on steel, it depends on innovation.
This kind of reinvention is
something we often see in commercial real estate. Properties, like cities, go
through life cycles. A building once used for heavy manufacturing may find new
life as a logistics hub or a research lab. An outdated office building might
become a mixed-use creative space. The key is seeing potential where others see
decline. Pittsburgh teaches us that reinvention, when paired with vision and
investment, can lead to thriving new opportunities.
Cumberland, Maryland: The
Power of a Downtown Revival. Traveling
south from Pittsburgh, we stopped in Cumberland, Maryland, a small mountain
town with big character. Decades ago, its downtown looked tired and forgotten.
But today, it’s been completely transformed. Streets have been repaved,
buildings repainted, and storefronts refilled. There’s energy, color, and
commerce where there once was blight.
In our world, downtown revival
projects often start with one bold investor or a city initiative that
reimagines what’s possible. When one property owner takes the leap to remodel,
others follow. Before long, momentum builds. Cumberland shows us that with
vision and collaboration, even a struggling location can experience a
renaissance.
If you’ve ever driven through an
older industrial corridor that suddenly seems alive again - with breweries,
boutique manufacturers, and adaptive reuse projects - you’ve seen this same
story play out closer to home.
The North Shore: Building
Around Experience. One of the
most striking parts of Pittsburgh is its North Shore, home to the Steelers,
Pirates, and Pitt Panthers. Decades ago, this area was primarily industrial.
Today, it’s a bustling entertainment district filled with stadiums,
restaurants, a casino and hotels. What was once a manufacturing zone is now a
center of experience and energy.
Commercial real estate increasingly
revolves around creating experiences. Whether it’s a retail development
designed around community gathering spaces or an industrial project that
prioritizes employee amenities, success depends on understanding how people
want to use the space. The North Shore redevelopment shows how powerful it can
be when cities - and property owners - think beyond square footage and focus on
what draws people in.
Lessons from the
Allegheny. Traveling through the Allegheny
River Valley, I was reminded that markets evolve, industries adapt, and places
reinvent themselves. From Steubenville’s early foundations to Pittsburgh’s
transformation and Cumberland’s revival, the story is the same: progress
requires vision, courage, and a willingness to build something new from what
once was.
Commercial real estate is about much
more than bricks and mortar. It’s about understanding cycles, reading signs of
change, and helping clients navigate transitions. Whether you’re developing a
warehouse, repositioning an office, or reimagining a neighborhood, the
principles are the same as those found in the river valleys of the east -
prepare well, adapt quickly, and invest with vision.
My wife
and I just returned from Louisville, Kentucky; the home of Muhammad Ali,
Jennifer Lawrence, Louisville Slugger bats, the Kentucky Derby at Churchill
Downs, the “hot brown” open-faced sandwich and lest I forget - bourbon whiskey
by the barrel full! You see, we attended the fall conference for the Society of
Industrial and Office Realtors (SIOR). This year’s soirée was held in
Louisville, Kentucky.
On
the agenda was a bit of sightseeing, touristing, networking and world-class
learning from the best and brightest in our industry.
So
today, you’re getting a two-fer. What the SIOR Global Conference and
Louisville, Kentucky can teach us about commercial real estate.
The
horses are at the post, so here goes.
SIOR
Lesson #1: Relationships Trump Algorithms. No matter how advanced our tools become - CRMs, AI-assisted
valuations, digital twins - the commercial real estate business is still a people
business. The SIOR conference reaffirmed this. Deals still get done because
of trust, credibility, and consistency. The speakers
hammered home that in an age where data is everywhere, clients choose advisors
who care, listen, and show up - not just those who can crunch numbers.
Louisville
Lesson #1: Southern Hospitality Sells. From the moment we landed, Louisville reminded me that how
you make someone feel often matters more than what you tell them.
Every server, Uber driver, and shop owner radiated warmth. That same principle
applies in real estate. Want to stand out in a crowded market? Treat every
client like a guest at your table. The courtesy you extend today becomes the
relationship you close tomorrow.
