Friday, August 23, 2019

How to Become a Commercial Real Estate Legend? Simple - These Four Things!

Image Attribution: www.leeandassociates.com
I am penning this post from a palatial suite - not the font seat of my car, btw - at the Aria in Las Vegas. It's early and I am one of the few that is witnessing the sunrise at the beginning of my day. My company, Lee & Associates, journeys to Las Vegas each fall for our annual Summit. My thoughts drifted to a Summit past - the last one Bill Lee attended.

At that Summit - I re-connected with my old friend - Bill - hint, his name is on the front door. It was so great to see Bill and spend some time with him. Bill, unfortunately has been absent from recent Summits. I REALLY miss him. The cool thing is, it felt as though we talk weekly. He watches my TUESDAY Traffic Tips - my weekly video series - and complimented my work. Bill is LEGENDARY. But, how did he become a legend?

Bill observed a problem. Bill was the top guy at Grubb and Ellis before Nixon was a crook. He was/is the most competitive guy I've ever met. But, Bill realized that intra-office competition was wreaking havoc on the greater good of the office. Bill tells it like this. "I had a 30,000 sf listing. A guy (competitor) in the cube next to me had a 30,000 sf occupant requirement. I didn't tell him about my listing because I didn't want him to get part of the fee. The culture of the office dictated that approach." Bill later realized that the "company" suffered and created a platform, that through profit sharing, rewards cooperation but still encourages competition. This was heady stuff, folks. Talk about disrupting the way in which commercial real estate is brokered. WOW!

Bill had the courage to change. Great, there was a problem. Now, Bill had to convince some fellow brokers that CHANGE was the key to their collective future. Getting brokers to change ANYTHING is tantamount to separating conjoined twins. But, Bill, ever the persuader, convinced a small band of brothers to follow him into the cooperative abyss. John Matus, John Sullivan, Mel Koich, Larry O'Brien, John Vogt, Tom Casey, Dennis Highland, Len Santoro, Bart Pitzer, and Bill's college friend, Al Fabiano heeded the siren call and left the building. 

Bill had a tireless vision. One of the other old timers and I were marveling at how those eleven guys, in an executive suite in El Toro, California, created a company that now boasts 55 offices, close to 1000 agents, Billions in revenue, an International presence, coast to coast visibility, and the BEST place in the world to transact commercial real estate. Period! I asked Bill if he ever, in his wildest dreams, believed the company would someday be this big. He looked at me rather puzzled and said, "of course! Once we got your Orange, California office opened, I knew we were on our way to becoming an international company." Tireless vision!

Bill got out of the way. At a point, Bill realized that for Lee & Associates to grow, he needed to step away and let the eaglet fly. Knowing Bill, as I do, this was warranted but was the toughest thing for him to accomplish. 

Bill along with Craig Coppola, a recent William J. Lee lifetime achievement winner, have authored a book entitled Chasing Excellence, Real Life Stories from the Streets. It is available on line and in book stores.

So, want to become a LEGEND? Just do those four things. Simple, right?


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.com.

Friday, August 16, 2019

When is a Commercial Real Estate Deal Most Vulnerable?

Image Attribution: www.glazerteam.com
Akin to those toddlers who taught me lessons recently - a commercial real estate transaction is born and grows up. In effect, it has a life. Every stage is fraught with vulnerability. It starts as a need for more space, a downsize, a move out of state, a consolidation, or a sale where capital gains must be deferred. The end occurs when the new digs are occupied or the exchange is perfected. What happens in between - navigating the process - is column worthy - and where deals are most fragile.

Determining the need. All commercial real estate deals - leases, purchases, investments - begin with a need. If your company just acquired a competitor - chances are - excess locations must be considered - sold, subleased, or occupied. Exponential growth in your revenue may be handled with additional employees, new machinery, or a re-work of your plant’s layout. But - where praytell will the new hires sit if you’re out of space? A deal for another building may be spawned. However, many transactions are squashed at this stage because no move occurs. Another solution arises - additional offices are built in the existing location, new warehouse racking is installed, or a production mezzanine is added.

