Gauging the Market

As commercial real estate  practitioners, we spend our days advising owners and occupants of locations. These may be office, retail or industrial. I’ve plied my trade industrially for over four decades in Orange County and the Inland Empire. Over time, I’ve seen some wild swings in market activity - also known as buying and leasing. 
 
The early nineties were mired in a deep sleep caused by the invasion in Iraq and the savings and loan implosion. We dealt with tepid demand until the middle part of the decade when velocity returned. The dot com bubble bursting and the financial - err - adjustment of the early and mid 2000s caused quite a ruckus as well. What followed was a spate of activity like no other we’ve  seen until - well 2020-2022. Now we sit with a lack of demand precipitated by uncertainty. Recall, I wrote about that last week. If you missed the column, you can refresh here. 
 
Today, I’d like to discuss a simple way to figure in which way we’re headed - up or down - with the scale pushed in favor of occupants or owners. 
 
If there’s one thing I’ve learned over the years, it’s that gauging the market isn’t just about looking at vacancy rates or rent trends—it’s about understanding the balance of power between owners and occupants. 
 
A simple, albeit informal, method I’ve used is what I call the "Sentiment Index." Essentially, it’s a measure of who feels the pain—or the confidence—more sharply: those with the space to lease or sell, or those seeking to occupy it.
Right now, what I’m seeing and hearing suggests the scales are tipping in favor of occupants. How do I know? Conversations with landlords have turned from boastful pride to cautious consideration. When owners and their representatives are more eager to have a “productive chat” about lease terms, you know we’re moving into a phase where flexibility and concessions might be on the horizon.
 
Lessons from the Field: The Subtle Shifts in Conversations
In fact, these shifts in tone can often signal broader trends before the numbers catch up. Let me give you an example: Back in the early 90s, during what many in the industry refer to as the post-S&L era, the signs of a cooling market weren’t apparent in the stats just yet. But for those of us on the ground, it was clear as day. What tipped us off? The tone of conversations with owners changed from assertive to inquisitive: “What’s happening out there?” took the place of “We’re holding firm at this price.”
Today, I’m noticing a similar shift. In the Inland Empire, where logistics had been king over the last five years, conversations that were once about jockeying for the best price per square foot have turned into careful discussions on structuring deals that create longer-term value. For example, some owners are asking about the implications of rent abatement periods or tenant improvement allowances—areas where, in stronger markets, the negotiation wasn’t as flexible.
 
Keeping a Pulse on Indicators Beyond the Numbers
But why focus so much on sentiment? Because market reports and metrics, while useful, can lag behind the reality on the street. When deals are being renegotiated, terms are becoming more flexible, and incentives are starting to creep back in, it suggests that demand is softening relative to supply. And that’s exactly what I’ve been noticing lately.
 
For example, last month, I saw a deal come together for a mid-sized logistics tenant in Riverside. The lease was inked at a rate that, six months ago, would have raised eyebrows among the ownership crowd. But with looming uncertainty, the landlord chose certainty of occupancy over a speculative holdout for higher rents. To me, that’s an early indicator of where we’re headed.
 
Occupants: A Window into Demand Dynamics
On the occupant side, I find their actions can tell us just as much about market direction. When they start negotiating harder on expansion options or holding off on committing to large leases, it’s clear they’re sensing future uncertainty. Right now, I’m seeing this play out with clients in the Inland Empire who are recalibrating their growth strategies to align with supply chain volatility and interest rate hikes.
 
If you ask an occupant why they’re hesitating, they won’t often point to market reports. Instead, you’ll hear things like, “We’re waiting to see if interest rates stabilize,” or “We’re worried about carrying costs if demand slips.” These concerns are less about where the market is now and more about where it’s headed.
 
Conclusion: Listening to the Market’s Whispers
In commercial real estate, the market doesn’t always shout its intentions—it whispers them through subtle cues. Right now, the whispers are pointing to a delicate balance, one that could easily tip in favor of occupants if uncertainty persists. The key is listening closely and responding proactively.
 
