How To Make Sense of Multiple Proposals

Balance in a market - or lack thereof - can dictate how offers are made or received. Think about it this way. If you’re an occupant in a buyer’s market, you have myriad choices. Conversely, try to transact in an environment weighted toward owners and you’ll be lucky to have any choices. In the industrial real estate arena, this balance has tipped in favor of occupants. Not terribly long ago, this wasn’t the case. But the spate of new development coupled with a softening in demand has created a glut of available properties. 
 
In a balanced environment - where supply and demand are at parity - a negotiation would unfold like this. A need emerges. The alternatives are considered - three to five of them. The best is selected for function and value. An offer is made. A back and forth ensues. Agreed upon points are reduced to a contract. The deal is completed. Easy! 
 
Now, tip the scales in favor of the occupant or the owner and a very different approach must be employed. We start with the need. But in an occupant hedged domain, rather than three to five alternatives, there are twenty! And, there could be a number of these available buildings that are functional and can be leased or purchased at a great value. So how do you make sense of this clutter and refine it to the best option. 
 
What follows is a strategy I employ. 
 
1. Clarify the Need
Start by defining the fundamentals of what you’re looking for:
Are you leasing, purchasing, or considering a hybrid option? What incentives (e.g., free rent, tenant improvements) are critical? What is your budget? Consider base rent, escalations, and other costs like common area maintenance (CAM) fees. Do you need special features like upgraded office space, employee parking, or nearby dining and retail? Is the property move-in ready, or will it require modifications? Is ownership an option, and how does it align with your long-term operational goals?
 
2. Establish a Shortlist Using the S.P.A.C.E. Framework
In a market flooded with options, narrowing the field is essential. Use the S.P.A.C.E. framework to assess each property’s strengths and weaknesses:
1.   Structure of the Deal:
·        Are the lease or purchase terms favorable and flexible?
·        What incentives are offered, such as tenant improvements or free rent?
2.   Price:
·        Is the rent or purchase price competitive within the market?
·        What additional costs, like property taxes or operating expenses, impact the total cost?
3.   Amenities:
·        Are there value-added features like upgraded office areas, energy-efficient systems, or nearby retail and dining options for employees?
·        Does the property provide unique advantages, such as expanded parking, fitness centers, or collaborative spaces?
4.   Coordinates - Location:
·        Is the location approximate to Mears, key, employees, and customers.
·        Are the streets surrounding the building conducive to truck traffic?
5.   Equity of Ownership:
·        If ownership is an option, what are the financing terms?
·        How does owning versus leasing align with your operational and financial goals?
·        If you are leasing, what is the financial position of the ownership. Will they be able to fulfill the terms of the transaction?
 
3. Solicit Proposals
Once you’ve identified your top candidates, request detailed proposals. These should include:
·        Pricing (base rent, escalations, CAM fees, purchase price)
·        Terms (lease length, purchase options, tenant improvements)
·        Key features (amenities, condition, and ownership opportunities)
 
4. Rank the Alternatives
·        Property A scores highest for deal structure and price but lacks sufficient amenities.
·        Property B scores well across all categories, offering both favorable terms and modern amenities.
·        Property C offers ownership potential but requires significant upfront investment in renovations.
This process provides a clear, objective way to prioritize options.
 
5. Engage in Negotiation
With your top-ranked property identified, enter negotiations. Use your position in an occupant-favored market to secure the most favorable terms:
·        Extended free rent or higher tenant improvement allowances
·        Flexible lease terms or ownership incentives
·        Concessions like lower operating costs or early occupancy
If negotiations stall or due diligence reveals concerns, pivot confidently to your next choice.
 
6. Trust, but Verify
Even with a top-ranked option, thorough due diligence is critical. Conduct property inspections, financial reviews, and legal checks to ensure the property meets all expectations.

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.
 
 

What the Hawaiian Islands Can Teach Us About Commercial Real Estate

The Hawaiian Islands are a study in contrasts. On one hand, they are the embodiment of tranquility—waves lapping against volcanic rock, trade winds carrying the scent of plumeria. On the other, they are a vivid reminder of nature’s unpredictability—lava flows reshaping the land, hurricanes forging new paths, and the ever-present pull of erosion and renewal.
This dynamic environment offers an unexpected metaphor for the world of commercial real estate. Whether you’re managing a warehouse in Southern California or negotiating a lease in the Inland Empire, the lessons of Hawaii’s landscape and culture provide valuable insights into navigating this industry.

