What the Iowa State Fair Can Teach Us About Commercial Real Estate

Every August, more than a million people descend on Des Moines, Iowa, for one of the most iconic celebrations of agriculture, tradition, and Americana: the Iowa State Fair.
 
You’ll find butter cows. Deep-fried Snickers. Prize-winning pigs. And yes - this year, you’ll find us there too. 
 
You may be wondering, we have a fair in Orange County, why Iowa? Well, we’re trying to see all fifty states. What better way to visit Iowa, than the state fair we reasoned. 
 
Now, I’ll admit - on the surface, the Iowa State Fair has very little to do with commercial real estate. But after years in this business, I’ve learned that the best lessons don’t always come from lease negotiations or cap rate spreadsheets. Sometimes, they come from places you least expect - like from livestock barns and lemonade stands.
 
As I ponder our attendance, I anticipate five surprisingly relevant lessons the Iowa State Fair has to offer CRE professionals, property owners, and business leaders alike:
 
Visibility Is Power. At the fair, everyone shows up. Presidential candidates. Local farmers. Funnel cake vendors. It’s a stage - and the people who stand out are the ones who lean into the spotlight.
 
The same applies to commercial real estate. If you want the business, you have to be visible. Post on LinkedIn. Return your calls. Walk the industrial park. Knock on the neighbor’s door. You never know which conversation leads to your next transaction.
 
Show up often enough, and eventually you’re the broker they think of first.
 
Specialization Wins Blue Ribbons. The fair isn’t about generalists. It’s about champions - best in breed, best in show, best in pie crust.
 
In commercial real estate, the same holds true. If you’re trying to represent office tenants, retail developers, and industrial buildings owners all at once, you’ll get lost in the crowd. But if you’re the go-to broker for aerospace facilities or cold storage occupants? Now you’re speaking the judge’s language.
 
Specialists don’t just compete - they win.
 
Know Your Audience - and Entertain Them. The Iowa State Fair majors in audience engagement. Every booth, every announcer, every exhibitor is tuned into one question: “How do I draw them in?”
 
In our business, whether you’re giving a tour or sending a proposal, you need to ask the same thing. Are you connecting with your audience? Are you using stories, analogies, visuals — or just burying them in data?
 
The best brokers aren’t just experts. They’re entertainers, educators, and translators.
 
Process Beats Flash. Behind the corn dogs and concerts is a finely tuned operation. The fair doesn’t happen by accident - it’s a system of logistics, preparation, and process.
 
The same is true of great brokerage. A successful transaction isn’t the result of charisma alone. It comes from structured follow-up, solid documentation, strategic planning, and diligent execution.
 
Flash may get attention. Process gets results.
 
Success Is Grown, Not Grabbed. At the fair, everything takes time. Blue ribbon hogs aren’t raised in a week. The best corn isn’t grown overnight. These results are the end of a long, consistent season of effort.
 
Likewise, in commercial real estate, the big wins come from relationships planted and nurtured over time — referrals, repeat clients, neighbors who saw the sign and remembered your name.
 
If you’re in it for the long haul, you’ll build something worth exhibiting.
 
Final Thoughts From Des Moines. 
So yes — I’m heading to the Iowa State Fair this week. I’ll enjoy the food, the spectacle, and hopefully the butter cow. But I’ll also be paying attention — because success leaves clues, whether you’re watching a 4H goat show or leading a facility tour in Anaheim.
 
If you’re in commercial real estate - or any people-driven business - maybe the fair has something to teach you, too.
 
And if not… well, there are always the corndogs.

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.
 
 

10 Things I Learned While Writing a Book

After over four decades in commercial real estate brokerage and ten years writing this column, I thought I knew how to tell a story. Then I decided to write a book.
 
And I’m pleased to say it’s published and available on Amazon in paperback or Kindle. 
 
What started as a compilation of anecdotes turned into a deep dive into the systems, habits, and turning points that shaped my career. I titled the book The SEQUENCE – A Personal Journey and Proven Framework for Commercial Real Estate Brokerage Success, and along the way, I learned a lot more than I expected. About writing. About business. And about myself.
 
Here are ten lessons from the journey:
 
1. Writing a book is different than writing a column. A column is a sprint. A book is a marathon. In a column, you land your point quickly. A book requires structure, pacing, and a deeper connection with your reader.
 