Deciding on a process. Testing the market of available space will require you to go it alone or engage a commercial real estate professional. If you search Loopnet for what’s available - you may quickly become jaded. The information isn’t as readily available to you as residential data published by Realtor.com or Redfin. Therefore, you’ll need a tour guide - AKA a commercial agent.

Searching. Touring a few vacant buildings may dissuade you from moving. You see - many times “there’s no place like home!” Will a cost savings occur? How about a better efficiency? Double the amount of square footage - is your increased revenue able to handle the bump in rent? Is your purchase down-payment better used in the business vs. buying a building?

Negotiating. Go in too hot - you’ll lose deals. In this owner tilted market - there aren’t that many to lose. If you fail to anticipate the needed time frames for securing financing, achieving city approvals, and checking out the roof, air conditioning, plumbing - and structure accordingly - you’re deal might crater when you request more days.

Executing. Once the paperwork is signed - the fun begins. You must now figure out if you can perform. You’ll have a decent idea - because you will have secured a pre-qualification letter from your bank - and your down payment funds are tucked away in a liquid account. But, unless the seller has provided you with a complete package of due diligence information - Enviro report, building inspection, zoning uses, plans, permits, and operating statements - you must create these reports. Countless deals die on the battlefield of due diligence as something untoward is discovered - the property once housed a landfill, the roof is porous, or the HVAC units are original.

Closing. Once contingencies are waived - a significant deposit is non-refundable. Simply, you cannot walk away without penalty. Do deals die at this stage? Sure - but rarely.

So, when is a commercial real estate deal most vulnerable? The easy answer? Before it closes! However - there is a bit more to dissect - as outlined above.


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

Friday, August 9, 2019

5 Ways to De-Rail Marketing your Commercial Real Estate Vacancy

Image Attribution: www.thedailystar.net
These days - available buildings are in short supply. Unlike our residential colleagues - our commercial real estate market is largely owner oriented. We are seeing some changes as available spaces are hanging around a bit longer and buyers are offering more boldly. What follows are five ways you can insure your vacant building stays vacant - regardless of the seller slanted market.

Assuming a buyer will simply discount the purchase price to address deferred maintenance. Let’s imagine your roof needs replacing, HVAC units originated during the Clinton administration - but don’t blow as hard, the exterior needs a swift coat of paint, and the landscape is as overgrown as California’s budget. As a seller - you might opt to forego spending dollars to remedy the issues. There are three flaws to that approach. First, the prospective buyer will ALWAYS estimate the repairs higher than reality - which creates a wrestling match between buyer and seller as to who pays and how much. Second, the buyer may not have the cash necessary to perform the fixes. Remember - most buyers finance purchases. If the price is reduced and the buyer uses his cash as a down payment - where is the repair money? Third, the buyer has a business to run and may not be willing to adopt a “project” of repairing a broken building.

Marketing a building while occupied. At first glance - this may appear to be an owner benefit. After all - the occupant is paying rent while folks are traipsing through. The reality? Tours are tough as arrangements must be made around the tenant’s schedule - which might not jive with the prospect’s. It’s difficult to see the potential - as the space is filled with employees, equipment, inventory and all manner of activity. Another pitfall? If your relationship with the resident has been less than stellar or if the building has some notable shortcomings - don’t expect a glowing review. You may miss the buyer with an immediate need as the space cannot be occupied at the close of escrow.

Not placing the space in “lease-ready” condition. There is a commonly held belief in the commercial real estate profession. What is it you may ask? If your goal is to lease your commercial real estate - the premises must be converted into a “lease-ready” condition. What is lease ready? Offices re-painted and carpeted or left for the tenant to choose the flooring - with a board of flooring choices. Warehouse area painted and cleared of all machinery, equipment, and debris. Restrooms, break room, and common areas deep-cleaned. A prospective tenant must be able to walk-in and immediately imagine his company occupying the space - and not be distracted by the old mini-blinds left over from the previous tenancy.

