Hilary and CRE

On Wednesday of last week, the first reports of a tropical storm brewing off the coast of Baja were filed. Over the next few days, the storm gained intensity and at its peak had winds allowing it to claim Category 4 status - one below the largest breed, a Cat 5. Catastrophic flooding, crippling winds and record rainfall were predicted to hit SoCal as the first storm of its kind to make landfall in 84 years barreled toward our coast. As I write this column, Hurricane Hilary is headed up through Northern California, Oregon and Idaho and fortunately not leaving much destruction in its wake. Sure we had some flooding in the Inland mountains and valleys but for the most part very little wind or rain in Orange County. I’ve definitely witnessed more torrential downpours during El Niño storms. 
 
You may be wondering what a freak hurricane has to do with commercial real estate? Indulge me as I draw a few parallels. 
 
Resilience and Preparedness. Just as communities and individuals need to prepare for hurricanes and other natural disasters, businesses also need to have contingency plans and strategies in place to withstand unexpected challenges. Is your manufacturing business able to sustain a power outage? Do you have an alternate shipping provider if UPS or FedEx were to strike? 
 
Location Matters. The path of a hurricane is critical in determining its impact, and similarly, the location of a commercial property can greatly influence its success. Proximity to employees, suppliers, and customers are critical. Businesses must carefully choose their real estate locations to ensure accessibility, exposure, and the ability to weather economic storms.
 
Risk Assessment and Mitigation. Analyzing the potential risks of a hurricane, such as flooding and wind damage track along with the need for businesses to assess risks associated with their real estate. Are you covered in the event of a cyber attack? With so many carriers leaving California, have you had a recent chat with yours to insure your coverage is secure?
 
Adaptation and Recovery. After a hurricane, communities and businesses must adapt to new conditions and work towards recovery. Similarly, commercial real estate ventures might need to adapt to changing market dynamics, technology trends, or shifts in tenant needs.
 
Infrastructure and Facilities Management. Hurricanes can damage infrastructure, and businesses must invest in repairs and maintenance to keep their operations running. I received a call last month from a client seeking referral to a roofer. Mind you, he had no idea we’d have rain in August. He just realized the best time to prepare for roof leaks is before you have one. 
 
Community Impact. Hurricanes impact not only individual properties but also the broader community. Similarly, the state of commercial real estate in a region can affect the local economy and vice versa. Vacancy in a regional mall or a dark big box retailer - such as the one near our house - cause tenants to seek other addresses. 
 
Economic Resurgence. After a hurricane, communities often work together to rebuild and revitalize. This mirrors the collaborative efforts that can occur in the aftermath of economic downturns or changes in the commercial real estate market. I recall an investor telling me in 2010 that we were entering the best buying cycle of a lifetime - and he was correct!
 
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.blogspot.com.