SIOR
Lesson #2: Adaptability Wins the Race. One panel discussed industrial data centers and their
voracious need for cooling water and gobs of megawatts. These large boxes
filled with many smaller boxes are not your data centers from the late 1990’s.
The take-home? You must understand the “power story” and how to effectively
tell it. The brokers and owners who thrive are those who evolve with the market
rather than fight it. The best in our business don’t just react to
disruption - they anticipate it.
Louisville
Lesson #2: Reinvention Is in the City’s DNA. Louisville was once known primarily for bourbon and baseball
bats. Today, it’s also a hub for logistics, tech startups, and healthcare
innovation. Old factories are now creative offices and distilleries have become
experiential brands. Sound familiar? It’s the same evolution our properties are
following. Reinvention keeps you relevant - whether you’re a city or a
commercial real estate professional.
SIOR
Lesson #3: Community Builds Credibility. The SIOR network is more than a collection of brokers -
it’s a community. We share referrals, best practices, and market insights
freely. In doing so, we elevate the profession. When one of us succeeds
honorably, all of us benefit. That’s a powerful reminder that collaboration
beats competition, especially in an era when clients expect local expertise
with global reach.
Louisville
Lesson #3: Pride of Place Matters. Louisville doesn’t try to be Nashville, Chicago, or
Dallas. It leans into what makes it Louisville: horse racing, bourbon,
history, and heart. The same applies to commercial real estate. Know your
market, celebrate its quirks, and champion its strengths. Whether you’re in
Pittsburgh, the Inland Empire of SoCal, or Manhattan , authenticity attracts business.
Final
Furlong: What It All Means
The
SIOR Fall Conference and the city that hosted it delivered the same message in
different accents:
Success
in commercial real estate - and in life - isn’t about chasing trends. It’s
about relationships, adaptability, community, and authenticity.
Louisville
may have been 2,000 miles away from our home in Orange County, but its lessons
fit perfectly here in Southern California. Because whether you’re selling
bourbon or buildings, the fundamentals remain the same: serve people well, stay
curious, and keep learning from every stop along the way.
I must
admit, I used to be a huge baseball fan. The crescendo of my fandom occurred in
2002 when the Angels prevailed over the Giants in the seventh game of the World
Series. I couldn’t imagine it ever being any better than that season, so my
interest waned. Last night, I found myself tuning in for the seventh game
climax and oh my goodness, what a game!
You
may be wondering what the seventh game of the World Series has to do with
commercial real estate. Indulge me for an inning or two while I explain.
1.
Never assume the game is over. In the Game 4 win vs. the Philadelphia Phillies, the
Dodgers prevailed 2-1 in 11 innings thanks to a bases-loaded, two-outs scenario
that turned on a misplay.
CRE
lesson: Deals may drag on, go to “extra innings,” or appear stalled. Staying
engaged, remaining ready and spotting the opportunity when it comes can make
the difference. Just because it looks like lapsed momentum doesn’t mean the
deal is dead.
2.
Deals like ballgames can turn on one swing. Last night, the Dodgers were down to their last outs until
an unlikely number two hitter launched a home run in the top of the
eleventh inning. Then in the bottom of the inning they held on by stranding a
runner on third with one out and turning a game-saving double play. Game over!
Dodgers win.
CRE
lesson: That’s commercial real estate in a nutshell. You don’t always win with
your cleanup hitter. Sometimes the surprise player steps up. And when pressure
mounts, execution and defense matter as much as offense.
3.
Keep depth and “bench strength” ready. In that win and others, the Dodgers relied on talent beyond
their starting pitchers and starting eight with role players stepping up.
CRE
lesson: Build a team and system so you have back-up options: alternative
properties, secondary brokers, backup financing, contingency plans. When the
“regulation innings” don’t finish the job, you’ll want your bench ready to step
in.
4.
Execution under pressure counts. The 11th inning is the “extra” inning with fatigue, stress,
and uncertainty all rising. The Dodgers executed.
CRE
lesson: As deals drag closer to closing - or during unforeseen disruptions
(zoning issue, financing hiccup, tenant pull-out) your ability to execute
calmly under pressure distinguishes you. Systematic processes, clear roles,
pre-planned checklists help you perform when others choke.
