Friday, July 11, 2014

Does your #CRE building belong on the Island of Misfit Toys?

Image Attribution: DRTscott.typepad.com
One of my favorite movies, around Christmas, growing up in Arkansas was Rudolph the Red Nosed Reindeer. I'm not sure why...other than SW Arkansas rarely got any snow, I was a rather gullible kid, and I assumed that ALL reindeer could fly and talk...go figure. One of the most memorable scenes in the movie for me was the Island of the Misfit Toys.



As I pondered our industrial building vacancy in Southern California recently, the comparison dawned on me. Our vacancy is VERY similar to the Island of the Misfit Toys. Granted we don't have Charlie in the box, an elf that wants to be a dentist or a red nosed reindeer...BUT we do have some odd balls vacancies. Indulge me a moment and let me expand my thought process.

As a disclaimer, I provide Location Advice to owners and occupants of industrial buildings in Southern California...AKA, I sell and lease commercial real estate for a living and have since 1984. I have experienced many, many, screwball buildings...have even leased and sold a few. This makes me some sort of an expert...if I can only remember why...

So back to the island. Our industrial vacancy is at historic lows. Currently 97 of every 100 buildings are occupied. WOW! So of the remaining 3 misfits that aren't...what's up?

In my opinion the misfits fall into three categories...function, pricing, and transaction structure.

Function: A building with 22' warehouse clearance in a 30' market, a building with a 90' truck turning radius, a building over 20,000 square feet without dock hi loading, a building with 50% office build-out and only enough parking to accommodate 1/2 of the employees, a building without an outside yard or staging area, a building with inadequate power for a manufacturing occupant, a building with an inadequate sprinkler system for high piled storage.

Pricing: This one is easy. A functionally obsolete building that is attempting to achieve functional building pricing OR new state of the art buildings with cutting edge pricing.

Transaction Structure: All of the activity in your size range are sale deals and you only want to lease your building OR you can't afford to meet the market because of your carrying costs OR the ownership can't agree on a direction or can't move quickly enough to capture a deal OR an occupant who has vacated the space, is trying to sublease the space but doesn't have any money for tenant improvements, fees, or other concessions.

 If you ever find yourself on the island with an owner of a misfit or are touring an occupant through the island, take solace in knowing...as the movie points out, there is ALWAYS a home for every misfit toy...regardless of the issues...you just need to be patient. A red nosed reindeer is bound to come along!