Friday, July 24, 2020

What Can Loss Teach us about Commercial Real Estate?

Loss. Simply, “the state or feeling of grief when deprived of someone or something of value.” 2020 so far has been a year of loss. Businesses bankrupted, careers cratered, freedoms foregone, routines re-routed, celebrations cancelled - all losses - in some cases forever. Required are we to change - like it or not.

 Last week, our family experienced loss in its most poignant form. Our father, Samuel A. Buchanan Jr. left us to be with the Lord. I’m certain this is true. Dad was a faithful follower of Jesus and loved his church. Suffering from a terrible bout with cancer - fortunately, Dad’s final days were peaceful. He left a legacy of five children, ten grandchildren, nine great grands, and countless friends. I’m sad that Dad is gone but relieved he is no longer in pain. Thank you for allowing me to share that!

 So, what - you may be wondering - does loss have to do with commercial real estate? Only this. From loss comes gain. Here are a few examples.

 2008 ended with many commercial real estate professionals scrambling. Our world abruptly halted. Buyers weren’t buying, sellers refused to sell at such depressed values, and lenders were more frozen than Queen Elsa. Tenants suddenly were seeking great deals. Landlords were stubborn. A mist of uncertainty shrouded our industry akin to that over the Enchanted Forest in Frozen II. Yeah. Recently, I got my Papa cred by watching The Disney Channel with our grandkids. But I digress.

 In 2009, we were forced to adapt. With vacancy in commercial properties rapidly rising, I focused on tenants and buyers. “Blends and extends” became a thing - a reduction in a rental rate today in exchange for a longer lease term. ‘Working out loud” - a phrase coined by my wife, Carla - was the start of a blog in 2010. Authored is digital content for owners and occupants of industrial buildings in Southern California. The Location Advice blog is now published by the Southern California News Group on Sundays. Yep. You’re reading a post now. A return to fundamentals caused the decade of the 2010’s to be my best yet.

 Gains from the losses we’ve experienced in 2020 are starting to sprout. E-commerce has exploded. More folks are shopping from their iPad vs visiting a brick and mortar store. Logistics companies that feed the supply chain are hustling to fulfill demand.

 Material handling outfits - forklifts, racking, dock and door equipment - are recording a record year. Owners of warehouses have enjoyed steady rent checks.

Rumored is a re-shoring of manufacturing. Our economy’s dependence on cheap stuff may shift. Less reliance on low cost production will cause prices to rise but quality and reliability will as well.

 Regional malls could spell the end of our housing crises. How, you might ask? Brookfield Properties made an enormous bet on mall ownership in 2018. Currently, Brookfield is the nation’s second largest owner of regional malls. As we see major mall tenants such as Sears, JC Penney, Neiman Marcus, Macy’s, Pier One, J-Crew, Forever 21, Brooks Brothers and others struggle and fail - watch a gradual re-tooling of these massive spaces into multi-family mixed use re-developments. Closer to home, Integral Communities just bought the land beneath the JC Penney store at the Village in Orange. A similar proposed development is slated for a portion of Main Place Mall. So, it’s happening!

 I’ll always be grateful to my Dad for not hiring me to run the family business. The rejection motivated me to seek an alternate career path - commercial real estate brokerage. What I viewed as an horrendous loss at the time resulted in a huge gain.

 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.


Thursday, July 27, 2017

Should You Lease or Own a Commercial Building with Allen Bu...





How do you know if you should Lease or Own a Commercial Building for your business needs?

The economy is growing, rents are rising, and commercial real estate space is more difficult to find. 

So what questions should you answer to know if you should lease or own a commercial building for your business needs ?

Allen Buchanan is a principal with Lee & Associates in Orange County, CA and a true commercial real estate pro. He has specialized in industrial space sales and leasing since 1984 and provides the following tips for business owners considering purchasing a commercial building. 

Questions to ask before buying commercial real estate

Market
Where is the market in the cycle? Commercial real estate is very cyclical. It is important to consider what is the current state of the market. Is space plentiful or limited? Are capital markets willing to lend with favorable terms? Is there an expected growing demand for space like you need?


Who are You?
What type of company is yours? What are the space needs for your business? Do you expect to outgrow your space in the next three years? Are you making money? A lender will look for a favorable track record including, have you been in business for at least five years? 

