Wednesday, September 29, 2010

Three Factors that Motivate the Deal




I provide location advice to owners and occupants of industrial buildings in Southern California. I have thought about factors that motivate a transaction. I believe the three factors that motivate the deal are: Attitude, Inventory, and Interest Rates. All can influence the decision but in my opinion, only one factor can cause the decision to be changed...a change in motivation!
Attitude:
I have broadly lumped issues such as uncertainty, timing of a lease expiration, business forecast, market conditions, time of year, age of the business, age of the business owners, etc. into the category of attitude. As CRE practitioners, uncertainty is the attitude that causes the most pain. If a business owner is uncertain about the future, a buying decision will be postponed or a buying decision could morph into a leasing decision or your ten year lease could become a two year lease or your new lease could become a renewal at the businesses present location. In Southern California, the end of 2008 and the beginning of 2009 were particularly painful! We now are told that the worst recession since the great depression began in December 2007 and ended in June of 2009. While we can debate the end of the recession, none of us will argue the beginning. Many of us in the business sensed a "change" was coming at the beginning of 2008. Financing was becoming more difficult to originate, values were at an all time high, the market was feeding off an exuberance that many of us believed was unsustainable. Our worst fears became reality in the fall of 2008 as the financial industry imploded, values plummeted, and many real estate deals cratered. The uncertainty that resulted carried into the early part of 2009 until after the Obama inauguration.
Inventory:
The market's supply of suitable alternatives can affect the timing, and viability of the transaction. We have all experienced "seller's" markets. In these times, the demand for space far out strips supply. As a result, a seller can afford to be bullish and often is. You must carefully review the inventory each day and put your buyer or tenant in the best position to make a deal. Currently, the market is a "buyer's" market. Because the number of suitable alternatives is in excess of the "bodies" that can fill them, there is a continuing softness in the market. A company must now spend much more time reviewing the suitable alternatives (available buildings) before making a move as well as the multitude of new offerings that become available. If you are representing a tenant or buyer, you owe it to them to search for several weeks and insure that they are getting the best deal. If you represent a seller or landlord, you must make sure that the building is priced right and shows well as you may only get one "shot" at a prospect.
Interest Rates:
A wide swing up or down can motivate a deal. We saw double digit interest rates in the early eighties and have experienced record low interest rates for the past couple of years. If our interest rates were to spike by even a point or two, my belief is that you would see a spate of buying activity like no other.
Any combination of the above can cause a change in motivation. In my experience, this is the one thing that can cause a real estate transaction to collapse.
Let's hope for good attitudes, a balanced inventory, and affordable interest rates!!



Tuesday, September 28, 2010

ROFO.com...what an Honor!!


I provide location advice to owners and occupants of industrial buildings in Southern California. I was recently asked by Right Of First Offer, Rofo, to answer a few questions about my use of Social Media in my commercial real estate practice. I was honored and the Q and A is below. I have used Rofo since the summer of 2009 to market listings. I have found the service to be an "online dating service" for occupants of buildings and owners of buildings. I have found the concept to be VERY creative and I believe to be the future of searches in some size ranges. You can read the complete transcript here. Check out http://www.Rofo.com/ as well. Rofo has recently launched an app with LinkedIn called Real Estate Pro. If you are an active LinkedIn user and practice CRE, you owe it to yourself to download this app onto your LinkedIn profile. You can post active listings and completed transactions.
Rofo: How are you using social media to market your services?

Location Advice: I blog on a weekly basis through http://www.allencbuchanan.blogspot.com/. I experiment with different content based upon my experiences, contacts, companies that I have represented, etc. I generally write the blogs on the weekend and schedule them to post each day. Once the blog posts, I then tweet it which posts to LinkedIn. I then share the blog to groups that I believe would benefit from the content. My blog posts automatically are shared with facebook…business and personal. My blog is hyperlinked to Postlets for my listing inventory, my company website and contains links to facebook and twitter. I use past blog posts to introduce clients to one another and/or to market their businesses. My blog, facebook, linked in, google profile, twitter, plaxo are all contained in the signature line of my email correspondence. The blog has an analytics link that allows me to track traffic.

