Friday, August 19, 2016

The Commercial Real Estate is ALMOST Perfect - Now what?

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You have conducted an exhaustive search with your commercial real estate adviser and have happened upon the perfect space to house your rapidly growing company.

There are just a couple of deficiencies with the building that can easily be remedied - or so you believe.

What appears to you as an easy fix may in fact be a big deal depending upon the nature and motivation of the ownership.

I'll just add an office or six. Let's take for example the addition of some offices so that your key employees can operate within a private setting. You look at the existing layout and figure with the removal of a couple of walls here or moving a door there, you are golden. What many fail to realize is the cost, permitting, time, and effort required to simply add a couple of offices. Adding office is expensive! Simply moving a wall doesn't account for the air conditioning ducts that must be re-routed, the ceiling grid that is interrupted, new Title 24 energy efficiency upgrades that are triggered, the holes left in the flooring, and additional parking spaces that may be required. The offices will need to be permitted. A layer of bureaucratic challenges awaits the unsuspecting. Once the true cost of the new offices is determined, we now must negotiate who pays - you, the owner, or some combination of you and the owner. Generally, an owner will be reluctant to pay for an improvement that adds value today but may need to be ripped out in the future. Consequently, most owners will dump that cost onto you, the occupant. If an owner has the money to invest in tenant improvements, he may want to be paid back for those improvements over the term of the lease. This is known as amortizing the tenant improvements. Simply structured, the cost is multiplied by some factor of money and divided over the term of the lease to calculate a monthly amount which will be borne in addition to the base rent.

Lights, camera, action. Ok, maybe you need to increase the electrical service into the building so that your machinery runs smoothly. Easy, right? Ummm, not necessarily! Power into an industrial building originates at the transformer. In modern buildings, the power is then routed underground through a conduit into a switchgear located in the warehouse. So, adding power becomes a function of how much is available at the transformer, how large the conduit is into the building and the size of the switchgear. All boxes must be checked in order to economically upgrade the power feed into a building. If the transformer capacity is insufficient, the utility - SCE or a city power utility - will need to replace the transformer. If the feed into the building is too small, the pavement will need to be jack hammered, conduit replaced, and the switchgear changed. Yep, you guessed it - at a significant cost.

Who's next door. The space may work but is your use of the space compatible with the neighbors and allowable within the zoning? If not, you will face some cranky folks next door and a city with reams of paperwork for you to complete prior to your occupancy being approved. By the way, if you undertake a conditional use permit process, plan on the next six months of your life being consumed in minutia. Oh, and by the way, your owner may require you to lease the space regardless and place the risk of getting the use approved on your shoulders.

Tuesday, August 16, 2016

Avoid #cre Misunderstandings. TUESDAY Traffic Tips

Avoid #cre Misunderstandings. TUESDAY Traffic Tips. In today's VIDEO tip, I discuss a foolproof way to avoid misunderstandings in a commercial real estate transaction. This and a THREE YEAR birthday celebration for the TIPS!

Friday, August 5, 2016

The BIGGEST Mistake Occupants Make

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The biggest mistake occupants make? Believe me, I've seen some doozies!

But, in my opinion, the biggest mistake I see occupants of commercial real estate make is - not considering their existing location when contemplating a move.

After all, why would they consider their existing location - they are moving!

Well, in no particular order here are the reasons why an existing location should be considered, re-considered, and re-re-considered before incurring the expense and disruption from a move.

Moving sucks. Moving is expensive, disruptive, and rarely achieves the kind of efficiency an occupant seeks.

The market is tight. As I have written about ad nauseum, we are steeped in an owner's market. Although your belief may be, there are greener pastures - the reality is those green pastures are akin to drought tolerant lawns - tinged with brown these days. With 98 of every 100 buildings occupied, there are very few viable alternatives available for your consideration. Said another way - there might not be a better building in the market for you.

