Friday, January 10, 2020

Your Business is in Transition - Now What?

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Some commercial real estate transactions - especially involving an occupant buying, selling or leasing - stem from a trigger event. In other words, a change. Simply, the ebbs and flows of economic activity cause a company to re-evaluate its business address.

As I reflect upon the deals I have transacted and what caused them to occur - several situations come to mind:

Last year, three of our import/export clients decided to scrap their expensive warehouse in favor of a third party logistics provider. By doing so, brick and mortar expense and labor costs were saved. Gained was flexibility to meet changing inventory requirements in a “pay as you go” arrangement. However, two of the companies leased their previous spots and one owned. We dealt with the excess with two subleases of the remaining obligations and one move-out and vacant building lease.

Recently, we were engaged for just the opposite. Before, our client shipped his customer’s products directly to the job site - thus eliminating the necessity of storage. Now his customer demanded he stock the items locally for will call. His current operation was maxed. Gotta put ‘em someplace! So, we are in the market for an auxiliary location.

Buying a competitor or selling a business always morphs into space adjustments. Locally, we’ve seen merger and acquisition activity akin to the days of Gordon Gecko. “Greed is good indeed”! 100% of the time - when businesses marry or divorce - redundant real estate results. Now, the Brady Bunch of facilities must be absorbed into one hybrid family. One extreme example - with which we are navigating - involves a manufacturing interest which finds itself with four different parcels - but only needs one.

Occasionally, there is a change in the business owner’s motivation. Retirement, the death of a key employee, a move out of state, or just calling it quits - voluntarily or involuntarily - can portend a different use of commercial real estate or a re-deployment of the building’s equity. Upon the decision to shutter a fifty year old construction company we assisted the owner in selling the old site and re-investing the proceeds into a shiny, fully leased asset that will provide cash flow for years to come.

Let’s not forget a dramatic increase or decrease in sales volume. All manner of accommodation must follow if the current physical plant can’t handle the bump. If on the rise - new equipment and machinery, additional employees, and raw materials must have a place to reside. The counter causes a look at ways to jettison expenses. Yep. One of the biggest liabilities can be rent on a commercial location. A distribution client of ours chose to deal with his increase in business by buying a facility twice the size of his current endeavor. He accomplished two things - space issue solved and no longer does he fund his landlord’s retirement.

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.

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