Rofo: Do you have any creative ways you prospect online?

Location Advice: LinkedIn Groups, birthday cards from Plaxo

Rofo: Any early insights you can share on using the new Real Estate Pro application on LinkedIn?
Location Advice: I like the ability to post listings and done deals on the profile so that a user can view them.

Rofo: What blogs or websites do you check daily?

Location Advice: Coy Davidson, Duke Long, OCBJ, and Orange County Register

Rofo: Do you have any exciting deals you closed in the last 3 months that we can help you promote? (Or properties you are working on)

Location Advice: #1 Sale of a property in April 2010 that took me 6.5 years to close. #2 I helped relocate a sunscreen manufacturer and saved them $40,000 per month in rent.

Rofo: What’s the wildest property request you received?

Location Advice: A buyer that buys and sells traffic from adult websites. We had to submit his loan request to seventeen lenders before we got a yes! The buyer was VERY well qualified also!

Rofo: Why do your customers love you?

Location Advice: I am a business owner just like they are and promote myself accordingly. I provide advice…not just transactional help.

Monday, September 27, 2010

Satco Center, Your Business Address

I provide location advice to owners and occupants of industrial buildings in Southern California. I have marketed the Satco Center since 2008. Are you an occupant that is operating out of a spare bedroom and your garage? Are your residential neighbors tired of the steady stream of delivery trucks in front of your house? Has your HOA delivered to you a "nasty gram" and demanded that you cease and desist your business operation? If any of these apply to your situation, check out the New Satco Center, your business address!

Sunday, September 26, 2010

Location Advice goes to the Swamp!!





Have you ever been up to your eyeballs in alligators? Well we were literally in NOLa last week. Check out this unbelievable video that Carla made! Enjoy!

Thursday, September 16, 2010

Auto Company Expanding!!


Mary Ann Milbourn of the Orange County Register reports about Hyundai. Please read here about an Orange County auto company that is expanding. Enjoy!

Raymond Handling Solutions



I would like to introduce you to one of my clients and strategic partners, Raymond Handling Solutions. Based in Santa Fe Springs, California with offices in North San Diego County, The Inland Empire and Las Vegas, Raymond is your one stop shop for everything warehouse. For over 60 years, Raymond Handling Solutions’ mission has been to provide their customers with the expert material handling advice, customized solutions, and outstanding service they need to meet their operational and financial goals.



Focusing on your success is their first priority.

Their success is directly attributed to their dedicated associates, their customers, their suppliers and their partnership with the Raymond Corporation for whom they have been exclusive dealer since they opened their doors. And they will continue their success by serving the ever-changing needs of their customers.


According to the Raymond President, James Wilcox:

"Our extensive experience in this industry has taught us that change is constant. So to maintain our trusted position in the regions we serve, we continually educate all of our Associates on new industry trends, products, support services, applications and technical updates – which thereby enables them - and our entire company – to be at the forefront of offering state of the art industry advancements. In addition, all of our Associates attend an intensive, two day seminar on customer focus that is, for Raymond Handling Solutions, both a philosophy and a process. “Customer Focus” is the belief that the path to excellence can come only from seeing our company, our individual departments within the company, and ourselves through our customer's eyes. It is constantly asking ourselves: "Am I doing everything I can to help our customers achieve their goals". Customer Focus is the only way forward to becoming the best Materials Handling company in Southern California and Nevada.From hand jacks, and forklifts to automated systems, we use our knowledge to bring the best solutions to our customers. We offer superior: Service, Parts, Forklift Rentals, ReNewed Forklift Equipment, Systems Integration, Pallet Rack, Sales and Service support throughout our territory.And to comprehensively satisfy our customers’ growing and diversified needs, we operate five (5) fully staffed facilities in Southern California and Nevada, and Ontario Canada, each supported by strategically located field service teams."