2. Structure matters more than you think. You can’t just throw stories on a page and hope they stick. My book follows a framework I call SEQUENCE—a step-by-step system I’ve used to manage deals. That structure kept me on track and helped readers follow along.
 
3. Your voice gets clearer the longer you write. At first, I tried to sound like an “author.” Eventually, I realized my own voice—the same one I use in this column—is what people want. 
 
4. The best stories are the real ones. Readers remember the deal that almost fell apart, the client who became a friend, or the early mistake that became a turning point. Vulnerability beats polish every time.
 
5. Time is the biggest hurdle.
Writing a book while managing a full-time career isn’t easy. But I treated it like a client appointment: scheduled, protected, and consistent.
 
6. Good editing is worth its weight in gold. My first draft was… fine. My final draft? Clearer, tighter, and much more readable—thanks to a professional edit and some tough love from early readers.
 
7. Legacy is a powerful motivator.
I wrote the book to help other brokers, yes—but I also wrote it for my grandkids. Every chapter is addressed to them. That perspective changed everything.
 
8. Publishing is easier—and harder—than ever. Technology makes it simple to self-publish. But standing out? That’s another story. Writing the book is just the beginning of sharing it.
 
9. Your network matters more than your launch plan. Colleagues, clients, friends, and family became my first readers, reviewers, and cheerleaders. A strong community beats clever marketing.
 
10. We all have a book in us. Whether it’s business lessons, life stories, or personal insight—everyone has something worth writing down. If you’ve been thinking about it, start. Even a page a day adds up.
 
Writing a book forced me to slow down and reflect. It reminded me why I love what I do—and how much I still want to share. 
 
If you’re on a similar journey, I’m cheering you on. It’s hard. It’s worth it. And you’ll learn more than you ever imagined.

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.
 
 

Deal “SEQUENCE”

In my over five decades of commercial real estate brokerage, I’ve transacted over 2000 times! Some have found me on the occupant side of the aisle and in others I’ve advocated for an owner with a vacant building. Rarely - but it happens - I’ve straddled the two factions ala Ben Hur. This is legal in our world and is known as “dual agency”. Candidly, I prefer the separation where two professionals are involved.
 
In considering the deal, I developed - with a little AI help - an acronym for for the steps taken in a commercial real estate transaction. I believed them to be column worthy - so here goes.
 
• S – Source - Developing opportunities before they exist.
This includes outbound efforts like mailers, marketing campaigns, social media content, tapping into inactive clients, direct-to-owner outreach, and any strategic activity that creates deal flow where there previously was none.

• E – Evaluate and identify a lead 
Through sourcing, a lead is uncovered. Whether it’s identifying an active tenant requirement or uncovering a property that fits a buyer’s criteria, this is the moment a generalized opportunity becomes a targeted pursuit.

• Q – Qualify - Determining if the lead is worth the pursuit.
This includes my 7-step QUALIFY framework: Quantitative Need, Urgency, Authority, Loyalty, Intent, Fuel, and Yearning—the litmus test for whether the lead has traction and potential.

• U – Under Control - Securing the right to act. Using an exclusive authorization to represent, listing agreements, or exclusive agency agreements, this step ensures you are no longer guessing—you’re executing under formal terms.

• E – Execute - Activating the plan.
Here, you’re touring buildings, sourcing off-market options, or locating buyers or tenants for vacant buildings. It’s about making the market work through active engagement, creative matchmaking, and transactional momentum.

• N – Negotiation and close - Signing on the dotted line.
Whether a lease is executed or escrow closes, this is the transaction’s inflection point—when opportunity becomes reality.

• C – Commission (Bill & Collect) The first rule of brokerage: get paid! 
Delivering the invoice, ensuring documentation is complete, and creating accountability for payment. This reinforces professionalism and prepares for the next critical step. The transaction isn’t truly complete until commission is received. Collection is part persistence, part process, and part diplomacy.
 
• E – Expand (Capitalize) - Turning today’s deal into tomorrow’s momentum. This includes sending press releases, updating social media, client thank-you's, marketing your success, and most importantly, nurturing referrals and building repeat business from experience.

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.
 
 

Crazy Things

2025 marks some milestones in my commercial real estate career as well as my stint as an Orange County Register contributing columnist. I’ve now been plying my brokerage trade for 40 years! Wow. Some reading this column aren’t even forty years old, and here I am, doing the same thing for over four decades. February 2025 will also be my 10th anniversary as your faithful commercial real estate voice through these pages. It’s been my honor to share weekly thoughts, market insights, and best practices with you. By the time you read this, I will have completed another orbit around the sun—my 68th. So, there’s that.