Harboring a hidden agenda. Does the occupant of the building have any Rights of First Offer, Rights of First Refusal, Options to Buy, Options to Expand or Contract? Has the current tenant found a place to move? Is the marketing effort simply a nudge to persuade said tenant to renew his lease? Only careful questioning will uncover the secret. We recently proposed on an offering only to discover the tenant had a right to buy the building. Fortunately, the right was relinquished and our folks got the deal. But, days were wasted while the right was vetted.

Allowing a buyer to know more than the seller knows. A buyer will have a period of time to conduct his due diligence - a fancy way of saying he can walk away if he can’t get financing or dislikes the color of the exterior. Appraisal, Enviro reports, title review, building inspection - including roof, air conditioners, plumbing, electrical - and city conversations about zoning, improvements and proposed use will conclude during the buyer’s contingency period. What will they find? As a seller, you’re not required to know. However, if you are aware of issues and don’t disclose them - you might get a nasty gram from the buyer’s attorney. I counsel sellers to do a bit of pre-work on the building’s condition. This might entail hiring an inspector and budgetary bidding for problems uncovered. Surprises are avoided and sale proceeds are maximized.

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

Friday, August 2, 2019

5 Things our Grandkids Taught me about Commercial Real Estate

Image Attribution: www.clipartportal.com
We just finished an awesome but exhausting week with our four - another on the way - grandchildren. We have been blessed with three boys and one little girl - the oldest of whom turns four in September. The youngest - not counting number five who protrudes from Mom’s middle - has yet to walk. Two potty by themselves, mealtimes are messy and eventful, and never were they all in the same mood.

As I reflected on our week together - my thoughts drifted to commercial real estate. Specifically, what did I learn from our self inflicted day care?

The lessons were column worthy. So, here goes.

Youth helps. My wife and I are in our early sixties - prime grand parenting ages but a bit creaky to hoist and tote a thirty pound toddler. Their parents sling them around like sacks of potatoes. Commercial brokerage requires the energy of youth as well. The hours and rejection enjoy a young resilience. Plus, starting from zero each year gets old after a few grey hairs.

Patience prevails. Everything it seems takes longer with someone under four. Lunches were akin to an Elizabethan opera - as long but not quite as tragic. Once we got everyone bathed and dressed - it was time to eat again. Head to the park? Countless stops to check out the lazy lizard sunning himself on the sidewalk or the latest bloom of a bird of paradise. Commercial real estate transactions are endless challenges to our patience also. Rarely does everything proceed as planned. The sooner you learn to embrace the delays the better. You’ll be well served if you learn to pivot.

Creativity counts. Yesterday, we placed two of our boys in the front yard with a cardboard box full of all manner of Mattel. Our hope was a few precious minutes would be salvaged as they experienced the new toys. What we witnessed was quite remarkable. All of the toys found their way out of the box only to be replaced by two giggling little fellas. The box became a cocoon, a “broken” Apollo spacecraft - we watch Apollo 13 with our almost four year old - and a wheelless wagon. Problems abound in commercial real estate transactions. Generally, to solve them you must tax your innovation. Frequently, the solution lies in the problem itself. Simply allow your mind to consider the possibilities.

Urgency rules. Let’s go now - Papa. What better time than today? And why not today? My rule? Treat a commercial real estate process like a game of badminton - return that birdie as quickly as you can to the opposite court. An instant response should follow any client request for information. Don’t postpone until Monday something that can be accomplished on Friday.

Question everything. Our oldest grandson was recently bitten by the “why bug”. You know - why this and why that? Please wash your hands. Why Papa? We’re going to the store. But, why? You know - you’re right! Amazon Prime will deliver our item in an hour. Why waste time driving to a store and waiting in line for an attitude. Sometimes questioning a client’s motivation proves insightful - and his response enlightening. Why do we tour buildings in a certain order? Why must an escrow eclipse a season? Uh oh? Looks like the “why bug” was contagious.
  
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.com.