There are at least ten ways to stay in an existing location without incurring the cost of a move. You can possibly add office space, expand the building, install a production mezzanine, store product out doors, use the cube height in your warehouse, purchase a Kardex Remstar machine which can manage 10,000 sf of floor storage in 1000 square feet of floor storage space, outsource a function, use a third party logistics company to warehouse for you, stay put and lease space close by, add a second or third shift. All of these should be considered before you spend a dime moving.

Strategic value. Even if you absolutely, positively cannot stay in your current location, you can still use the location strategically to make a better deal in the market or motivate your existing landlord to sweeten the deal if you stay.

Tuesday, July 26, 2016

Are You VITAL to Your #CRE Clients. TUESDAY Traffic Tips.

Today, I relay a story about this situation that happened to me recently. This and much more on this week's VIDEO Tip.

Tuesday, July 19, 2016

Are YOU Invisible? TUESDAY Traffic Tips

Are YOU Invisible? TUESDAY Traffic Tips. Over 75% of commercial real estate searches begin on-line. Can you afford to be INVISIBLE? Today, I discuss two easy ways to make sure you can be found on-line. This and much more on this week's VIDEO Tip.

Friday, July 15, 2016

Should you Lower Your Asking Price?

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Sellers of commercial real estate in Southern California have benefited greatly from an imbalance of supply and demand.

Too little supply coupled with a healthy demand. Only one way for sales prices and lease rates to go - straight up!

Fueled by declining available buildings and record low interest rates, sale pricing's steady upward march started in January of 2013 and, in my opinion, peaked in the first quarter of 2016. Lease pricing started the race to the top about a year later and probably has some track to run before reaching a checkered flag.

If you want to sell your building, you should consider a pricing strategy that reflects today's market. All those crazy numbers buyers paid a year ago, don't occur as much today - unless your offering checks all the boxes - and still probably not. Buyers are savvy. Their advisors are well informed. Everyone knows we are at the top and are proceeding gingerly - lest they make a costly misstep.

We recently sold a building in North Orange County. A competitor acquisition by the owner of the business and building created the desire to sell the building. Better suited for the combined operation was the competitor's location. The building we sold became the odd man out and therefore was slated for disposition.

Carefully analyzed were the market comparables, the currently available inventory, the building's amenities, and work that was necessary pre-sale. Our pricing recommendations were two fold - higher price with the seller paying for clean up and lower price without seller paying for the clean up. Opting to sell without spending the dollars to re-condition the real estate, was our client's decision.

We priced accordingly and sold the building in two weeks. Fortunately, our seller listened to us. Too often, a seller will take the high end of the range - in our case the recommended price if clean up dollars were spent by the seller - and not accomplish the refurbishment. All while rationalizing, "let's see what we get". A dangerous approach in today's market. Buyers will pay top dollar but the building better be perfect.

You may be wondering, hmmm, if we priced higher and deducted the clean up costs, wouldn't we have sold for more? Fair question. The answer was no, in this case. Had we priced at the top, conducted buyer tours, explained the property was being sold in its present condition, and fielded offers - the requested refurbishment discount would have far outstripped our "discounted" asking price. A buyer's perception of refurbishment costs always exceeds reality and they offer accordingly.

Ok, you might say, "I can always lower my price, I can't raise it." True to a point. What sellers frequently underestimate is the message pricing sends to the market. Priced too high - man, that building must have solid gold toilets. Or, that guy must be smoking the good stuff. Priced too low, a frenzy is created, multiple offers are generated, and asking price surpassed - in some cases.

Pricing an offering correctly - possibly a bit low - is so much easier than coming out with a super high un-achievable price and later reducing the asking price. When you commence the retreat in pricing, the market crosses its arms, waits, and says - "see, I told you that building was overpriced!"

Tuesday, July 12, 2016

In #CRE, It ain't over 'till it's OVER. TUESDAY Traffic Tips

How many times have you lost track of a requirement that passed on a listing only to find out they are still in the market? On the occupant side, if your guy likes a building that is in play, do you follow through until the building leases or sells? I discuss these items and much more on this week's VIDEO TIP.