Today, I thought it would be fun to share some of the craziest things I’ve witnessed during my forty-year commercial real estate career. Here goes:

There’s a Hole in the Bucket, Dear Liza
This was maybe the most monumental issue I’ve ever overcome. Late one day, I got a call from the buyer of a business park telling me there was a hole in the parking lot. I thought he was joking since we were scheduled to close escrow in a week. He assured me he wasn’t and added that the hole was growing larger by the moment. I quickly got in my car, drove to the site, and was horrified by what I saw. There was a hole the size of a VW Beetle—and it was growing. At this rate, it seemed destined to swallow the entire parking lot and maybe the buildings, too.
Fortunately, we discovered the City of Brea was responsible. A leaking waterline, left unchecked for decades, had caused the collapse. The city fixed the problem just in time for escrow to close, but it’s a moment I’ll never forget.

Bridge to Nowhere
This one is a classic “new agent” story and one of my favorites. We were touring office space on the fifth floor of a newly constructed building. Little did we know that when the door closed behind us, there was no exit. We found ourselves trapped on a fourth-story balcony overlooking a major thoroughfare. This was before the days of cell phones, so we had very few options. Fortunately, a vagrant passed by, and after a bit of bribery, he helped free us. Lesson learned: always check for an exit before the door closes behind you!

Freeze, Gopher!
The scariest tour I ever conducted happened in a vacant building in Anaheim. My partner and I arrived early to preview the premises and turn on the lights for our client. As we fumbled in the dark for the power panel, we suddenly heard, “Freeze!”
Two Anaheim PD officers, guns drawn, confronted us. It turns out we had tripped a silent alarm in our search for the lights. Thankfully, they realized we weren’t burglars, and we were able to laugh about it later… much later.

Rain, Rain, Go Away
We once sold a site in Anaheim that had formerly been a fiberglass manufacturing company. Years of fiberglass residue had permeated the floors and soil around the building. I was certain the site would fail its environmental test, killing our escrow. But, as luck would have it, torrential rains hit the night before the inspection. The rain washed away all visible traces of the residue, and the site received environmental clearance. Sometimes, Mother Nature lends a hand.

Houston, We Have a Problem
Never in my career was I as scared as during the financial meltdown of 2008 and 2009. It felt like the end of our industry. I had already survived the savings-and-loan implosion and the dot-com bubble burst, but this was different. I had the largest deal of my career under contract, and it blew up during this time. After mourning the loss, I put my head down and got to work. It was tough, but the market eventually rebounded, as it always does.

Microscopic Foe
Exactly five years ago, I attended an economic presentation by Northwestern Mutual. The forecast predicted a strong economy through 2020, with only a slight chance of softening. There was a brief mention of a virus causing supply chain issues in China, but the presenter didn’t seem concerned about its impact on the U.S. economy.
Two months later, we were quarantined in our home offices. I was convinced this was the black swan event that would crater our commercial real estate market. For six weeks, it looked like I was right. But then something unexpected happened. Industrial real estate values skyrocketed. Between June 2020 and June 2022, rents and per-square-foot values tripled in some cases. It turns out all that online shopping required a lot of warehouse space.

Conclusion
Forty years in commercial real estate has given me a front-row seat to some of the wildest, scariest, and most surprising moments. From sinkholes to silent alarms to global pandemics, this industry is anything but predictable. Yet, through it all, I’ve learned to adapt, stay resilient, and find humor even in the craziest situations.
As I celebrate these milestones, I’m reminded of what a privilege it is to do what I love and share my experiences with you. Here’s to the next adventure—and maybe even crazier stories—in the years to come!

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.

What Can the Desert Southwest Teach Us About Commercial Real Estate?

As our travels took us to Phoenix, Tucson, and Santa Fe over the past week - I had two colliding thoughts. The beauty of the desert southwest was consuming and our world at this time 16 years ago was consuming as well! Our commercial real estate market was side swiped by the financial crash of 2008! I wondered if the two were somehow related and if lessons could be leaned. 
 
So. Here goes. 
 