Friday, July 26, 2019

5 Ways to Close your Commercial Real Estate Deal Faster

Image Attribution: www.pinterest.es
Two weeks ago - in this space - I discussed the reasons your commercial real estate deal is taking so long to close. As promised - today I will discuss ways to close your commercial real estate deal faster. Our discussion two weeks ago focused upon several areas which I will use as a framework for today’s conversation.

Search. Before you search - give some real thought to all of the solutions to your space needs - staying put and re-working your layout, out sourcing a portion of your operation, taking an additional building from your current owner. Also, engage someone who can assist in zeroing in on precisely how much square footage you need.

Negotiations. In a word - Realistic! If you attempt to scalp an owner these days - you’ll be disappointed. Figure out why you are moving. Will you top line revenue increase by a large percentage? Will you be able to give a key employee a private office and thus increase her efficiency? Will a move translate into cost savings? Are you more proximate to labor or suppliers. When considered through this lens - a few cents per square foot or dollars on the purchase price pales.

Due diligence. As a commercial real estate owner - do yourself a huge favor and prepare your building for sale. Please don’t use your precious marketing time unwisely! Order an inspection so you know what repairs are needed. How’s the roof? Does the property have a rich environmental history? Make the necessary repairs. Disclose the others and price accordingly. Gather all of the pertinent documents a buyer will need to review such as - utility bills, leases, operating statements, insurance, plans, and permits. Stage your building as though it was appearing on an episode of Property Brothers. You’ll be grateful!

Financing. Buyers. Get yourself pre-qualified! I would also suggest choosing a lender, having them do a thorough underwriting of your package and know where your source of funds is originating. Many times in today’s competitive market - without a prequalification - your offer will simply be overlooked for one that is complete.

City approvals. Two suggestions here. The first would be to visit the municipality where you are considering relocating. Ask ask them where they would suggest you locate. The second suggestion would be to hire a person who can help you navigate the various city issues you will encounter.

Transition planning. Moving is expensive, disruptive, and inefficient. While considering your area of re-location – also have a moving and storage company give you a bid on the timing and cost of your move. Armed with the specifics - you’re now equipped to venture into the available space market.

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

Friday, July 19, 2019

Commercial Real Estate Content Marketing - Does it Matter?

Image Attribution: www.dreamstime.com
One of the ways I survived the economic downturn of 2008 was to “work out loud” - a phrase coined by my bride of forty years. Simply, it is the practice of taking my daily tasks as a commercial real estate professional - finding, winning, and fulfilling business - and writing about them. Who knew the weekly missives would someday appear in your subscription of the Orange County Register Sunday Real Estate Section. Moreover - an internet catalog of commercial real estate topics now exists for inquiring minds. A digital footprint is created which is akin to a marketing sign on a vacant building - a touchpoint is formed.

My fear - when I started blogging in 2010 - was only two people would read my ramblings - my wife and me! Turned out - I was ahead of the content marketing curve - before content marketing was a thing. Now, I’m known nationally - in my industry - as one of the early adopters of social media to distribute the content I create. Doubt what I say? Perform a Google search for Allen C. Buchanan and see for yourself. What few of us anticipated? Many owners and occupants of commercial real estate would seek on-line counsel for their commercial real estate issues. If properly crafted - blogs, videos, white papers - can address questions that arise through owning and occupying commercial space.

Recently, I opined: “We must - as commercial real estate professionals - appeal to the on-line searcher. A common mis-conception is we simply use the modern media sources - FaceBook, Twitter, YouTube, Instagram - as a way to advertise available properties. Unfortunately - these ads get deleted like that cable subscription. What pulls a building shopper to us these days is content. Content that portrays us as experts in our field - not simply a name on a sign. Content that inspires to action, entertains, or educates as a means of demonstrating our knowledge. Good content - videos, “how-to” articles, thought pieces - serve as a large net for existing and future buyers. Advertising buildings for sale only appeals to folks in the market today - a very small slice of the population.”

Chances are - if you’re an avid reader of this column - you’ve some stake in commercial real estate. You own it or occupy it. Therefore - when a need arises - a vacancy to fill, more space for your operation, it’s time to buy or sell - what will you do?

I’m guessing one of several things.