So, if you’re trying to gauge market activity, don’t just look at the metrics. Tune in to the conversations and observe the changes in sentiment. Those shifts can tell you more about where the market is headed than a spreadsheet ever could.
 
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.

Price Reductions

Our industrial market in Southern California is rapidly morphing into a buyer’s/tenant’s market. By that I mean, a supply of available buildings which exceeds demand and a softening of prices. We’re seeing this especially in the large logistics spaces constructed in the last building craze. At their peak, rents topped $2.10 per square foot triple net for these concrete caverns. On a 100,000 sf building, that’s $210,000 per month plus an additional $40,000 for operating expenses. In context, these rents for a seemingly lower and lesser use - industrial - than an office building eclipsed the price paid for a suite of office space. 
 
Prior to June 2022, these boxes were devoured by hungry occupants before construction was completed. Now they sit. In some cases for months. Those deals that have transacted are much less than the halcyon days of two years ago. Now a credit worthy tenant can expect to pay $1.75-$1.85 triple net for the same address which commanded 17% higher numbers not that long ago. 
 
What about the sale market? In north Orange County - Anaheim, Placentia, Brea, Orange, Yourba Linda, Fullerton and la Habra - we’ve also seen softening. However, not to the extent rents have decreased. The inland areas tell a different story. 
 
Factors Contributing to the Shift:
1. Increased Supply: The recent building boom has resulted in an oversupply of large logistics spaces. These buildings, once in high demand, are now struggling to find tenants. This surplus is driving down rental rates as owners compete for a shrinking pool of occupants.
2. Economic Uncertainty: Economic factors, including inflation and rising operational costs, have made businesses more cautious about expanding their industrial footprints. Companies are re-evaluating their space needs and, in many cases, opting for smaller or more flexible leasing arrangements.
3. Changes in Consumer Behavior: The rapid shift towards e-commerce during the pandemic has now stabilized. As consumer behavior normalizes, the frantic demand for massive warehouse spaces to accommodate inventory surges has waned.
4. Financing Challenges: Higher interest rates and tighter lending conditions have made financing new acquisitions and developments more challenging. This has tempered the pace of new investments and developments in the industrial sector.
 
Opportunities for Tenants and Buyers:
1. Bargaining Power: With a glut of available spaces, tenants have greater bargaining power. They can negotiate more favorable lease terms, including lower rents, longer rent-free periods, and tenant improvement allowances.
2. Strategic Acquisitions: For buyers, especially those with readily available capital, this market presents opportunities to acquire properties at more reasonable prices. Investors can capitalize on distressed assets or properties that have been sitting vacant.
3. Long-Term Planning: Businesses can take advantage of the current market conditions to secure space for future growth at attractive rates. Locking in long-term leases now can provide stability and cost savings in the years to come.
 
Challenges Ahead:
1. Vacancy Rates: High vacancy rates can strain property owners who rely on rental income to meet their financial obligations. This could lead to increased property turnover and potential distress sales.
2. Maintenance Costs: Maintaining large, vacant industrial properties can be costly. Owners must continue to invest in upkeep to attract potential tenants, even as rental income declines.
3. Market Uncertainty: Continued economic uncertainty and potential regulatory changes could further impact the industrial real estate market. Stakeholders need to stay informed and adaptable to navigate these challenges.
 
Conclusion:
The Southern California industrial real estate market is undergoing a significant transition into a buyer’s/tenant’s market. While this shift presents challenges for property owners, it also offers opportunities for tenants and buyers to secure favorable terms and strategic investments. By understanding the factors driving this change and staying adaptable, stakeholders can navigate the evolving landscape and capitalize on new opportunities.
 
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.
 

Occupant Mistakes

Occupants of commercial real estate, also referred to as users or occupiers fall into two categories - tenants or owners. To draw a finer distinction - both are tenants - however one genre pays rent to an unrelated third party, a landlord and the other pays rent to a related owner of the building. Most common in the second type, is a real estate ownership structured as a limited liability company, LLC, and the occupier a corporation. 
 
Today, I want to focus upon some common mistakes I witness occupants make in their commercial real estate decisions. 
 