If you’ve ever spent time in the desert Southwest—Arizona, Nevada, New Mexico—you know that survival there is all about adapting to extremes. In the blistering summer, temperatures soar, and water becomes a precious resource. Yet life persists. Cacti, creosote bushes, and desert wildlife don’t just endure—they thrive because they’ve evolved to do so. They’ve learned to make the most out of the environment they’re in, maximizing every drop of water and adjusting to whatever comes their way.
 
Commercial real estate, like desert life, is a game of adaptation. Whether you’re a seasoned investor, an owner-occupant, or an industrial broker positioned in today’s dynamic market, the lessons from the desert are right there in front of us—if we’re willing to see them.
 
1. Resilience in the Face of Scarcity
The desert’s number one challenge is scarcity, and in real estate, it’s no different. In boom times, it’s easy to make deals—capital is abundant, credit is flowing, and everyone’s eager to move fast. But what happens when those resources dry up? Think back to the 2008 financial collapse. One moment, liquidity was everywhere; the next, it vanished. Deals died overnight, and only the most prepared, resilient players could weather the storm.
 
A desert cactus stores water for months, waiting for the right conditions to use it. As a commercial real estate professional, this is a reminder to build reserves—whether that’s in capital, market knowledge, or relationships. Like the cactus, don’t overextend yourself in good times. Prepare for downturns, and when they inevitably come, you’ll not just survive—you’ll thrive.
 
2. Know Your Environment
Brokering commercial real estate isn’t just about playing the market—it’s about knowing the environment. The desert has very specific climates, microclimates even, and if you don't understand those differences, you’ll fail. Phoenix, Las Vegas, and Albuquerque might all share the desert’s common traits, but each has its unique challenges and opportunities. What works in Phoenix won’t necessarily work in Las Vegas.
 
Likewise, industrial real estate in Southern California has its nuances. I often remind clients that even though SoCal is a booming market, the micro-markets of Long Beach, Inland Empire, and north Orange County, where I worked during the 2008 financial crisis, each require a tailored approach. Just like a desert traveler checks the conditions before setting out, commercial real estate practitioners must assess the specific terrain they’re in. Understanding the local economic, political, and market conditions can mean the difference between a deal’s success or failure.
 
3. Timing is Everything
The desert teaches patience. Rain doesn’t come when you expect it; it comes when the environment is ready for it. In commercial real estate, timing is just as critical. Sometimes deals fall apart not because of lack of interest, but because the timing isn’t right—either for the buyer, the seller, or the market itself.
 
I’ve seen this time and time again in my own experience. Back in 2008, during the height of the financial collapse, a promising buyer for a large manufacturing site suddenly lost financing when their Small Business Administration loan commitment disappeared. The market shifted almost overnight, and we had to wait until the right time to close a deal at a significantly reduced price. Understanding when to act—and when to wait—is a skill that separates the seasoned from the amateurs.
 
4. Innovation is Key
Despite the desert’s harsh conditions, innovation thrives there. Solar farms, sustainable architecture, and water conservation technologies are just some of the breakthroughs we’ve seen over the years. Similarly, commercial real estate is ripe for innovation. The industrial sector is adapting to a post-pandemic world by embracing e-commerce, automation, and green technologies.
 
Whether you're retrofitting older properties or designing new industrial spaces, the industry’s future depends on staying ahead of the curve. Just like innovators in the desert seek new ways to make life easier and more efficient, those of us in commercial real estate need to be thinking not just about the present, but about how to create spaces that will serve the future.
 
The Takeaway
The desert may seem like an unforgiving place, but it’s also full of lessons. Adaptability, patience, and resourcefulness are key to surviving—and thriving—in both the desert and in commercial real estate. As the market shifts, those who prepare, understand their environment, and are willing to innovate will be the ones who succeed. So, the next time you're out in the desert Southwest, take a moment to reflect. The landscape might be more like our industry than you’d think.
 
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.

Activity Levels

I’ve often been asked if the commercial real estate business is seasonal. By this, I mean, do we see an uptick in activity comparable to our residential brethren. As you’re aware, house sales tend to ebb and flow based upon seasonality. As the summer months approach and families near the end of school, they use the summer months as an advantageous time to relocate. 
 
Commercially - short of an economic downturn - we tend to see several peaks and lows with leasing and sales volume. As the year begins, we encounter companies who are interested in finding a new location. Our activity tends to wain preceding tax time from mid March to mid April. We experience robust volume through the middle of June. Vacation time from mid June through Labor Day is historically slow. Finally, as autumn approaches, and before the holidays begin, there is a mad dash for the exits to get transactions accomplished before the end of the year.
 