If you are stable, have a proven track record, and anticipate the continuation of your business and have the time to benefit from long term appreciation, buying might fit be for you.

What are the Steps to Buying Commercial Real Estate?
If you have been in business for a while, you likely have received numerous calls from commercial real estate brokers. If you are thinking about buying, interview a couple of theses brokers and find out if they can potentially be a resource for the time it takes to find a property.

Find out if you are eligible for financing. The commercial real estate broker can point you to a potential lender. Typically SBA loans and brokers provide some 

How long will it take? To be successful, you should plan on one to two years before you are moving into a new property. The lengthy process includes:
Search
Potential misfire
Loan underwriting
Physical inspection
Appraisal
Build out
Permitted usage question and answer with city

What are the Benefits to Ownership? 
Long term, for the right situation, you can benefit significantly through:
Appreciation: rent increases and demand will push the value of the building up over time. Provided you have the time, this is a huge opportunity.
Depreciation: for the owner of the building, the purchase price or the structure can be expensed over 39.5 years.
Cost stability: when you own a building, you can more easily control the cost of space for your business needs.


For more goto:
www.allencbuchanan.com
https://www.youtube.com/user/abuchana...

ROOF Issues. Who pays?





Summer is a great time to consider an annual roof maintenance before the rainy season is upon us. Are you aware who is responsible for your roof maintenance? How about the repair of your roof? What if the roof needs replacing? If you own and occupy your commercial real estate, you are responsible for all three. But, what if you are a tenant? Knowing these things could save you thousands of dollars. I discuss this and much more on this week's edition of THURSDAY Thoughts for your commercial real estate.


ROOF Issues. THURSDAY Commercial Real Estate Thoughts

Thursday, July 13, 2017

Keep your ENTITY Viable. THURSDAY Commercial Real Estate Thoughts



Recently, I was engaged by a property owner to sell his property in Southern California.
We discovered the LLC that owned the buildings was suspended by the Franchise
Tax Board. After some weeks and thousands of dollars, we revived the LLC and
were able to close our sale. DON'T let this happen to you!

Keep your ENTITY Viable. THURSDAY Commercial Real Estate
Thoughts



Tuesday, June 27, 2017

What to SHOW first? TUESDAY Traffic Tips





Is the order in which you show buildings important? I discuss this and much more on this week's VIDEO tip for commercial real estate professionals.



Bonus. How to PREPARE for a building tour

https://youtu.be/7jZsVBCeI80



What to SHOW first? TUESDAY Traffic Tips

Friday, June 23, 2017

5 Reasons NOT to Sell your Commercial Real Estate

So often, folks in my profession are focused upon the reasons TO do something - like sell your commercial real estate. After all, we make our living selling and leasing buildings.

However, sometimes there are compelling reasons to NOT sell your commercial real estate. Today, I would enjoy sharing a few of those reasons with you.

No transition. As we recently discussed, a sale decision is generally preceded by a transition of some sort - such as selling the business that occupies your commercial real estate. If you no longer own the "tenant", the occupying business, you may prefer to not be a landlord - thus your motivation to sell. However, in the absence of a transition, why sell?

Tax consequences. The sale of your commercial real estate will create punitive taxes that must be paid or deferred. In some cases, the tax man will claim 35-45% of your sale proceeds. Some sellers analyze the after tax proceeds of a sale and determine selling is not a viable option.

No place to move. Southern California has the lowest vacancy of available industrial buildings ever! 98 of every 100 buildings are occupied with very little turnover. If you sell the building that houses your business, where will you move the business?

A very low basis. Remember the tax consequences we examined above? The taxes are generated by the difference in the current selling price and the price you paid - know as your gain. If you purchased your commercial real estate many years ago, chances are your basis is low. If you're fortunate to own your building with no debt - even better! The resulting occupancy costs for a tenant are also low. In the halcyon days, you reap the rewards. When things are a bit tougher, you can afford to lease your building for less because you have no mortgage payments.

An irreplaceable location. Akin to an ocean front cottage, certain commercial properties enjoy locations that cannot be replaced. This could be a main boulevard frontage, proximity to amenities  - hotels, restaurants, or entertainment, favorable zoning, special purpose improvements for your business - ISO 9001 certifications, certain use permits, or an abundance of electricity.