No agreements. Too frequently, I see this with occupants whose building ownership is synonymous with that of the operation. A building is purchased, many times with debt, and a mortgage payment is originated. Additionally, property taxes, insurance, and maintenance are incurred. Resulting is a payment - rent - which ownership charges the resident. Unfortunately, the payment has no relation to a market rent for a comparable building. The owner has her costs covered and believes everything is golden. Unfortunately, a subsidy - charging the company less than market - devalues the operation. If a market rent was charged, a deduction in profit results. Conversely, billing too much places undo strain upon the occupant and ready sources of capital are consumed. This can limit the ability to hire, buy machinery, and grow sales. 
 
Once a satisfactory market rent is determined, it’s critical to have a written agreement between the parties - outlining the rent, expenses, term, increases, and options. 
 
I once had a client forced to move because no written agreement existed between the owner and occupant. Unbeknownst to the occupant, the owner had deeded small portions of the building ownership to various entities, such as ex-wives, charities, ex-girlfriends, and the like. When the owner met his untimely demise, the occupant - who was also a small owner of the building - found himself without an agreement and many different factions wanting their equity. A trustee was appointed to sort out the mess. The trustee’s only course of action was to sell the building and force the tenant to relocate. Extreme, but it can happen.
 
Extension rights. Extension rights fall in to numerous categories including options to renew a lease term, options to purchase the building, options to terminate the lease, options to take additional space, rights of first refusal to purchase and lease, as well as rights of first refusal and rights of first offer to purchase the real estate. Clearly, these understandings must be in writing in order to avoid conflict. However, one of the problems I see is the agreements are too vague. As an example, maybe an occupant has the option to renew the term of their lease for five years upon the expiration of the original lease term. If the language simply says - and occupant can stay for an additional five years at a mutually agreeable rate, disagreements can occur -  because no mechanism exists to determine a fair rental rate. Therefore, it’s important for options to not only be in writing, but also have clear definitions as to how rents and purchase prices are to be calculated. I’m involved in one such exercise currently where the language is very specific. If the landlord and tenant cannot agree upon a rate, each appoints, an arbiter to make an independent evaluation of the market. If those two arbiters cannot come to an agreement, a third arbiter is appointed by the previous two and her determination is final. This is a cumbersome process, but one which will avoid any disagreement. Finally, make sure the market lease rate or market purchase price is based upon comparable buildings within a comparable sub-market with similar amenities. In other words, it’s unfair to compare a 4000 square-foot address in the Irvine Spectrum to a 100,000 square-foot building in Santa Fe Springs.
 
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.
 

How Sky High Mortgage Rates Slow Commercial Real Estate

Welcome to our glorious SoCal fall! As days shorten, leaves crunch underfoot, and temperatures cool - our commercial real estate market faces several headwinds. Hamas’ blatant attack upon Israel, the ouster of our House speaker, and the ten year bond yields at twenty year highs headline the obstacles. The first two - Israel being attacked and patticake in the House of Representatives create uncertainty. As I’ve said here many times - in the face of uncertainty, long term decisions are postponed or scrapped entirely until things level. But mortgage rates at highs not seen since the financial meltdown of last decade creates gridlock in the housing market. As residential transactions ebb, we feel it commercially. How you may be wondering? Allow me to expand a few scenarios. 
 