However, this year has been a bit different. We should be slow now as we are in the vacation mode for most businesses. But, we have seen a fairly significant increase in tire kicking this summer. 
 
As I have written in this column, ad nauseam, we are experiencing a glut of class A logistics inventory above 100,000 ft.². Orange County certainly has more supply than the present demand but this trend is much more acute in the Inland Empire areas. Within the last 30 days, we have seen a tremendous amount of space leave the market as evidenced by five deals in Huntington Beach and Garden Grove and a comparable number in the IE. 
 
So what gives? Here are my theories as to why. 
 
Pricing:
One of the primary factors driving the recent uptick in activity is pricing. With an oversupply of large logistics spaces, landlords are becoming more flexible in their negotiations. This has created attractive opportunities for companies looking to secure favorable lease terms. Lower rents and attractive concessions are enticing businesses to move now rather than wait. We’ve seen a decrease in asking lease rates of approximately 18%. Owners are coupling these aggressive rates with an abundance of free rent and enhanced brokerage fees.
 
Chinese companies absorbing space for inventory:
Another contributing factor is the activity from Chinese companies. These firms are strategically securing warehouse space to better manage their inventory. The Trump presidency had a significant impact on tariffs, with increased tariffs on Chinese goods prompting these companies to rethink their logistics strategies. With the events of last weekend, adding some clarity to the November Choice, Chinese third-party logistics providers are securing as much space as possible to move inventory into the United States pending future tariffs. This is an interesting debt because our election is still over three months away. With global supply chains already experiencing disruptions, having additional storage capacity close to major markets like Southern California has become even more advantageous. This combination of tariff impacts and supply chain challenges has led to a noticeable increase in leasing activity, particularly in the logistics sector. Within the last 30 days, Chinese occupants have consumed over 2,000,000 ft.² of space in four transactions.
 
Pent-Up Demand:
Finally, there is a significant amount of pent-up demand. The uncertainties of the past few years, including economic fluctuations and the pandemic, have caused many businesses to delay their expansion plans. Additionally, the Trump presidency and its impact on tariffs played a crucial role. Increased tariffs on goods imported from China prompted many companies to rethink their supply chains and logistics strategies. As a result, businesses are now moving forward with their plans to secure warehouse space in strategic locations like Southern California. This shift has led to a surge of activity as companies seek to mitigate the impact of tariffs and capitalize on current market conditions.
 
While commercial real estate may not follow the same seasonal patterns as residential real estate, there are certainly periods of increased and decreased activity. This year, contrary to the usual summer slowdown, we are witnessing an unexpected boost in leasing and sales. Factors such as attractive pricing, strategic moves by Chinese companies, and pent-up demand are driving this trend.
 
 
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.

Pricing - Steps To Anticipate

Recently, we discussed price reductions and the factors which cause them. In short, when supply exceeds demand, a shortage occurs - also called an imbalance. This imbalance is like a seesaw - it’s hedged toward either side with one side up and the other down. In our industrial market, the number of occupants needed to fill our vacancies is surpassed by the addresses available. Ok. One of the ways to absorb the excess is through price reductions. Today, I’ll take an in depth look at the steps you can anticipate when lease rates soften as outlined by the stages of an economic cycle. 
 
The Economic Cycle Stages:
1. Vacancies Narrow: Initially, as the market tightens, available spaces get leased quickly. Businesses expand, new companies move in, and the surplus of vacant buildings decreases.
 
2. Rents Grow: As vacancies narrow, landlords gain pricing power. Increased demand leads to higher rents. Businesses are willing to pay more due to the scarcity of available spaces.
 
3. Developers Build: Seeing rising rents and low vacancies, developers enter the market. New projects are initiated to capitalize on the high demand and favorable leasing conditions.
 
4. Leasing Activity is Robust: With new developments and a thriving economy, leasing activity peaks. Companies scramble to secure space, often agreeing to higher rates and fewer concessions.
 
5. Developers Over-Build: Eventually, enthusiasm leads to overbuilding. Developers, eager to take advantage of the booming market, construct more spaces than the market can absorb.
 
6. Vacancies Increase: As the new spaces come online, the market shifts. The supply of available buildings starts to outpace demand, leading to increased vacancies.
 
7. Time on Market Expands: With more options available, properties take longer to lease. The average time a building sits on the market extends as businesses take their time to choose the best deal.
 
