Sometimes, It’s Time to Part Ways

A longtime client and I parted ways today. It was time. We both knew it.
 
You read my columns each week. I dispense market updates, advice to owners and occupants of industrial buildings, and occasionally a bit of brokerage nuance.
 
But I still make my living brokering commercial real estate. There is no safety net, no salary, no draw, no guarantee. We wake up unemployed every day. It can be sobering and yet rewarding. No one tells us whom to serve, how to spend our time, or where to concentrate our efforts.
 
Giving up a relationship is tough. They are built over years of trust and solid performance.
 
In this case, the relationship spanned many years, numerous transactions, changing market conditions, and more than a few complicated decisions. We navigated expansions, contractions, relocations, lease renewals, and acquisitions. Along the way, I came to know the people behind the business, their priorities, their challenges, and what mattered most to them.
 
That is one of the great privileges of my profession. We are invited into conversations that extend well beyond square footage, rental rates, and purchase prices. We learn how companies operate, what keeps their owners awake at night, and how a real estate decision can affect employees, customers, and sometimes entire families.
 
Over time, the relationship becomes about much more than the next transaction.
 
Which makes saying goodbye difficult.
 
I have been at this since 1984. During those years, I have learned that relationships, like businesses, evolve. Leadership changes. Priorities shift. Companies grow beyond their original structure. What worked exceptionally well for many years may no longer fit what comes next.
 
And sometimes the broker changes, too.
 
Experience brings perspective, but it also brings a clearer understanding of where we can provide the greatest value. Early in my career, I was inclined to pursue virtually every opportunity that crossed my desk. After all, when you are compensated only upon the successful completion of a transaction, turning away business seems counterintuitive.
 
Today, I view things differently.
 
Not every assignment is right for every broker, and not every client relationship should continue indefinitely. The challenge is recognizing when the circumstances have changed sufficiently that both parties might benefit from a different arrangement.
 
There is another consideration that rarely receives much attention.
 
Commercial real estate brokerage is an intensely personal business. We invest our time, judgment, reputation, and often considerable resources in pursuit of an outcome that may never produce a commission. We make recommendations that clients sometimes reject. We deliver unwelcome news. Occasionally, we advise against a transaction even though completing it would generate income.
 
That is what professional representation requires.
 
But professional representation also requires mutual confidence. Without it, even the most experienced broker will struggle to deliver the results a client deserves.
 
So, what happens when that confidence changes?
 
You acknowledge the history, appreciate the opportunities, and recognize that the relationship has reached a natural conclusion.
 
I am grateful for the years we worked together, the trust extended to me, and the many successful outcomes we achieved. Those accomplishments do not disappear simply because our professional paths are diverging.
 
Tomorrow morning, I will wake up unemployed again, just as I have on countless mornings over the past four decades.
 
The difference is that I will have a little more time to devote to the relationships and opportunities that lie ahead.
 
And perhaps that is the lesson.
 
Knowing when to move on is every bit as important as knowing when to begin.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

What the Nation’s Top Industrial Developers and an Economist See Ahead

I returned from New York City last week, where commercial real estate professionals from across the country gathered to celebrate the 85th anniversary of the Society of Industrial and Office Realtors, commonly known as SIOR.
 
As promised, I wanted to share several observations from the conference that I believe will influence commercial real estate decisions over the coming months.
 
One particularly interesting discussion featured executives from three prominent industrial developers, Prologis, Becknell Industrial and Panattoni Development Company. Their perspectives revealed how dramatically the requirements for industrial buildings have changed.
 
For decades, industrial developers concentrated on relatively straightforward considerations. Location, access to freeways, proximity to labor and the cost of construction largely determined whether a project made economic sense.
 
Those considerations remain important, but another has emerged as increasingly critical. Electricity.
 
Advanced manufacturing, artificial intelligence and automation require enormous amounts of power. Consequently, developers are evaluating electrical infrastructure long before deciding whether to purchase land or construct a building.
 
One panelist observed that prospective occupants increasingly demand substantial electrical capacity even when they cannot yet quantify their requirements.
 
Another described how industrial buildings are evolving from simple structures used to manufacture or distribute products into sophisticated infrastructure supporting increasingly complex operations.
 
Consider the implications for Southern California.
 
Our region possesses an extraordinary concentration of aerospace, defense, medical device and advanced manufacturing companies. These businesses frequently require specialized electrical systems, reinforced floors, sophisticated automation and highly trained employees.
 
Finding a building with adequate square footage is no longer sufficient. Finding one capable of accommodating these requirements can be considerably more challenging.
 
The developers also discussed the growing importance of build-to-suit projects, particularly for manufacturers whose operations require extensive customization.
 