Turnover generates commerce. My mind is drawn to the pre-pandemic spate of deals in our small enclave of houses in East Orange. On our street, my wife and I have owned our address second longest. Kitty corner to us are original owners since 1984. Their multi-generational set up remains today - only with a new gen. But lately, several of our neighbors tapped out for assisted living or passed away - leading to four homes changing hands. Also, one rental converted into an ownership. In every instance a dramatic interior redo occurred followed by a freshening of the outside as well. So let’s break this down. First, a transaction happened. In the process, real estate agents were deployed for the buyer and seller. Staging, signage, glossy brochures, and touch up repairs preceded the sale. Maybe a lawyer or two got a look at the contract. Then escrow officers, title representatives, and lenders were engaged. Home inspectors, termite companies, and moving vans were hired. Insurance for the new digs was a closing component. And let’s not forget the bump in property taxes which funds our county government. Once the deed records and title transfers - an army of contractors descends upon the early 1980’s structure. Paint, flooring, kitchen upgrades, bathroom remodeling, wall removal, additional square footage built, etc. occur in earnest. The old furniture surely can’t be set inside this pristine interior. So a trip to Living Spaces, Daniels, or Mathis Brothers follows. Now an elderly couple - with limited consumption - is replaced by a family of four or five. Groceries, gasoline, dry cleaning, sports equipment, school clothes, orthodontics, urgent care, pets and pet supplies, and Amazon home deliveries are all fueled by the new residents. Commercial real estate activity is bolstered by the sale of houses! Please take a moment to review the steps above. In every case - office, industrial and retail are enhanced. Officed are residential real estate agents, escrow and title plants, lawyers, physicians, and insurance brokers. Moving and storage, all facets of contacting and landscape companies ply their trades in industrial buildings. Finally, buying stuff. Yes! Retail storefronts or online portals. Absent the turnover in houses, these businesses are forced to downsize, close their doors, or look elsewhere for new work. 
 
Rate shock. The ten year treasuries eclipsed 4.8% last week for the first time since 2007! Great news for savers but lousy for those looking to buy a house, refinance a mortgage, expand a business, or purchase commercial real estate. Two years ago today, that same yield was 1.61%. Yes. Yields today are roughly three times where they were two years ago. Savers in 2021 - in order to get a reasonable return on their investments were forced to seek riskier assets such as stocks, commodities or real estate. Now, backed by the full faith and credit of the United States government, passive investors can make a nice risk free return on their money. Avoided are the gyrations of the stock market or the downside of real estate ownership - losing a tenant. However, this astronomic rise in rates makes borrowing more expensive. Therefore, affordability in house purchases becomes less so. If you’re among the unfortunate few who have maturing loan balances to refinance - brace yourselves. Finally, expanding a business becomes richer. Here’s what I mean. Banks price loans based upon their cost of funds and the strength of the collateral. As we just discussed, a saver can make 4.8% in treasuries so banks must raise certificate of deposit rates to attract new money into their bank. Expanding an enterprise into an uncertain economy could be viewed by some lenders as risky. Therefore, to hedge against default, the rates charged must compensate. And the circle continues. For those hoping to secure ownership in a location to house their operation - many will encounter a debt service too expensive compared to a rental. More will find leasing to be more affordable. 
 
This year, I’ve been quite bullish on our economy and the resilience of the consumer. When others predicted a slowdown, I took the contrarian position. Now, with student debt repayment ramping up after pandemic hibernation, home savings balances declining, the government money spigot ending, high interest rates ramping plus some new global unrest - I’m afraid a recession is inevitable. When, how deep and how long remain questionable. 
 
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 Can The NBA Finals Teach Us About Commercial Real Estate

The NBA finals start in a couple of days. I generally lose interest when the Lakers are no longer in it - which means I’ve not cared for a week or so. Plus, there are so many other things to focus on this time of year - the start of summer, Dad’s day, graduation, another school year completed, upcoming vacation, three day summer weekends, and lots of gray days. Yeah. It’s hard to complain about SoCal weather but cmon. A day of sun would be nice. My thoughts returned to the NBA as the stage is now set. Miami v Denver. A television network nightmare. I’m guessing the suits would’ve preferred LA v the Celtics with their rich history of playoff battles. You know Magic and Bird were pining and hoping for a rematch. But here we are.
 
You may be wondering what any of this has to do with commercial real estate. Indulge me while I draw some comparisons.
 
It's a LONG season: Just like the NBA season, commercial real estate deals often require a significant amount of time to unfold. From identifying opportunities, conducting due diligence, negotiating terms, and finalizing transactions, the process can be lengthy and complex.
 
No lead is safe: In the NBA, teams can quickly turn the tide of a game and overcome large point differentials. Deals can have unexpected twists and turns. Motivations change, unforeseen challenges arise, and market conditions ebb.
 