For more information about partnering with Raymond Handling Solutions, please contact them today.

Raymond Handling Solutions

9939 Norwalk Blvd

Santa Fe Springs, CA, 90670
Toll Free: 800-982-2444

Phone: 562-944-8067

Wednesday, September 15, 2010

Direct List Technology







Direct List Technology has been a client since 1990. The owners of Direct List, Ken Cachat and Andy Pieter are wonderfully successful entrepreneurs that embody the Southern California winning attitude. Ken and Andy have seen the computer generated list business change significantly since their days with Harte Hanks in the late 1980s. At that time, raised computer flooring, massive HVAC units, and computers the size of refrigerators were the norm. Location square footage was necessary to house the enormity of the operation. As the business has changed, computer technology has evolved and gotten smaller, the location demands have decreased as well. Direct List can now operate from much smaller quarters and produce much more efficiently than before.


According to Ken Cachat and Andy Pieter:

"Since 1987 we have been helping people like you find new customers and achieve growth by using our highly targeted mailing lists. We attribute our long term success to three, strongly held values – Customer - Orientation, Quality, and Teamwork. That’s why we’re committed to combining advanced technology and traditional customer service to provide:

  • High quality mailing lists that work
  • Quick access to list counts and orders online
  • Personalized service of list experts on the phone

By focusing on, “Helping You Find New Customers”, we will create new possibilities for your company’s growth. Given the opportunity to work together, Direct List Technology will exceed your expectations. Please, give us a call today."

Give Direct List a call and let them help you find new customers!

Toll Free
1.888.772.6947


Local Phone
714.772.3282


Hours of Operation
8:00am-5:00pm PST
Monday-Friday


Fax
714.772.6947


Mailing Address
Direct List Technology, Inc.
1582 N. Batavia Street, Ste 3
Orange, CA 92867




Tuesday, September 14, 2010

South Bay Migration? Are Companies Leaving LA County?


I provide location advice to owners and occupants of industrial buildings in Southern California. I posted an article from the Orange County Business Journal yesterday about a wind turbine company relocating to Huntington Beach from Long Beach.I have recently been on the directing end of two real estate moves (LA County to Orange County) and on the receiving end of one relocation...providing location advice to two occupants and one owner. The occupants, Western Air Limbach, a division of Limbach Faciltiy Services, and Drake Controls. The owners, Hager Pacific Properties in their lease to California Gasket and Rubber . All three of these transactions were manufacturing companies moving from Los Angeles County to Orange County. Is this a trend?
Western Air Limbach: Limbach Company, a mechanical engineering company with offices in the east, Midwest and southeastern United States acquired Western Air (creating Western Air Limbach) in 1974 and occupied a building on South Avalon Boulevard in Compton, California for 36 years. Western Air owned the real estate in Compton until 2005. In 2005, Western Air made the decision to sell the building and structure a five year lease back of the facility. Western Air's timing was impeccable as real estate values peaked during the leaseback and the lease expired during a significant down trough in the leasing market in Southern California. Western Air, through our help, was able to relocate to Garden Grove into a much newer, more modern, and functionally more suitable location for their operation.

Drake Controls: Drake Controls, LLC is a dynamic technical sales and service company headquartered in Houston, Texas serving the Texas, Oklahoma, Kansas and New Mexico marketplace supplying technical products and solution expertise to the OEM and Industrial Process markets. Drake Controls was founded on the operating philosophy of maintaining a technically qualified staff knowledgeable in their products and their applications, along with superior customer service. In addition to other products and services, Drake Controls, LLC is the exclusive authorized sales and service representative for Woodward Industrial Controls . Woodward is one of the world’s largest manufacturers of control equipment for power generation equipment, fuel systems and controls for gas and diesel engines, and controls and components for gas and steam turbines. Drake, through its acquisition of a competitor in San Dimas and Wilmington, California, now has a west coast presence. Drake, with our help, will soon relocate to a location in Buena Park, California.