Interestingly, they acknowledged that companies investing millions in specialized improvements frequently prefer owning their facilities rather than leasing them. Developers appear increasingly willing to accommodate that preference.
 
Another recurring theme involved the difficulty of obtaining development approvals.
 
California received considerable attention for its lengthy entitlement process, although New Jersey was mentioned as another particularly challenging market.
 
Developers emphasized that land without approvals, adequate utilities or a realistic construction timetable can represent considerably more risk than its asking price suggests.
 
For property owners contemplating a sale, understanding these obstacles before marketing land becomes essential.
 
Perhaps the most anticipated presentation came from Mark Zandi, chief economist at Moody’s Analytics.
 
Zandi characterized the national economy as growing, but fragile.
 
He described two powerful forces pulling in opposite directions. Tariffs, immigration restrictions, inflation and geopolitical uncertainty are restraining economic activity, while artificial intelligence investment is providing a substantial counterweight.
 
His expectation is for approximately 2% economic growth through 2027, provided inflationary pressures ease and energy prices moderate.
 
Of particular interest was his assessment of commercial real estate values.
 
Zandi believes commercial property prices have already undergone much of the correction necessary to reflect higher borrowing costs. Assuming longer-term interest rates retreat toward his expectations, he sees commercial real estate as relatively attractive compared with stocks and bonds.
 
That assessment was encouraging, although hardly a guarantee.
 
My takeaway?
 
The next generation of industrial real estate decisions will require considerably more preparation than simply comparing available buildings and negotiating rental rates.
 
Electrical capacity, workforce availability, automation, construction costs, financing and governmental approvals are becoming inseparable from the real estate itself.
 
For Southern California manufacturers, distributors and property owners, understanding these considerations early may determine whether an opportunity becomes a successful transaction or an expensive missed opportunity.

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.
 
 

Renew or Relocate

I’m penning this from my hotel room overlooking Midtown Manhattan. It’s time for the semiannual SIOR conference, and this year marks the 85th anniversary of our organization.
 
I’m particularly excited because my first book, The SEQUENCE, will be featured today in a main-stage interview.
 
More on the conference, and what some of the best and brightest in our industry have to say about the commercial real estate market, in my column next week.
 
This week, however, allow me to discuss a strategy you might consider if you’re approaching a lease expiration.
 
The strategy came into sharp focus last week as we counseled a family-owned company facing just such a decision.
 
Like many occupants, the company had reached that familiar crossroads. Their lease was nearing its end, and they had choices. They could renew, relocate, purchase a building, or perhaps restructure their occupancy altogether.
 
The temptation in these situations is to begin by asking, “What space is available?”
 
I believe that is the wrong first question.
 
Instead, begin with this one: “What does our business need from its real estate over the next several years?”
 
That distinction matters.
 
A lease expiration is not simply a date on a calendar. It is one of those rare moments when an occupant has the opportunity to reconsider virtually every aspect of its real estate arrangement. How much space is really needed? Is the current location still optimal for employees, customers and suppliers? Has the operation changed? Would ownership make sense? Could capital currently tied up in real estate be better deployed in the business?
 
And, importantly, what happens if you do nothing?
 
Once a lease expiration gets too close, options begin disappearing. A relocation requires time to identify alternatives, negotiate terms, complete due diligence, design improvements, obtain permits, construct the space and physically move an operation. Purchasing a building can require even more runway.
 
Meanwhile, your existing landlord knows something very important: the closer you get to expiration without a viable alternative, the less leverage you possess.
 
That is why I favor creating competition for your tenancy well before a decision must be made.
 
Even if you would prefer to stay, understand what alternatives exist. Tour them. Price them. Determine the cost of moving versus remaining. If purchasing is a possibility, investigate that market as well.
 
You are not necessarily looking for a reason to leave. In fact, remaining in place may ultimately prove to be the best alternative. But by identifying other buildings that could accommodate your operation, understanding what their owners are willing to offer and comparing those economics with a renewal, you create competition. Your existing landlord is no longer negotiating against the inconvenience and expense of your move. He or she is competing against real alternatives.
 
That competition can affect more than the rental rate. Free rent, tenant improvements, renewal options, annual increases and other concessions can all become part of the discussion.
 
Most importantly, you have transformed an approaching expiration from a deadline into an opportunity.
 
Start early, understand your choices and create competition for your tenancy.
 
Because when several landlords want your business, you get to choose which one earns it.
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.
 
 

Delivering the Keys, Commercial Real Estate Decisions that Shape Family Business Success

In 1984, when I began my career in commercial real estate, I could scarcely have imagined the journey that awaited me. Thousands of buildings toured, hundreds of transactions completed, countless relationships formed, and more lessons learned than I could possibly enumerate.
 