Home court matters: In basketball, playing on your home court can provide a distinct advantage due to familiarity with the environment and the support of the home crowd. In commercial real estate - location plays a crucial role. The right address can significantly impact the success of a business.
 
Teamwork and Collaboration: Just as NBA teams require teamwork and collaboration to succeed on the court, commercial real estate deals often involve multiple parties working together. Transactions typically involve buyers, sellers, brokers, lenders, attorneys, and other professionals who must work together to reach the closing table. Effective communication, cooperation, and coordination are essential for successful outcomes.
 
Strategy and Game Plan: NBA teams develop game plans and strategies to maximize their chances of winning. Investors and developers formulate approaches to identify and capitalize on market opportunities. They assess trends, analyze financial data and evaluate risks.
 
Adaptability and Flexibility: In the NBA, teams must adapt to various situations, including different opponents, match-ups, playing styles, and game situations. Required are the same in the commercial real estate industry. Market conditions, regulations, and economic factors can change, and successful professionals in the field need to be responsive and adjust their strategies accordingly. Adapting to shifting trends and finding creative solutions are crucial for sustained success.

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.

Five most frequently asked questions

Next month I celebrate 39 years brokering commercial real estate in Southern California. My office of Lee & Associates celebrated 40 years this month. That’s right! All if my days have been spent at the same shop - a rarity. Logging weekly my thoughts and experiences started with the Location Advice Blog in 2010. And the Southern California News Group started publishing my writings in February 2015. Yep. Over eight years and 400 plus columns.
 
What follows are the five most frequently asked questions of me as a commercial real estate practitioner. Plus, I will throw in a bonus one! Stay tuned.
 
Question number five: Can I make changes to the space and if so, who pays for it? Generally and it depends.
 
Changes to a location - additional office, power upgrade, sprinkler retrofit, paint and carpet, moving walls, installing racks, distributing power, etc. can generally be accomplished subject to ownership approval and governmental approval with the proper permitting and code construction.
 
Changes to the square footage (IE: adding a structural mezzanine), changes to the common area, fencing required parking spaces, creating windows in bearing walls - not so easy.
 
Changes are typically paid for in one of three ways: the owner pays for all of the cost and concedes the cost (rare), the occupant pays for all of the cost (even rarer), or some combination of the two. This compromise could be an owner paying for the refurbishment of the space such as paint, carpet, and cleanup and conceding the cost and paying for the cost of a sprinkler retrofit and amortizing the cost over the term of the lease.
 
The "acid test" of who pays depends upon the owner's ability to pay, the owner's motivation, the general or specific nature of the improvements (think future marketability) and the market (is the competition delivering space to the market completely refurbished). Sometimes an owner will be willing to compensate a tenant in the form of free or half rent to offset the cost of changes.
 
Question number four: How do you get paid? The owner of the property pays us.
 
A common misconception is the fee adds to the purchase price or lease rate. The reality is an engaged agent can achieve a much higher purchase price than the typical owner because of market knowledge and experience. On the occupant side, an experienced agent can negotiate a better lease rate and concession package because of our knowledge of comparables, availabilities, and motivation. The net result is a better deal for both parties.
 
Question number three: How long have you done this? Since 1984.
 
 Real estate content (comps, avails, absorption, current pricing) is the same but the method of delivery is different. Who would have foreseen in 1984 that I would be doing this when I turned 66- prior to fax machines and the world wide web! Or, that we could survey inventory of available buildings - in our car - or at the beach - and send a list with images to our clients with the click of a button. Or, that we could send a video - in real time - of the property - unbelievable!
 
Question number two: How much is my building worth? That depends on a number of factors.
 
We consider the market - up trending or down trending, comparables and availabilities. If the market is up trending, chances are your building is worth more than the comps suggest. If the market is down trending, you might be best served to price lower than the recent comps and preempt a long marketing cycle. Marketing time plays a role. How long can you afford to market the building? A fire sale motivation will cause the building to be worth less. Does the building have special amenities - excess or surplus land, upgraded power, fenced yard, freezer/cooler space, special AQMD permits, etc. For the right buyer or tenant, these amenities can add to the price.
 