5.
Persistence builds culture.
The Dodgers’ repeated success in extra-innings, high-leveraged situations shows
a mindset and culture of fighting until the end.
CRE
lesson: Over the long term, cultivating a team/brand that refuses to give up,
that always follows through to finish strongly builds credibility. Your track
record in “extra innings” (long deals, tough markets) becomes a differentiator.
6.
Use the moment to build story and momentum. Such a dramatic win becomes part of the team’s narrative.
CRE
lesson: When you bring a deal over the finish line under challenging
conditions, tell it. Use the story to broadcast success, attract next clients,
build your reputation.
Every
commercial real estate deal has its ninth-inning moment, when the outcome can
shift with one good swing or a steady glove. The brokers who win are the ones
who keep believing, keep executing, and never let the pressure change their
approach.
One of our grandsons is active in the Cub Scout program. His
mom, our daughter, has found herself thrust into the role of outdoor activities
manager for the den. She asked if I wanted to tag along with our grandson and
her on a weekend camping trip to Oso Lake. I haven’t slept on the ground in
twenty years - but the weekend sounded fun - so I agreed to go.
My recollection of Oso Lake was during its private bass fishing
era. Apparently, it was leased to the Boy Scout program in around 2008 and it
has been converted to an overnight campground for Scouting of America.
You may be wondering, what an overnight Cub Scout camp out has
to do with commercial real estate. Only these things. Please indulge me as I
review a few.
Adaptive Reuse and Repositioning: The Oso Lake Model
My first thought upon arriving at the camp wasn't about tent
poles or s’mores, but about adaptive reuse and repositioning. Here was a
property - a former private fishing lake - that had changed its highest and
best use. For decades, it was a specialized recreational asset. Today, it's a
bustling youth campground.
In Southern California commercial real estate, this pivot is the
name of the game, especially with the shifts we've seen in office and retail.
Think of an older, vacant office park being converted into much-needed
multifamily housing or a sprawling aerospace campus repurposed into a warehouse
project. The physical location remains, but the function and therefore the
value driver completely change. Oso Lake proves that even a property with a
strong legacy can find a new life and a more vital role in the community by
adapting to a new demographic and market need.
Zoning and Entitlement: You Need the Right Permit for the
Campfire
We had specific rules about where we could set up our tent,
where the cars had to be parked, and even the type of fire we could build. No
rogue campfires allowed - you had to use the designated, permitted fire pit.
In commercial real estate, this translates directly to zoning
and entitlements. You can have the best vision for that old shopping center
(say, turning it into a mixed-use development with apartments and ground-floor
retail), but if the city's zoning code only allows retail, your project is dead
in the water - or facing years of costly, uncertain negotiations.
Just like a Scout leader needs the proper fire permit, a
developer needs the proper zoning and approvals to execute a project. Southern
California's local jurisdictions are all unique, and mastering those specific
rules is as critical as mastering the knot-tying merit badge.
Demand Drivers and Demographics: Who is Your Tenant (or Camper)?
Who is coming to Oso Lake now? It's not the exclusive
bass-fishing crowd; it’s families, Cub Scouts, and school groups. The Scouting
of America program understood the demographics of their users - families
looking for structured, safe, accessible outdoor experiences - and positioned
the property to meet that specific demand.
This is the very essence of understanding the market in our
region. Are you developing an industrial park? Your tenant demand is driven by
e-commerce, logistics, and supply chain efficiency. Are you building a new
Class A office building? Your tenant is driven by a desire to attract talent
with amenity-rich, highly-collaborative spaces.
Just like the Cub Scout program must cater to the needs of young
families, your commercial property must cater to the evolving needs of the
businesses and people who will occupy it.
The camping trip was a great reminder that success, whether in
the woods or in a boardroom, comes down to understanding the fundamentals:
adaptability, playing by the rules, and knowing your audience.
Now, if you'll excuse me, I need to go see if my grandson packed
out all his trash. That, too, is a lesson in good stewardship - a topic for
another column entirely.