Now, 42 years later, I’ve decided to write another book, and this one is directed specifically at you, my readers.
 
Why you may be wondering? I’m glad you asked.
 
My first book, The SEQUENCE, chronicles my journey as a commercial real estate professional and the lessons learned along the way. My second, Delivering the Keys: Commercial Real Estate Decisions That Shape Family Business Success, is considerably more personal.
 
You see, I grew up in a family-owned and family-operated business, Buchanan Bottling Company, a Dr Pepper franchise in Texarkana, Texas. That experience shaped my understanding of entrepreneurship, the relationships between family members working together, and the unique challenges that arise when business decisions and family interests intersect.
 
When I entered commercial real estate brokerage, I naturally gravitated toward businesses much like the one in which I was raised, particularly family-owned and family-operated manufacturing and logistics companies.
 
Over the ensuing four decades, I’ve had the privilege of advising these businesses through expansions, contractions, acquisitions, dispositions, and, perhaps most significantly, the transitions that occur when ownership, leadership, or family circumstances change.
 
Delivering the Keys connects those experiences, beginning with my family’s business, continuing through my decision to become a commercial real estate broker, and culminating in the stories of families I’ve served along the way.
 
There is a reason I chose Delivering the Keys as the title of this book, as it has three meanings, each connected to a different part of my life and career.

You will read about the day I decided to leave the consumer goods business. After several years of working for large corporations, traveling extensively, and spending far too many nights away from my family, I walked into my manager’s office, handed him the keys to my company car, and announced that I was leaving. I had no idea what I would do next, but I knew I wanted something different. As it turned out, that decision opened the door to a career I could never have imagined.

The second meaning comes from the profession I chose. In commercial real estate, there is something particularly satisfying about the moment a transaction closes and the keys are delivered.

Whether a company is leasing its first industrial building, purchasing a facility it hopes to occupy for generations, or selling property accumulated over years, the exchange of keys represents the culmination of a decision that may have taken months or even years to reach.

The third meaning is the reason I authored this book. After more than four decades advising owners and occupants of industrial real estate, I have accumulated a fair amount of practical knowledge about the decisions family businesses make as they grow, change, and transition.

My hope is to deliver some of those keys to you, allowing you to approach your commercial real estate decisions with a better understanding of the alternatives, the consequences, and the opportunities that may not be immediately clear.

So, there you have it. Three different meanings, all connected by an ordinary set of keys.
I’m hopeful Delivering the Keys will be completed and available before year’s end, just in time, perhaps, to find its way onto your list of Christmas gift ideas.
 
After all, what better gift for a business owner than a few lessons learned over four decades, without having to make all the mistakes yourself?
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.
 
 

The NEW Normal?

“We’re going to see interest rates below 10% for a prolonged period, and maybe even down into the 8% range.” 

I remember hearing predictions like this early in my commercial real estate career and thinking they were fanciful. After all, I entered the business in 1984, when the bank prime rate averaged just over 12% and briefly reached 13%. For someone learning how to sell industrial buildings in that environment, the notion of borrowing money at 8% seemed awfully optimistic. 

Of course, it happened. 

By 1986, prime had fallen below 8%. It climbed again, reaching 11.5% in 1989, before beginning another descent. By 1992, prime was 6%, and by the late 1990s, rates around 8% seemed entirely ordinary. The Federal Reserve’s historical data show prime averaging 8.35% in 1998. 

Then the definition of normal changed again. 

Following the financial crisis, we entered an extraordinary period of inexpensive money. The federal funds rate remained near zero for years and returned there during the pandemic. In 2021, the effective federal funds rate averaged a microscopic 0.08%. 

Think about that for a moment. 

Someone who entered commercial real estate when I did learned the business with double-digit interest rates. Someone who entered during the decade following the Great Recession learned the business when money was historically cheap. Both generations could be forgiven for believing the conditions surrounding them were normal. 

Neither was correct. 

And therein lies a lesson for owners and occupants of commercial real estate. We have a tendency to define normal by what we have recently experienced, even though commercial real estate is cyclical and the conditions affecting it are constantly changing. 

Interest rates provide the most obvious example, but hardly the only one. 

Consider industrial vacancy. 

During the years immediately following the Great Recession, plenty of buildings were available and occupants could negotiate aggressively. As the economy strengthened and e-commerce accelerated, vacancy steadily declined. Then came the pandemic, supply-chain disruption and an extraordinary appetite for warehouse and distribution space. 