Question number one: How is the market? Weird.
 
I’ve written as nauseam lately about our markets. Suffice to say a lot has changed since our normal up-trending 2019 commercial real estate market. Global strife, a pandemic, decades high inflation, recessionary fears, interest rate hikes, and bank failures have all added an air of uncertainty to the ways owners and occupants of commercial real estate view the world.
 
Bonus question: How do you come up with your content week after week? Different ways.
 
Typically, I gain inspiration from the economy, deals I’m transacting and client interactions. Oh. And my occasional neighbor insight. Thanks Rudy.
 
Did I leave any out? Please comment below with your question and I will promptly respond. 

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.
 
 

Transitions

As I’ve mentioned here before, our commercial real estate practice is centered upon family owned and operated manufacturing and logistics businesses. These companies may lease, or they may own the buildings from which they operate. Common among them, however, is generally a transition is experienced which causes a commercial real estate requirement – the need to sell, lease or buy. Today, I’d like to discuss the five D’s of transition and how locations are impacted.

Death. Recently, we found ourselves engaged to sell a building where the principal of the company had died. This is tough. Taken too soon from his family and business and with a limited amount of planning – after all he died suddenly – some quick decisions had to be made to keep the business viable. After long discussions and many meetings with their CPA, banker, wealth advisor, and attorney – both the business and real estate that housed it were sold. One silver lining when a real estate owner dies is the tax basis is stepped up – meaning the gain when sold is based upon a value at time of death. Therefore, the gains taxes are not quite as severe.

Disposition. Its uncanny how many manufacturing businesses are on the blocks these days. I spoke with ten last week. Two had been sold in 2022 and the other eight are either in serious negotiations, have recently purchased a competitor, or were considering a sale of the enterprise this year. Why you may wonder? Money has been cheap and the same dynamics that govern real estate investing have been felt in the merger and acquisition world. Private equity sees great returns in solidly positioned and profitable small businesses. Each – merger, acquisition, or sale requires real estate decision to be made. Say a competitor is acquired. Chances are they have a facility from which they operate that is redundant. I’ve witnessed this excess capacity jettisoned via a sale or sublease. What if the business is sold and the commercial real estate retained? A lease needs to be negotiated between the new owner (tenant) and the previous business owner.

Debt. As interest rates have spiked over the past few months, companies carrying  revolving lines of credit or term loans that come due are faced with a different rate environment than when the debt was originated. Sometimes the answer to paying off the loan is a sale of the real estate and possibly leasing back the premises.

Dissolution. Dave Ramsey once opined “the only ship that won’t sale is a partnership.” I don’t necessarily agree as I’ve seen many limited partnerships thrive – but I’ve also experienced two or more folks joined through agreements and there is a squabble which leads to a partnership buyout or in the alternative – an outright sale of the buildings.

Divorce. When a marriage ends, husband and wife must divide the assets and go their separate directions. Throw in a family business and a couple of addresses and the split becomes quite complex. When one party demands the settlement proceeds be paid in cash and there is a lack of liquidity – what’s left is a disposition of commercial real estate.
Much of the drama surrounding a “D” can be eliminated with some careful planning and a game of “what if”. You’d be well serve to consult your trusted advisors and plan for any eventuality.

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.

A Conversation with Jeff Ball, CEO of the Orange County Business Council

Recently, I had the privilege of participating in a panel of Commercial Real Estate professionals at the Cal State Fullerton economic forecast luncheon held at the Disneyland hotel.

Moderating the panel was Jeffrey K. Ball, CEO of the Orange County Business Council and former CEO of Friendly Hills Bank.

Our conversation was followed by my invitation for Jeff to attend a group meeting of business professionals with whom I network. We meet monthly and discuss trends in our respective fields of commercial real estate, banking, law, human resources, information technology, accounting, peer to peer coaching, investment banking and fractional C-suite interaction.

You might wonder why the meetings? In my experience, my clients (owners of closely held manufacturing and logistics businesses) are touched by all these professions and yet we don’t compete, we complement. I’ve found great value in understanding their worlds.