California Gasket and Rubber: California Gasket and Rubber had occupied the same location for 65 years. The current market conditions persuaded California Gasket and Rubber to move to a better, more functional location in Orange, California. California Gasket and Rubber Corporation's mission is to provide the United States Government and a wide variety of private industries with the highest possible quality custom sealing devices. We manufacture gaskets, washers, shims, custom O-rings, and precision molded rubber products - on time, at a competitive price, with superior quality.

Trend or exception? I will let you decide!



Monday, September 13, 2010

Wind Energy Company Moves to OC


I provide location advice to owners and occupants of industrial buildings in Southern California. In what could be a continuing trend, a Los Angeles based company is relocating to Orange County. The company is a start up that builds blades for wind turbines. You can read the Orange County Business Journal article here. Enjoy!

My wonderfully creative wife, Carla McKnight Buchanan

I often write about small business successes in this blog. The entrepreneurial spirit energizes me and motivates me. Occasionally, I have the opportunity to provide location advice to owners of these businesses. Witnessing a small business take shape under your own roof is especially inspiring! My wonderfully creative wife, Carla McKnight Buchanan, FIDM student 2010, is such an entrepreneur. Watch the video and become inspired as well! You can also follow her blog at http://www.carlabuchanan.blogspot.com/. enjoy!

Friday, September 10, 2010

A New Breed of CRE Brokers?

I recently posted about young bucks going old school! Beth Ann Gribb penned this artile on the new breed of Commercial Real Estate Brokers. You can read about it here. Enjoy!

Does Your Organization Have a Sales Manager?


The Situation:
Our organization has never had a "solely dedicated" sales manager since its inception in 1983. We have been fortunate that we have only had three (very good by the way!) resident managers in that time...John Vogt 1983-1986, Chuck Noble 1986-2007, Bob Sattler 2007-Present. All have been "player coaches" and supplemented their management income with brokerage commissions and bonuses. The three managers varied greatly in skill sets and all three had(ve) their strengths. Some were top producers as brokers. Others were not. Some really enjoyed training, team building, goal setting, "cheer leading", contests, consensus building, etc...typical among the sales manager function. Some have avoided the sales manager function and have(d) the attitude that we are all big boys and know what is necessary to grow our businesses...after all we are all independent contractors and benefit from what we "kill". I believe we miss an important opportunity if we don't stress the sales manager function...the recruitment, training, and ongoing skill building of our associates and young shareholders.


The Idea:
Create the position of sales manager within the organization.


The Way it Would Work:
The position would be created and would be compensated by a monthly reduction in desk cost expense. This expense (subsidy) would be shared equally by all shareholders. The sales manager's responsibilities would include hosting weekly sales meetings for all associates and any shareholders that wanted to attend. The meetings would be held at 7:30 on Monday mornings and would be mandatory for associates and voluntary for shareholders. The sales manager would design a curriculum for the meetings and the meetings would be structured, topical, and informative. The goal of the meetings would be threefold...accountability, training, and team building. Additionally the sales manager would be responsible for hosting once a month meetings for industry information...IE: Social Media Marketing, Review of Financial Statements, Legal Issues, etc. The sales manager would also spearhead the social media marketing effort for the office.The sales manager could also be responsible for the monthly industrial and office meetings as well although we may discover that these meetings are unnecessary given the frequency of the weekly meetings. The position would commence on October 1, 2010 and would conclude in September 30, 2011. The shareholders would only commit to a one year position and a cost (subsidy) of $18,000. At the end of the trial, we can decide to continue or discontinue based upon results. Since associate profit or loss is split equally by all shareholders, we all benefit by bolstering the associate profit pool. My sense is that the program will pay for itself in the first year and realistically could create a larger profit for all of the shareholders.