1. Land Is Finite: Make It Count
Hawaii’s geography is the most obvious lesson: land is finite. With only so much coastline and volcanic rock to develop, property in Hawaii is a premium commodity. Similarly, industrial real estate in regions like the Inland Empire operates within finite borders. As available land diminishes, the value of strategic decisions—whether to build, buy, or lease—skyrockets. Understanding how to maximize the utility of limited resources is a skill that sets successful brokers, owners, and tenants apart.

2. Be Prepared for Shifting Conditions
In Hawaii, weather can change in an instant. One moment you’re basking in sunshine, and the next you’re seeking shelter from a sudden downpour. The commercial real estate market mirrors this volatility. Shifting economic conditions, interest rate hikes, and unexpected global events can upend even the best-laid plans. Those who thrive are the ones who, like Hawaiian locals, keep a watchful eye on the horizon and prepare for the unexpected.
During the 2008 financial crisis, I witnessed this firsthand while representing a manufacturing facility in Anaheim. Just as a hurricane alters its course, a sudden credit crunch derailed a deal that had seemed certain. Remaining adaptable allowed us to eventually close a sale, albeit at a lower price, when the financial storm had subsided.

3. Sustainability Matters
Hawaii’s deep-rooted cultural respect for the ‘aina—the land—teaches us the importance of stewardship. Overdevelopment without regard for environmental or community impact can lead to long-term challenges, both ecological and economic. In commercial real estate, this principle translates to thoughtful planning: designing buildings with sustainability in mind, considering the impact on surrounding communities, and balancing growth with preservation.
This isn’t just an ethical concern; it’s a market-driven one. Tenants are increasingly prioritizing eco-friendly spaces, and properties with sustainable features often command higher rents and stronger demand.

4. Relationships Drive Resilience
Hawaii’s aloha spirit is built on a foundation of community and relationships. In real estate, relationships are just as vital. Deals are rarely transactional—they’re built on trust, communication, and mutual benefit. Like the ohana (family) concept in Hawaiian culture, real estate thrives when brokers, owners, and tenants collaborate, rather than compete unnecessarily.
When I’m working with a client in the Inland Empire, for instance, the success of the transaction often hinges on maintaining open dialogue. Whether I’m representing a tenant searching for a logistics hub or helping an owner market their property, the spirit of cooperation ensures smoother negotiations and enduring partnerships.

5. Change Brings Opportunity
Hawaiian islands are born from volcanic activity—an inherently destructive force that simultaneously creates new land. This duality reminds us that change, even when disruptive, often brings opportunity. In real estate, market shifts can feel catastrophic, but they also present openings for those who are ready.
For example, when demand in one sector slows—say, big-box retail—it can pave the way for adaptive reuse projects, like converting empty stores into industrial warehouses or fulfillment centers. Just as lava reshapes the islands, change reshapes the industry, offering new possibilities for growth.

Closing Thought
The Hawaiian Islands remind us that even in the midst of uncertainty and constraints, there is beauty, opportunity, and resilience. By adopting the lessons of this unique landscape—maximizing limited resources, staying adaptable, embracing sustainability, fostering relationships, and recognizing the potential in change—commercial real estate practitioners can navigate their own dynamic terrain with a little more grace and aloha spirit.

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.
 

Ghosting: How It’s Haunting Commercial Real Estate Deals

Ghosting—a term that started in the dating world to describe someone disappearing without a word—has found its way into modern professional life, including commercial real estate. It’s the unsettling silence that comes from one party simply vanishing at a critical moment in a deal. In an industry where every day counts and trust is often painstakingly built, ghosting is more than a nuisance; it’s a serious disruptor that can jeopardize timelines, impact finances, and strain relationships.
When you’re working through a commercial real estate deal, you expect a level of mutual respect and communication. Agreements are crafted, terms are negotiated, and timelines are meticulously planned. But, as many of us have experienced, there’s a disconcerting moment when a response just doesn’t come. A potential buyer, a key decision-maker, or even an advisor might fall silent for days, sometimes weeks, without any warning. The questions flood in: Did they lose interest? Did they find another property? Is there a hidden issue no one wants to address?
Ghosting can happen for many reasons, and not all of them are sinister. Maybe an interested buyer hit a financing snag they’re trying to resolve before responding. Sometimes a corporate decision must clear so many hurdles that communication lags. But regardless of the reason, the effect on a deal is the same—stalled progress, disrupted timelines, and a nagging sense of uncertainty.