8. Concessions Appear: To attract tenants, landlords begin offering concessions—such as free rent periods, tenant improvement allowances, and other incentives. These concessions aim to make properties more appealing in a competitive market. By the way, this is where we are. 
 
9. Prices Soften: As vacancies continue to rise and concessions become standard, lease rates start to soften. Landlords adjust their pricing expectations to align with the new market reality.
 
10. Demand Returns: Over time, the lower prices and favorable leasing terms attract new tenants. Businesses take advantage of the softened market to expand or relocate.
 
11. Vacancies are Absorbed: As demand picks up, the surplus of vacant buildings gradually diminishes. The market starts to balance out, with supply and demand reaching equilibrium.
 
12. Rents Start to Grow: With vacancies absorbed and demand steady, rents begin to rise again. The cycle comes full circle as the market moves back toward a landlord's market, setting the stage for the next economic cycle.
 
Conclusion:
Understanding these stages helps businesses and investors gauge the ever-changing industrial real estate market. By recognizing where we are in the cycle, you can make informed decisions—whether it’s the right time to negotiate a lease, start a new development, or make strategic investments. In today’s market, with lease rates softening, it’s essential to stay informed and adaptable. The key to success lies in anticipating the next phase of the cycle and positioning yourself to take full advantage of the opportunities it presents.
 
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.
 

Negotiating The BEST Deal

Last week, we spent some time discussing the morphing industrial market and its impact upon pricing. To review, north Orange County - especially in large logistics boxes - approaching an imbalance weighted upon those who occupy. Supply exceeds demand. Only time will tell if price drops will spur demand - also known an elasticity. 
 
With that backdrop, today I’d like to offer some suggestions if you find your company heading out to make a deal - either a purchase but especially a lease. 
 
Know the market. Let’s say your requirement is 100 to 150,000 ft.² of logistics space in North Orange County. You should be keenly aware of everything that currently exists or will become available during your search time. By this, I mean, what tenants will vacate spaces that you could backfill. Coupled with an understanding of the available inventory is knowledge of the transactions that have recently occurred. By the way, transactions occur as sales, direct leases, subleases, and renewals. Sales are a matter of public record - their terms are easy to determine. Direct leases and subleases are more difficult to track because no deed is recorded. Renewal deals are the most difficult to review as frequently renewal deals occur between an owner and his occupant. These are typically not marketed and therefore difficult to gauge. It is imperative that you engage a commercial real estate professional, who really understands the marketplace in which your requirement will compete. Another factor with which you should be aware is the type of owner holding title to the property. An institutional property owner such as a pension fund advisor or a real estate investment trust will likely have more guard rails around the terms and conditions under which they can negotiate. A private owner may be more flexible in agreeing to favorable terms. Regardless, you must understand the owner’s motivations in order to secure the best possible sale price or lease rate and terms.
 
Know your capabilities. Things such as how long you will be able to commit to the space, what variances from the typical amenities will you require, what is the timing of your present lease expiration, do you own a facility that must be sold prior to transacting, is there anything unique about your use of the building that might cause a timing delay, and other questions should be seriously considered with carefully thought out answers. We recently represented a tenant who was able to sign a 10 year lease, use the improvements in the building largely as they existed and had a lease that expired with enough time to enable the building to become market ready. We were an ideal match for the owner. Had any of these components been lacking, our requirement would not have been as favorable. 
 
Understand your strong suit. If your company is ready to move upon closing a sale or signing a lease, and the building you are pursuing is vacant, you are potentially golden. However, the converse could be true if you are ready to make a deal yet the building won’t be available for another nine months. As you can see, something would have to change with this set of circumstances. Either you would have to delay possession or the owner would have to figure out a way to make the building available sooner. Is your company financially strong? In this rapidly changing market, credit is king. The last thing an owner wants to do these days is sign a long-term commitment with a financially shaky occupant. Turnover is expensive and owners want to avoid this at all cost. 
 
Be aware of your blind spot. If all of the interest in a particular piece of property were laid side-by-side, how does your interest compare? By this I mean, do you require bank financing in order to complete the deal? Is board approval a part of your process? Is there anything particular about your requirement, which could add time to your ability to say yes? Will a hefty legal review of all of the documents ensue upon the handshake? How does the purchasing or leasing entity look financially? Let’s say you want the very best purchase price available yet are hamstrung because of your need to procure financing. This adds an uncertainty to the transaction which may cause a seller to go a different direction. Of course, this assumes there are other potential purchasers. If your sense is you are his only alternative, you may be able to get a great price and the timeframe needed to close the deal. Certainty of clothes these days is more important than the very highest price. Consequently, structure your deal accordingly.
 