The Benefits:
Training
Increased Profit
Accountability


Next Step:
I would recommend that our organization consider creating this position.

Thursday, September 9, 2010

Real-Buzz.com Real Estate Portal Listings and Networking

Real-Buzz.com Real Estate Portal Listings and Networking

Young Bucks go Old School!!




I love this story about two of our rising stars! Scott Seal and Jeff Gahagan, both members of the echo-boomer, thirty something crowd recently went old school on a real estate deal and reaped the rewards.
The Opportunity:
Scott and Jeff secured a listing on a 22,000 sf industrial building in Fullerton, California. The owner had recently vacated the building that his business had occupied for several years. the owner listed the building for sale with Scott and Jeff. Scott and Jeff did a good job educating the owner on the market conditions and the owner complied and priced the building competitively.

Old School Marketing:
Scott and Jeff printed 100 hard copies of the building literature each day for several weeks and "hand delivered" these brochures to industrial occupants in Anaheim, Orange, Fullerton and the cities immediately surrounding the building. They also spoke to the neighbors...a mistake that many of us make but not talking to the neighbors. For weeks nothing occurred but Scott and Jeff continued their diligent "shoe leather" techniques.

Breakthrough:
After weeks of passing out 100 brochures per day, one morning the phone rang. An occupant (that had received a brochure) was in front of the building that Scott and Jeff had listed. The conversation went something like this...Hi this is XYZ and I am in front of your listing. One of you two dropped a brochure by my office. This building looks like a good match for my business, I am pre-approved for $4,000,000 and have been looking for the right deal to buy. Can one of you meet me at the building so that I can tor the inside? I sit twenty feet away from Scott and Jeff and their post call departure registered on the Richter scale! The tour went as expected and the occupant confessed that he was prepared to make an offer that day on another building. If the brochure had not arrived when it did, the occupant would not have known about the opportunity and would have purchased another building! The offer on Scott and Jeff's building was accepted by the owner and an escrow was created.

Too Good to be True?
The escrow proceeded smoothly until the preliminary title report referenced an ownership entity that differed from reality. Apparently, a sibling who had sold their business interest was still listed as an owner. Once again, the old school approach won out as the owner searched through 30 years of records and discovered an unrecorded quit claim deed that evidenced the siblings intentions. The title company recorded the deed and deal closed a few days later.


A Happy Ending:
Scott and Jeff benefited from the hard work in marketing this listing. The owner got a good price and the occupant bought a building perfectly suited for his business. Great job Scott and Jeff!

Wednesday, September 8, 2010

31 Years and Counting!!








Thirty One years ago today, Carla Autis McKnight made me an honest man! I knew after our first date that we would be husband and wife. Our marriage has been filled with many joys including moving to the West Coast in 1979, buying our first house, experiencing (I watched, she experienced!) the birth of our three terrific children...Blake Andrew, Michael Allen, and Paige Elizabeth, the high school and college graduations of each of our three children, family vacations, braces, proms, parent's days, Girl and Boy Scouts, Sunday School, empty nesters, FIDM, Lee and Associates, engagements?, etc., etc.


Carla and I have been together for a part of five decades! We have welcomed Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush, and Barack Obama into the office of president. We have seen rotary dial telephones give way to social media. Earth tones have returned since the early decor of our first condo in 1980. Denim is now a socially accepted dress for business...not just hay rides. I now blog my anniversary wishes!