The Cost of Silence
Imagine you’re representing a seller with a high-stakes property on the market. An interested buyer makes a compelling offer, and there’s enthusiasm on both sides to move forward. The offer gets accepted, and everyone dives into due diligence, ticking off boxes and anticipating a smooth closing. Then, suddenly—silence. Days pass, deadlines inch closer, but the buyer is unreachable. Calls go unanswered, emails seem to vanish into thin air, and the seller’s growing anxious.
In this scenario, the financial cost of ghosting becomes real. The seller has tied up their property, potentially missed out on other offers, and invested in preliminary due diligence expenses. Every day of delay can mean mounting holding costs, from taxes and utilities to interest payments. Meanwhile, the buyer’s silence also impacts the broker or advisor, who’s invested considerable time and effort into moving the transaction forward. At some point, the team must ask: Do we wait? Do we move on?

Why It Happens
Interestingly, ghosting often reflects uncertainty or fear of commitment from one party. In commercial real estate, deals can be complex and daunting, especially when significant capital or corporate decision-making layers are involved. Buyers may ghost if they’ve suddenly discovered an unanticipated financial issue or if internal stakeholders are pushing back on the decision. On the flip side, sellers or landlords may go quiet if they’re holding out for a better offer, though they’re generally less likely to ghost if a strong prospect is at hand.
Another driving factor in today’s market is analysis paralysis. With economic conditions fluctuating, especially in markets like Southern California, many buyers and sellers find themselves hesitant, double-checking every calculation, unsure if they’re making the right move at the right time. The result? Radio silence.

Mitigating the Ghosting Effect
So, what can you do? If you’re on the receiving end of ghosting in a commercial real estate deal, you’re likely juggling frustration, uncertainty, and an increasing sense of lost time. But there are ways to reduce the chances of ghosting derailing your progress:

1. Set Clear Expectations Upfront: Establish communication expectations with all parties from day one. Agree on timelines for responses and stick to them as closely as possible. Having this protocol in place can prevent misunderstandings about how and when information will be shared.

1. Stay Proactive in Communication: If there’s radio silence, reach out sooner rather than later. Sometimes a friendly nudge, like a quick call or email, is all that’s needed to reengage a hesitant party. Don’t be afraid to ask directly if circumstances have changed.

1. Build in Backup Plans: Avoid tying all hopes to one deal. Especially in today’s market, staying flexible and having backup options can prevent total disruption if a deal goes quiet. Cultivate relationships with other potential buyers or sellers to avoid putting all your eggs in one basket.

1. Understand Motivations: Knowing what drives the other party can help you read between the lines if communication slows. Are they facing financial stress? A strict timeline? Sometimes the silence isn’t personal—it’s situational.

Final Thoughts
Ghosting in commercial real estate is more than a minor inconvenience; it’s a reflection of the challenges of modern deal-making. From the Inland Empire’s logistics hubs to high-demand sites throughout Southern California, every transaction depends on clear communication, trust, and reliability. While ghosting may be here to stay, being aware of its impact and taking proactive steps can reduce the haunting effects of silence. After all, in real estate, no one wants to be left in the dark.
 
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.

What Reports Are Necessary For A Building Purchase

Generally speaking, once a buyer and seller agree upon a price and terms of a purchase transaction, these points are memorialized in a purchase and sale agreement. Purchase and sale agreements come in several flavors—the most common of which are standard and proprietary. The AIR CRE contract, a widely used iteration, and the CAR commercial contract are examples of standard forms. Proprietary contracts morph the seller’s spin on certain things such as warranties and representations. In my experience, standard forms are common for deals less than $10,000,000, while seller forms dominate for transactions above this amount.

Now, let’s assume the deal is in its infancy with a signed contract. As the buyer, you’ll want to review and engage certain consultants for “third-party reports.” Some sellers remove the mystery and provide the buyer with a complete complement of reports. In other deals, the onus is upon the buyer to create a due diligence package.

So let’s dive into the typical studies necessary for a thorough review of the considered property:

Title Report

A title report ensures the property is free from legal encumbrances, such as liens or easements, that could affect ownership or usage. Reviewing the title report is vital for verifying that the seller holds clear ownership and that there are no surprises when it comes to boundary issues or legal rights tied to the property.

Appraisal Report
An independent appraisal confirms that the agreed purchase price aligns with the property's market value. This report is essential not only for your financial analysis but also as a requirement from lenders to justify the loan amount.