But in this meeting, Jeff was our guest to describe his mission at the Orange County Business Council. If you’re unfamiliar with OCBC, here’s a brief overview I curated from its website:

“Orange County Business Council works to enhance Orange County’s economic development and prosperity to preserve a high quality of life. For more than 125 years, it has promoted economic development and served as the voice of business in America’s sixth-largest county. OCBC serves pro-business interests so that the region’s vibrant economy continues to expand, bringing the benefits of prosperity to every corner of the county.”

Jeff is quite engaging and passionate about his role. He described the tenets of the group: advocacy, research and networking events — of which the economic forecast was one.

With economic development serving as an overarching umbrella from which our county grows and prospers, we spent time discussing the retention of business within the county, attracting new companies and expanding existing firms here in Orange County.

Some of what Jeff chatted about includes showcasing Orange County during the upcoming Olympics by offering a tour package including beachfront hotel stays, amusement park and museum passes.

We also talked about how the 34 cities within our county can use the council and its available data as a repository for available manufacturing and warehousing space.

Finally, Jeff said he plans to place much emphasis on the council’s role in economic development through leadership, strategy and execution. 

All of this doesn't come without its share of challenges, he noted.

He shared how the county faces a housing shortage which causes affordability issues. In order to keep the best and brightest of our young people, he said, the council and the county will have to figure out how to add new housing while dealing with NIMBYism, CEQA, and the regulatory maze of getting new housing entitled and built.

OCBC and Jeff will help with these efforts by focusing on pro-business candidates. Advocacy in the areas of clean water, cutting edge technology, safe streets and highways are just a few ways Jeff said OCBC is taking charge.

Our business roundtable found Jeff to be knowledgeable, resourceful and well qualified to set the vision and execute the strategy of the OCBC.

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.

What do We Believe is Important

I heard an interesting comment on a webinar this week. My goal is to tune in to at least twelve a month and supplement those views with listening to three podcasts a week. If successful, I consume between 288 - 300 hours of content each year. During every episode, I want to glean a minimum of one new idea or concept. Annually, I then learn 288-300 new things - a simple way to expand my knowledge to become a better resource to my clients and more interesting to our family and friends. 

My take away earlier was - we spend 99% of our working time each day in endeavors our clients spend 1% of their working day accomplishing. As I considered our clientele, family owned and operated manufacturing and logistics businesses - this rang true. Many only lease or buy one piece of commercial real estate ever. Certainly those “in the business”, such as investors, are more active. But perspective was gained with that in mind. Therefore, our advice must be straightforward and on point. After all, they don’t do it every day. We must learn to communicate complex concepts simply as if they were educating us in a manufacturing process. 

Although a scant amount of time is spent - 1% - my focus today is on that small percentage, as I’ve seen many great things transpire. 

Generational wealth. Those business that adopt a strategy of owning the building from which they operate use their 1% most effectively, in my opinion. The majority of the time is in the acquisition, fit out, and move. I’ve witnessed many groups who purchase a location and then never relocate. All the while, the real estate appreciates, tax benefits are enjoyed, and depreciation accrues. Equity in the buy can be tapped for business expansion - buying a competitor, purchasing new equipment, or hiring employees. When it’s time to sell the workhorse - the enterprise paying the mortgage - direction can vary. Some choose to sell the company, retain the building and originate a long term lease with the new owner of the business. Still others prefer to sell the real estate and deploy the equity into one or several income producing real property assets. Regardless, enormous wealth is created which can be passed to heirs. My most extreme example came through such a story. A family founded a manufacturing business during the go-go years of the mid sixties. Lifestyles were supported. Real estate was bought to house the expanding operation. When the patriarch and matriarch died - their children decided to sell the company and retain the real estate. When the family realized the new operators were cutting corners - a decision was made to liquidate the companies home and diversify into other locations. Six years later the holdings have doubled in value and cash flow has as well. Meanwhile the purchaser of the business is bankrupt. Apparently, their strategy was sound. 

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.