Don’t get greedy. The biggest mistake I see occupants make in this rapidly changing market, is trying to take advantage of an owner. Owners of commercial real estate are generally sophisticated entities with tons of market expertise. It’s safe to assume they’re acutely aware of their situation. If you are trying to extract the best sales price, lead with data. By understanding the owners exit strategy - lease up and sell or hold long-term, you can chart the course to completion. Using the lease up and hold exit, an owner will have to procure a tenant for his building before selling it to an investor. Therefore, understanding the rental market - rate, concessions and terms - you have a starting point. Once a tenant is in place, what is the market capitalization rate for this income. Assume $21.60 NNN annually and a 6% cap. The resulting price per square foot value would be $360 ($21.60 / .06). But the tenant is not there yet. So, it would be reasonable to expect some origination costs should be subtracted. After all, to procure the tenant will require some free rent, potential modifications to the building such as lighting or dock levelers, and brokerage fees. To compute this cost requires assumptions. Overestimate and the greed enters the picture. 
 
Thus, negotiating the best deal in today’s industrial real estate market requires thorough market knowledge, a clear understanding of your capabilities, and strategic negotiation. By focusing on data-driven decisions and avoiding greed, you can secure favorable terms in a challenging market.
 
 
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.
 

Advice I’m Giving These Days

Much of my time is spent counseling family owned and operated manufacturing and logistics providers. My role is one of a trusted advisor. Ironic in this approach - is I’m not paid like other advisors - CPAs and attorneys. Their services are billed by the hour. Commercial real estate professionals are paid to transact. No deal, no paycheck. Many have asked why I have approached the business this way for nearly four decades. To me it’s simple. If I focus on the payday rather than the advice - I become a commodity. If a premium is placed upon my counsel a relationship is formed. I become less transactional and more oriented toward the long term. Fortunately, some companies I encounter need to immediately lease or buy a location or find an occupant for a vacant one. But many times I’ll spend years grooming before my brokerage services are employed. So what advice am I giving these days. Please indulge me as I share a few examples.
 
Carefully watch the market - pricing finding support and resistance. As discussed previously, since the halcyon days of 2021 and early 2022 where space was being gobbled like a pizza on grad night - the leasing and selling pace has slowed. There’s no better example than what’s occurring in Class A industrial offerings. In 2021, any new construction brought to market was pre-leased prior to completion. Once the walls were tilted, the activity commenced. Once the roof was on, the lease was signed. Now we have several concrete boxes awaiting a resident. Many more will follow this year. Interesting is the activity in “less than class A inventory”. Aging buildings suffering from substandard warehouse fire protection, compromised loading, or ceiling heights which don’t allow for maximum stacking are finding favor because they’re 25% cheaper than their Class A cousins. Advice: The fish are there - you just have to go a little deeper. Read. Lower asking rates.
 
How to deal with MASSIVE rent increases. Tenants are choking on the massive rent increases landlords are proposing and which have occurred over the past three years. This may sound contrary to the previous paragraph. You may be thinking “hmmm. I thought he said rents are coming down”. Both are true. Here’s how. Let’s say you leased a 100,000 square foot facility in 2018. The prevailing rates during that time were around $1.00-$1.25 per square foot. For easy math, that’s $100,000 per month in rent. Most leases have annual rent escalators built in. In 2018 we were writing deals with 2.5%-3% annual bumps. So. That $100,000 you paid initially, became $112,550 or $1.12 per square foot for the fifth year of your lease. The last flurry of deals happened at over $2.00 per square foot or $200,000 per month - a whopping 77% increase! If you’re facing renewal time - you encounter those crazy new rates. But now inventory is sitting. No one is dealing at those $2.00 rates. They’re compromising by leasing a location with fewer amenities - because they can. In 2021 they weren’t available. Now they are. Advice: So don’t jump at that first offer your owner makes. Understand things will further soften until all this new stock is filled.
 