Throughout the years our love has grown into a bond! Laughter still fills our house and we are each others best friends. I cannot imagine life without your darling. Here's to another 31!
Love,
Allen

Monday, September 6, 2010

Structure your Presentations For Maximum Results


The Premise:
Have you ever heard the phrase, "I don't sell for a living" so sales techniques are not important? Well I have, and I disagree! EVERYONE sells, EVERYDAY...you just may not think of what you do as selling. Three quick examples..."Darling, I believe we should try that new Latin restaurant that just opened"...which could result in all of the normal objections...too expensive, too far, I don't like Latin food etc." You probably will be eating frozen pizza! "Son, how about completing your science project before we go to the Angel game this weekend?"..."Oh Dad, I have this, its not due until two weeks from now, you are old school..." You may be dashing to Office Solutions at 10:00 PM the day before the project is due. "Hey guys, what about moving our golf outing to Shady Grove this weekend?"..."too tough a course, no caddies, etc." So you get the idea. EVERYONE SELLS, EVERY DAY. The success of your "selling" is up to you!


The Presentation:
The key to "making the sale" is to make the idea; your client's, spouse's, child's, etc. their idea. I have discovered that the easiest way to accomplish this is to structure your presentation to include five easy steps...summarize the situation, state the idea, explain how it works, reinforce the key benefits, and suggest and easy next step. I honed these skills schlepping shortening in the seventies! Believe me, you had to make the idea the grocers if you wanted to convince the grocer that he should lose money on your product...tough sale!


Summarize the Situation:
As simple as "Darling you mentioned the other day that we should add some "spice" to our lives". To as detailed as "You mentioned that you have seen several new signs on buildings in the area. We investigated your observation and discovered that the vacancy rate on industrial buildings in North Orange County has significantly increased in the past six months. The deals that are getting made fall into two categories...class A buildings leased at class C prices, and buildings sold at 2002 pricing. Your building is Class C. If your desire is to lease, then you must realize that tenants can demand "C" pricing on "A" buildings." A concise summary can build the "ownership" of the idea.


State the Idea:
As simple as "Let's try that new Latin restaurant that just opened". To as detailed as "We recommend pricing your building to move. We must compete with "A" space and the best way to do that is with aggressive pricing." Make the idea statement very direct.


Explain How it Works:
As simple as "The restaurant is running a two for one special if we reserve before 6:00" We can be there and back in no time and with the money we save, maybe we can catch a movie!" To as detailed as "We have a complete list of tenants in the market that can receive information on your building today. We believe that the aggressive pricing will separate us from the masses. Additionally, we can forward the information to all of the active industrial brokers in the market. Lastly, we have established a rather aggressive Social Media marketing campaign through Postlets that will allow us to distribute the information through Facebook, LinkedIn, and Plaxo." Very important to clearly define your plan.


Reinforce the Key Benefits:
As simple as "Spice darling...like you said" to as detailed as "Leasing the building one month sooner than anticipated will save you ...$.


Suggest an Easy Next Step:
As simple as "Let's leave in an hour" to as detailed as "We have prepared the agreement and upon your written approval, we will begin the marketing campaign."


It Really Works!
Try forming your persuasion into these five easy steps and enjoy the "sales" that you make every day!






Friday, September 3, 2010

Financing Your Small Business

Finding money can be one of the biggest hurdles for a small business owner. Whether you desire to open a chain of restaurants or an Internet-only business, capital is required to fund your dreams. Here we will explore the different types of funding available to you:

Debt financing includes any money you will pay back. It does not require you to give up equity in your company and can be a good choice for entrepreneurs who have not been able to attract the attention of investors. This type of financing usually requires personal collateral and will require you to pay interest.

  • Loans - Loans are available from a variety of sources, including local banks, the Small Business Administration and non-profits. Requirements vary, but they are usually credit-based and will require you to pay interest. Some economic development organization microloans may take into account character as well.

Equity financing requires you to give up a portion of your ownership to investors in exchange for their money.

  • Friends and Family - For most business owners, this is the first stop when looking for funding. Your friends and family members know your character, and the process to get money is usually much shorter than other methods. Even better, most will not request a stake in your business in exchange for funding. Even though you know these lenders personally, make sure you get all agreements in writing.
  • Angel Investors - These are high-worth individuals or groups of people who exchange their industry expertise for a portion of your company's equity. These investors can be hard to find, and some only focus on certain sectors. An Internet search may uncover the angel investors in your industry.
  • Venture Capitalists - These companies are usually interested in established companies or start-ups that will quickly be poised for sale or public offering. There are usually high standards for receiving this type of funding, and you must be willing to give up a portion of your control.