You’ll contact the agent you’ve known for years. Ok. No web search needed. However, if your go-to agent has not embraced content as a means of finding you a tenant or buyer or sourcing additional space - are you being short changed?

You’ll ask a friend for a referral. Absent a relationship with someone in our business - you’ll probably see if that referral has a web presence or check out LinkedIn for some color. By the time you meet - you’ll have a pretty good understanding of his background, expertise, focus, and clientele.

You’ll scoop out those mailings you’ve received from active neighborhood pros and call one. By the way - if you’ve not investigated the service provider - you should - before you call! Client testimonials, case studies, years in the trade, experience with your particular requirement - all should be vetted. Yep. On-line.

You’ll perform an on-line search for the need you have. Bingo! In your browser - you might type “How do I choose a commercial real estate agent?” “What should I avoid when marketing my building?” “Considerations when leasing a commercial space.” Those search results pull you toward an expert who produced the thought piece. You get a sense of her knowledge without ever meeting her. Determined? Whether you want more and if you will engage her.

Does commercial real estate content matter? Absolutely! Just ask Siri.

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.com.

Friday, July 12, 2019

What’s Taking So Long with my Deal?

Image Attribution: www.marketingrealestate.biz
Commercial real estate deals take time to complete - generally, a lot longer than buying your family’s residence. Best case - but rarely? The deal is completed in thirty to forty-five days. More typically? Seasons change with no conclusion to the transaction.
What begins with a simple framework of search, locate, negotiate, contract, execute, and close - many times morphs into a mire of minutiae. Layer in some professional advisors - lawyers, bankers, environmental engineers, accountants, appraisers, building inspectors, contractors and commercial real estate agents - who all must have their say - and the complexity begins.

What - you may ask - takes so long? Indulge me as I describe a few areas where transaction traffic gets pinched akin to your commute on the 405.

Search. Available inventory is at an all-time low. 98 of every 100 industrial buildings is occupied. This is great for owners - but if you’re looking for a place to re-locate your business - you are scrambling to find the right spot. So, if you could simply run out and check a half a dozen sites and choose the best - awesome! The reality is you may wait months for the right match to come along. The days are getting shorter and leaves beginning to turn.

Negotiations. Because of the historically low vacancy - owners are bullish. They understand occupants have very few - if any - choices. High asking prices follow. Motivation migrates. Concessions wane. Couple this with an occupant determined to find a “deal” and negotiations reach an impasse. The clock ticks.

Due diligence. Once you find that dream building and have struck an agreement - you now must figure out if you can buy it. Third party reports must be ordered to investigate all manner of details - appraised value, environmental history, condition of title, roof, air conditioning, structural, seismic, biological, zoning, permitting - to name a few. Normally, transactions are structured with a time-frame to complete these studies - but rarely are the time frames generous enough to allow proper ordering, investigating, reporting, reviewing and approving. One slip in scheduling can cause endless delays and the need to return to the bargaining table to beg for additional time.

Financing. Many small business owners employ the Small Business Administration - SBA - to finance their commercial real estate purchases. Depending upon the size of the loan and lender appetite - two approvals are necessary - one from the bank and the other from the Federal Government. When we experienced our government shutdown last December - SBA loan approvals screeched to a halt. Any loan package not in the approval queue before the hiatus suffered an interminable delay. Great scrutiny is placed upon the environmental health of the real estate and the value as determined by an appraisal. Unfortunately, you and your purchase operate on the loan’s timeframe.

City approvals. The use to which the property will be placed as well as any changes planned - office, power, warehouse racking, freezer cooler space - will need to be vetted and approved by the municipality. We once encountered a city approval process that eclipsed a year! This year - by the way - after leases were signed. Fortunately, we anticipated the approval timing and were able to negotiate a satisfactory structure.

Transition planning. Moving a manufacturing plant can be a bit more involved than packing your household belongings. Pair the complexity of the relocation with the inability to be “out of business” for any duration and planing becomes tantamount.

Please tune in next week as I’ll provide some suggestions to roll back Father Time and expedite your deals.

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.com.