Environmental Report
This typically starts with a Phase I Environmental Site Assessment, which screens for historical or current environmental liabilities. Should any concerns arise, a Phase II assessment, involving deeper testing, may be necessary. An environmental report is crucial for identifying any contamination risks that could lead to costly remediation or regulatory complications.

Building Inspection
A property condition report or detailed building inspection assesses the state of the structure and major systems, such as the roof, HVAC, plumbing, and electrical. This report helps you anticipate maintenance or repair needs and budget accordingly.

Zoning Report
Zoning reports confirm whether the property’s use complies with local regulations. This is key for understanding current and potential future use, and whether any zoning changes or variances are necessary.

ADA Compliance Report
If the property is accessible to the public, ensuring compliance with the Americans with Disabilities Act (ADA) is critical. This report identifies any upgrades needed to meet accessibility standards, helping you avoid legal liabilities and costly retrofits down the line.

Financial Review
For properties with tenants or a history of income, a financial audit reviews current rent rolls, tenant payment history, and lease terms. This allows you to assess the stability and profitability of existing income streams and spot any potential issues.

Seismic Report
In areas prone to earthquakes, a seismic assessment evaluates the property’s structural resilience and identifies potential retrofitting needs. This report can inform insurance requirements and future safety investments.

Natural Hazards Disclosure
A natural hazards report identifies whether the property lies in a flood zone, wildfire risk area, or other hazard-prone location. Understanding these risks can impact insurance costs and property management strategies.

Property Information Sheet
A comprehensive summary sheet consolidates vital details about the building’s specifications, such as square footage, year built, and major renovations. This document provides a snapshot for reference throughout the transaction process.

Mandatory Disclosure Form
This form, often required by law, includes any known defects or issues the seller is aware of, adding a layer of transparency to the deal. Reviewing it can highlight potential red flags or areas for further investigation.
Completing a thorough review using these reports can help you make informed decisions, mitigate risks, and ensure that your building purchase aligns with your expectations and strategic goals.
 
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.

S.P.A.C.E.

Over the last couple of weeks, we’ve explored the ebb in demand for industrial real estate—why it’s happening and how to measure the market’s pulse through a tool known as the sentiment index. If you missed those columns, you can catch up here.
As logistics inventories have swelled, creating a shift in favor of occupants, we’re fortunate to be representing an e-commerce distributor expanding into the Inland Empire. In the size range we’re targeting, the choices are abundant. To focus our client’s search on only the best options, we reduced the initial list from 47 properties down to 19. Yes, you read that right: 47 choices in this market. To narrow down, we eliminated short-term subleases, locations tied up through our client’s target date, and any projects still scheduled for completion in early 2025. But even with 19, touring each of these sites is a Herculean task.
From coordinating with agents, previewing buildings, and clarifying each owner’s motivation and pricing, to planning a seamless tour route—it all adds up. And the toughest part? Keeping all 19 locations fresh in our minds, accurately ranked as to suitability. To stay sharp, we use a system we call S.P.A.C.E. Here’s how it works:
Each category is scored on a scale from 1 to 10, with 10 being the best. For instance, if the building is at a prime intersection, “C” for Coordinates gets a 10.

• S = Structure of the Transaction. This covers lease terms, free rent, extension options, rights to buy, tenant improvement allowances, and other incentives that make the deal attractive. It’s the “bones” of the deal, setting the foundation for the entire transaction.

• P = Pricing. We look at the asking lease rate or sale price, but also dig into whether there’s room to negotiate below the stated amount. Pricing flexibility can make or break a deal in today’s market.

• A = Amenities. Our client is prepared to invest significantly in outfitting their new space—installing warehouse racking, security systems, dock equipment, and lighting, to name a few. If a building already has some of these features, it’s a big advantage. Amenities also include the essentials: ceiling height, truck access, trailer parking—all contributing to the overall amenities score.

• C = Coordinates. Location is everything, and coordinates cover proximity to highways, ports, customers, and suppliers. We also assess access to a reliable labor pool and check how close key employees live. If the site is perfectly positioned, that’s reflected in its score.

• E = Equity and Ownership. This is one aspect that’s often overlooked, but we find it crucial. The stability of ownership impacts everything from lease flexibility and maintenance responsibilities to financial strength and motivation. It’s the “X factor” in the relationship between occupant and owner—the basis for a partnership that lasts.

Next time you’re faced with an overwhelming array of options, try using this S.P.A.C.E. system. It really works!
 
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.