Other types of funding:

  • Business Plan Competitions - Many are run by local business schools and require you to partner with at least one student to enter the competition. Winning could mean networking opportunities, funding and ongoing support.
  • Government Grants - Though it is a popular belief that the federal government provides small business grants, money that you do not have to pay back, it is not entirely true. Most grants go to local non-profits that help start-ups rather than the businesses themselves. Some states do, however, provide grants for special industries, such as technology and "green" sectors. Check your state's requirements for more information.

As you can see, there are a variety of ways to get financing for your start-up. An accountant or financial manager can help you decide which type of funding would be best for you. For more information on business financing, including sample promissory notes that can be used for family and friend loans, visit SCORE: http://www.score.org.

--

This article, by Dequiana Brooks, was originally published in Gemini Magazine.

Dequiana Brooks has been an entrepreneur for as long as she can remember. She now focuses her energy on helping other businesses succeed through her marketing strategy & design company, Inspired Graphics Media. Let her turn your inspiration into action by visiting http://www.inspiredmedia.net and scheduling your free consultation today!

(c) Copyright - Dequiana Brooks. All Rights Reserved.

Article Source: http://EzineArticles.com/?expert=Dequiana_Brooks

Dequiana Brooks - EzineArticles Expert Author

Thursday, September 2, 2010

Succession Strategies and Location Advice

I had the privilege of meeting Rachel Owens and Bill Sorenstein last Friday. Bill and Rachel own a company called Succession Strategies www.succession-strategies.com. Their business is providing a holistic succession planning approach to small closely held, family owned businesses...from real estate, to estate planning, to family councils, to life insurance, to profit sharing, etc. I thoroughly enjoyed our meeting and took away two new business relationships that I know will become beneficial to all of us.

I relate to the advice that Rachel and Bill provide on three levels...personal, employee, and business.

Personal:
My Dad was a second generation family business owner. His Father had founded the Buchanan Bottling Company in the 1930s. Their family of five worked diligently in the business for 30 years. My Dad was instrumental in the growth of the company...his two brothers were not as they pursued academia and the ministry. In the mid 1960's, my Dad's emergence as general manager and my Granddad's reluctance to relinquish control of the company created a maelstrom of disagreement which nearly resulted in our family's break from the company and relocation to another state. I witnessed death, divorce, alcoholism, and adversity on a first hand basis. Fortunately, a happy ending occurred as the business was sold at a significant profit in 1986 and my Dad and his brother (another brother died in 1985) were able to retire and live comfortably.

Employee:
I was recruited by the E and J Gallo Winery in 1982 from my previous employer, Procter and Gamble Distributing Company. Gallo is the one of the nation's largest family owned businesses. I witnessed many dysfunctional decisions...many good ones as well...during my two years there.

Business:
I provide location advice to owners and occupants of industrial buildings in Southern California. Frequently, these are owners of family businesses. With an aging population and tax rules that will penalize the transfer of family business ownership, ALL small family owned businesses need to have a succession plan. Rachel Owens and Bill Sornstein can help. Give them a call!

Succession Strategies®

1633 E. Fourth Street
Suite 216
Santa Ana, CA 92701

Phone: 714-560-9022
Fax: 714-560-0422
Email:
info@succession-strategies.com

PRINCIPALS
Rachel Owens
Phone: 714-560-9022 Fax: 714-560-0422
Email:
Rachel@succession-strategies.com

Bill Sornstein
Phone: 714-560-1679 Fax: 714-560-0422
Email:
Bill@succession-strategies.com

Wednesday, September 1, 2010

Business Sold, Retain Real Estate?

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.