Suddenly, availability became scarce, rents escalated and landlords enjoyed leverage that would have been difficult to imagine only a few years earlier. 

That became normal, too. Until it wasn’t. 

Property values followed a similar path. When borrowing costs declined, investors could pay more while still achieving acceptable returns. Capital poured into industrial real estate, capitalization rates compressed and values rose dramatically. Owners became accustomed to increasingly aggressive pricing, while buyers became accustomed to financing that made those prices possible. 

Then inflation intervened. 

Beginning in March 2022, the Federal Reserve embarked on one of the fastest tightening cycles in decades, moving its target rate from essentially zero to more than 5% by the summer of 2023. Suddenly, debt cost more, refinancing became challenging, investment returns had to be recalculated and some transactions that worked beautifully on a spreadsheet two years earlier no longer penciled. 

Once again, normal had changed. 

So where does that leave an owner or occupant today? 

Perhaps with a better question. 

Rather than asking, “When will the market get back to normal?” we should ask, “What do today’s conditions allow me to do?” 

For an owner, higher borrowing costs and fewer competing buyers may create an opportunity to acquire a building that would have attracted multiple offers several years ago. For an occupant, greater availability may provide choices and negotiating leverage that simply didn’t exist during the frenzy. For a seller, limited supply of quality owner-user buildings may still create an attractive exit. For a company facing a lease expiration, today’s environment may favor an early renewal, relocation or even a purchase. 

The answer depends upon the circumstances. 

What doesn’t make much sense is waiting for some mythical set of conditions we call normal. 

As I look back over more than four decades in commercial real estate, I’ve experienced double-digit interest rates, cheap money, recessions, recoveries, tight vacancy, abundant vacancy, rapidly rising rents, falling rents, lending crises and periods when seemingly everyone wanted to own industrial real estate. 

Each condition felt permanent while we were living through it. 

None was. 

Maybe that’s the point. 

Commercial real estate doesn’t return to normal because normal is constantly being redefined. Markets move, capital adjusts, supply responds, demand changes and opportunities migrate from sellers to buyers, landlords to tenants and back again. 

Our task isn’t to wait for normal. 

It’s to understand the market we have and make the best decision it allows.

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.

 

 

CREi Summit

Last week, I spent a glorious three days in Savannah, Georgia. You see, “working out loud,” a phrase we discussed last week, rewarded me with the title Commercial Real Estate Influencer, or CREi for short.
 
You might wonder why the “i” is lowercase. As CREi founder Ken Ashley of Cushman & Wakefield explained, it’s intentional. The “I” is secondary to the greater goals of servant leadership and using that leadership to create great content for our industry.
 
So, what exactly is a commercial real estate influencer, and why does it matter to you as an owner or occupant of commercial real estate? Or, for that matter, as one who serves as a CRE professional?
 
Stick with me here as i elaborate.
 
See what i did there?
 
When most of us hear the word “influencer,” we probably envision someone with millions of followers, a carefully curated Instagram account and a company willing to pay handsomely for a mention.
 
But commercial real estate influence is quite different.
 
In our world, influence is less about how many people follow you and more about whether what you share is useful to those who do.
 
Think about the amount of information a commercial real estate professional encounters during the course of a normal week.
 
We tour buildings, negotiate leases, review purchase agreements, discuss financing, analyze market trends, talk with business owners, meet with investors and hear firsthand why companies expand, contract, relocate, buy, sell or simply stay put.
 
We see what works. We also see what doesn’t.
 
And therein lies the opportunity.
 
For most of my career, that experience resided largely between my ears. I might share it with a client, discuss it with a colleague or use it to solve the next assignment. Then, in 2009, my wife Carla suggested I do something different.
 
Work out loud.
 
Take what I was already doing every day and digitize it.
 
So, I started writing. Then came video. Social media followed. Eventually, a weekly newspaper column, speaking engagements, training sessions and a book became part of the mix.
 
What I didn’t realize at the time was that I was creating a library of experience.
 
Consider an owner of a manufacturing building contemplating a sale. Should he sell the building vacant or lease it first? What happens to value if interest rates move? Should he consider a sale leaseback? How does the timing of a company sale affect the real estate?
 
Or consider an occupant whose lease expires in 18 months. When should the search for alternatives begin? What happens if suitable buildings are scarce? Is renewing the best answer? Would purchasing make more sense?
 
These are questions commercial real estate practitioners encounter every day.
 
By sharing the answers publicly, however, one conversation can help hundreds or thousands of people who may be wrestling with the same issue.
 
That, to me, is influence.
 
It also explains why this matters to those who serve our industry.
 