If you sell the engine, you’re left with the vehicle. For those operators we counsel who made a decision to own - vs rent - the location from which their company operates - a different challenge emerges. We see countless examples of the real estate value eclipsing the worth of the enterprise. The most extreme case we’ve witnessed was ten fold. Yes. The address that houses the operation is worth ten times more than the business. Wow! Orbiting in conjunction we find the operation has its rent subsidized. A real conundrum exists here. Part of the benefit of owning the building from which your business operates is you can charge any rental rate you want - within reason. The lease payments are deducted by the business as an ordinary business expense and the owner of the building receives monthly payments. These lease payments are a ding on profit. If the rents are subsidized - not at full market value - an unreal picture of the business’s profitability is painted. Should these rents be “marked to market”, the value of the enterprise declines because the multiple of the EBIDA returns a smaller amount. By the same token, if the business is not paying full market rental value, then the value of the real estate is understated. So what’s a mother to do? Advice: Ratchet up that rent.! If the company can’t afford it, maybe it’s time to seek cheaper quarters.
 
Excess space is challenging today. If you find yourself with space you don’t need, you have four alternatives to rid yourself of the excess. You can approach the owner of your building and ask him to let you out of your lease, you could propose a buyout of the remaining obligation of your lease, you could find a sub tenant who will take over your lease, or - and we never recommend this alternative - you could simply stop paying rent and cause your lease to go into default. Because many of the leases written over the past two years are over market today - alternative one is a non-starter. Most find the amount needed to buy out their remaining obligation is too hefty. Unless you’re an unfair dealer, four is out. So subleasing is left. Advice: Your goal should be to minimize the amount of time you continue to pay rent. In other words, find a replacement as soon as you can. Understand you are limited in what you can offer to the market in the way of tenant improvements and a term exceeding that of your of your lease. The best way to make a sublease space attractive to a perspective occupant is to trim the rate by 25 to 30% and hit the market with shock and awe.
 
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.
 

Last Four Months of 2023

Happy Labor Day! It’s now September. That time in SoCal when Christmas decorations take the place of lawn furniture in Home Depot. College football has just begun yet we’re expecting St. Nick to return the next kick off. Fall is my favorite time of year, however - cooler temps, changing leaves, shorter days, and all of the holidays that follow - Labor Day, Halloween, Thanksgiving, Christmas and News Year’s Eve. Travels for the summer are over, kids are back in school, and hopefully no more hurricanes will mass in the Pacific. Now to the balance of the year. What the next four months have in store for commercial real estate owners and occupants is the subject of this column. 
 
Watch interest rates. Borrowing for houses just eclipsed 7%. Historically average but so much higher than the sub 3% rates we witnessed in 2021. What’s followed is a lack of available houses for sale as folks with cheap loans don’t want to sell and new buyers can’t afford today’s prices financed at the higher rates. Sure. Commercial real estate borrowing is also impacted but another element evolves from high rates - small businesses ability to finance growth through acquiring competitors, buying equipment and leasing larger quarters. Our Federal Reserve seems bent upon taming inflation and causing unemployment to rise in the process. Higher interest rates - when business expansion is quelled - can create uncertainty among business owners. 
 
Class A Industrial absorption. Amid the resounding echoes of new construction, there's a curious absence - a noticeable lack of tenants ready to move in and occupy these freshly minted spaces. The question looms, why? Conditions that once fueled the previous industrial boom have evolved into a new breed of challenges. Gone are the days of localized manufacturers and logistics providers securing their own spaces with owner-occupied financing. Instead, our market has produced spaces that align with the needs of large-scale tenants. And therein lies a conundrum - the needs of these tenants hinge on a degree of certainty, a stable backdrop before they commit, amplifying the vacancy issue. We’ve overbuilt the high end of the market. Someone will have to concede to lower lease rates in order to attract a tenant. Once this happens, others will follow as a new paradigm will emerge. 
 
Recession. I predicted in January we’d avoid a recession as the resilience of the consumer would steer us past a downturn. So far, I’m correct. What lies ahead in the next four months of 2023 will be interesting to watch. So far unemployment is low, wages are higher, and folks are spending money on services such as travel. Most would agree the consumer racking up too much credit card debt in the process. As this debt is recalibrated into higher monthly payments because of higher rates - fewer dollars are available to throttle consumption. 
 
Politics. We have a long list of Republican hopefuls, an indicted frontrunner and months before the primaries. On a global level, war still rages in Ukraine, China stealthily observes, and record heat, rain, and storms rage like no other time Incan remember. The list of contenders will thin and we’ll be safely past storm season. 2024 will bring the promise of an election year. 
 
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.