Commercial real estate has traditionally been an apprenticeship business. We learned by sitting next to someone who had been doing it longer than we had. We listened to phone calls, rode along on tours, watched negotiations unfold and occasionally learned painful lessons when things went sideways.
 
Much of that still happens, and it should.
 
But today we possess an extraordinary ability to scale that experience.
 
A young practitioner in Savannah can learn from a veteran broker in Southern California. An industrial owner in Orange County can benefit from something a broker in Chicago encountered last week. A tenant facing a lease expiration can understand the process long before sitting across the table from a landlord.
 
The barriers to sharing knowledge have largely disappeared.
 
Which brings me back to that lowercase “i.”
 
The point isn’t the influencer.
 
The point is the influence.
 
If something I learned during 42 years in commercial real estate can help an owner avoid a mistake, an occupant ask a better question or a young professional navigate a difficult assignment, then sharing it has value.
 
And perhaps that is the best definition of working out loud.
 
Do the work. Learn from it. Share what you learned.
 
Then get up tomorrow and do it again.
 
Turns out Carla was onto something.

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.
 
 

Work Out Loud

In a land far away but not so long ago, my wife encouraged me to “work out loud.” A foreign concept at first, but brilliant in its simplicity.
 
You see, in 2009, Carla was introduced to social media marketing while earning an advanced degree in apparel manufacturing from the Fashion Institute of Design & Merchandising, better known as FIDM. Her advice was prescient. Take what I do in commercial real estate brokerage every day, the work, and digitize it, the out loud.
 
The Location Advice blog was born shortly thereafter, and 17 years later, it’s still published every week. Here, I provide advice to owners and occupants of industrial real estate throughout Southern California.
 
What started as an experiment became a habit. That habit became a body of work. And somewhere along the way, working out loud became one of the most important business development lessons of my career.
 
So, what exactly does it mean to work out loud?
 
Simply put, don’t invent content. Document your work.
 
Commercial real estate brokers spend their days solving problems. We tour buildings, negotiate leases, advise owners, analyze alternatives, track market activity, uncover opportunities and occasionally talk clients off the proverbial ledge.
 
Each encounter contains a story.
 
Years ago, the challenge was finding a way to tell those stories. Today, the challenge is choosing among the countless ways to do so.
 
A blog was my starting point. Then came LinkedIn, YouTube and other social platforms. In August 2013, I recorded my first TUESDAY Traffic Tips video. The premise was ridiculously simple. I was already driving to work, so why not use those few minutes to discuss something I had encountered in my brokerage practice?
 
Once again, the work became the content.
 
Now artificial intelligence has added another dimension.
 
I can take notes from a client meeting and organize the important themes. I can research a topic I encountered during the day. I can analyze a complicated issue from several angles. I can turn an idea into an outline, challenge my assumptions and identify questions I haven’t considered.
 
But there is an important distinction.
 
AI can help me create content. It cannot give me 42 years of experiences from which to draw.
 
That distinction matters.
 
Spend five minutes scrolling through LinkedIn and you’ll encounter plenty of content that sounds polished but says very little. Artificial intelligence has made producing words incredibly easy. Producing something worth reading remains difficult.
 
Which brings me back to Carla’s advice.
 
Work first. Out loud second.
 
If you own a manufacturing company, perhaps you just wrestled with whether to renew your lease or buy a building. There’s a story there.
 
If you operate a logistics company, maybe rising rents forced you to reconsider your distribution network. There’s a story there.
 
If you own an industrial building and your tenant suddenly announced plans to leave, you learned something about leasing, timing and risk. There’s a story there too.
 
The most compelling content generally comes from experience, not imagination.
 
Certainly, confidentiality matters. I don’t identify clients or disclose information that should remain private. But the lessons surrounding a transaction can often be shared without revealing the parties involved.
 
What happened? What did we learn? What might another owner or occupant do differently?
 
Answer those three questions and you probably have something useful to say.
 
There is another benefit to working out loud that I didn’t appreciate in 2009.
 
You create a digital record of your expertise.
 
One blog becomes 10. Ten become 100. A weekly column becomes hundreds. A short video recorded every Tuesday becomes years of conversations about your craft.
 
Individually, none seems particularly significant. Collectively, they tell the market what you know, how you think and whom you help.
 
And now, with artificial intelligence able to search, organize and repurpose that body of work, those years of accumulated knowledge become even more valuable.
 
The technology will continue to change. Blogs gave way to social media. Video became ubiquitous. Podcasts exploded. Artificial intelligence arrived. Something else will surely follow.
 
But I suspect Carla’s advice will survive all of them.
 
Do good work.
 
Pay attention to what the work teaches you.
 
Then work out loud.

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.