When to go principal to principal

One of the primary responsibilities of a commercial real estate practitioner is to serve as the “go-between” for two parties. In many respects, our job is to keep our clients separated from one another until the appropriate time. That statement may sound unusual to someone outside the business, but experienced brokers understand exactly what I mean.
 
Certainly, there are many reasons for this.
 
Commercial real estate transactions are emotional. Owners become attached to their properties. Buyers become excited about opportunities. Tenants become frustrated with rising occupancy costs. Landlords sometimes take resistance personally. Human nature has a way of entering negotiations, and when emotions become involved too early in the process, the transaction can quickly move away from facts, economics, and problem solving.
 
Part of our responsibility as brokers is to absorb some of that emotion and interpret information in a way that keeps negotiations productive. Often, we are translating more than negotiating. We take a strongly worded position from one side and communicate it constructively to the other. We soften rough edges, clarify intent, eliminate misunderstandings, and preserve momentum.
 
That role is far more important than many people realize.
 
I have seen transactions collapse over comments that had nothing to do with price, timing, or terms. A poorly timed meeting between principals can create tension where none previously existed. Personalities sometimes clash. Casual remarks become perceived commitments. Negotiating positions harden. Egos become involved. Before long, the focus shifts from solving a problem to winning an argument.
 
Ironically, some of the best meetings between principals occur after the difficult issues have already been addressed.
 
Once the major business points have been substantially negotiated, the nature of the conversation changes. The parties are no longer sitting across the table as opponents trying to extract concessions from one another. Instead, they begin discussing how to make the transaction successful. Conversations become collaborative rather than adversarial. At that point, a face-to-face meeting can strengthen trust, create alignment, and reinforce the relationship moving forward.
 
So when is the best time to get principals together?
 
In my experience, the timing is right when expectations have been properly framed, emotions have settled, the parties have demonstrated seriousness, and there is more to gain from collaboration than from posturing. Experienced brokers understand this instinctively. They recognize that controlling a transaction often means controlling the process, and part of controlling the process involves understanding when direct communication between principals helps the transaction and when it hurts it.
 
This is why seasoned practitioners are often reluctant to arrange a meeting or conference call too early. It is not because they are trying to keep parties apart unnecessarily. It is because they understand that premature interaction can sometimes create obstacles that did not previously exist.
 
The right meeting at the wrong time can easily become the wrong meeting.
 
And one of the subtle skills developed over years in this business is knowing exactly when the timing is right.

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.
 
 

Industrial Market

The industrial market in Orange County hit pause in mid-2022. Just like that. A once-robust market filled with constant activity suddenly fell silent. Buildings that would have generated multiple tours and competing offers within days began sitting for weeks, then months.
 
Yes, we’re beginning to see signs of life again. Several notable manufacturing companies are actively touring and leasing space. Phones are ringing a bit more frequently. Brokers are cautiously optimistic. But overall, the velocity remains tepid compared to the frenzied pace we experienced only a few years ago.
 
For owners of industrial real estate, that slowdown carries a significant cost.
 
Most owners understand the obvious expenses associated with vacancy. If you own your building free and clear, your carrying costs may be limited to property taxes, insurance, utilities, landscaping, security, and maintenance. If there is debt on the property, the monthly burden rises quickly as mortgage payments continue regardless of whether the building is occupied.
 
But the most overlooked expense is often the largest: opportunity cost.
 
Every month a building sits vacant is a month of rent that can never be recovered. Unlike many businesses where lost revenue can potentially be made up later, industrial real estate doesn’t work that way. A missed month of occupancy is permanently lost income.
 
Consider a 25,000-square-foot industrial building leasing for approximately $1.50 per square foot. One month of vacancy represents nearly $38,000 in lost gross revenue. Six months? More than $225,000 gone forever — before considering tenant improvements, commissions, free rent, and carrying costs.
 
And therein lies the challenge many owners face today.
 
Landlords remain anchored to yesterday’s market while tenants have become increasingly selective and deliberate. The result is a widening gap between expectation and reality. Owners resist lowering asking rents or offering concessions because they fear “leaving money on the table.” Yet in many cases, the larger financial mistake is waiting too long to respond to market conditions.
 
Pricing a vacancy correctly at the beginning of a marketing cycle is almost always less expensive than chasing the market downward six months later.
 
I’ve also noticed another emerging trend. Tenants today are spending far more time evaluating decisions. During the post-pandemic industrial surge, occupants often toured a building on Monday and submitted an offer by Friday. Today, the process resembles a chess match rather than a sprint. Companies are carefully analyzing labor costs, tariffs, supply chains, interest rates, inventory levels, and broader economic uncertainty before committing.
 
That caution impacts landlords directly.
 
The cost to originate a tenant has risen dramatically. Leasing commissions, tenant improvement allowances, free rent periods, legal negotiations, architectural reviews, and extended downtime all contribute to the equation. In many cases, replacing a tenant today can cost hundreds of thousands of dollars before the first rent check arrives.
 
Which is why tenant retention has become more important than ever.
 
Sometimes the best deal isn’t pushing aggressively for every possible rent increase. Sometimes it means working collaboratively with an existing tenant to preserve occupancy, maintain cash flow, and avoid the substantial frictional costs associated with vacancy.
 
A vacant building creates stress. An occupied building creates options.
 
The industrial market will eventually regain stronger momentum. Southern California remains one of the most supply-constrained and economically dynamic industrial markets in the world. Manufacturing, logistics, and distribution demand will continue to evolve. But in the meantime, owners would be wise to carefully calculate not only the visible cost of vacancy, but also the invisible one.
 
Because waiting can become very expensive. 

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.
 
 

Industrial Outdoor Storage

Today, I’d like to talk about a segment of industrial real estate you’ve probably never heard of, much less considered. It’s called IOS.
 
No, not the operating system that powers your Apple devices. In this case, IOS stands for Industrial Outdoor Storage. And until a few years ago, almost no one was talking about it.
 
Then COVID hit.
 
Suddenly, IOS went from an afterthought to one of the most sought after property types in commercial real estate. Today, it is not just a niche. It is its own asset class, and demand is exploding.
 
Why?
 
Because IOS sits right at the intersection of three powerful forces.
 
First, the supply chain broke and companies needed space fast. Not warehouse space. Yard space. Places to store trailers, containers, equipment, and overflow inventory when buildings were full and ports were backed up.
 
Second, service based businesses never stopped growing. Plumbers, electricians, HVAC contractors, landscapers, equipment rental companies, and construction yards all need a place to park trucks, store materials, and operate close to their customers. In infill markets like Orange County, that means outdoor space is essential.
 
Third, and this is the big one, you cannot create more of it.
 
Orange County is built out. Zoning is tight. Cities do not love outdoor storage. And many existing IOS sites are legally nonconforming, which means they are effectively irreplaceable.
 
So what happens when demand surges and supply is fixed or even shrinking?
 
Prices go up. Competition intensifies. And a once overlooked property type becomes a hot commodity.
 
That is exactly what we are seeing today.
 
Industrial Outdoor Storage may not be glamorous. It is not shiny, it is not new, and it will not win any architectural awards.
 
But it is functional. It is necessary. And increasingly, it is valuable.
 
And here is the part that should get your attention. If you own a piece of industrial land with yard space, even if it looks rough around the edges, you may be sitting on one of the most in demand and underappreciated assets in today’s market.
 
Tenants are not looking for perfection. They are looking for usability. They need space that works. Space that is secure, accessible, and close to their customer base.
 
That shift in mindset is important.
 
Because in a market like Orange County, where land is scarce and regulation is tight, the highest and best use is not always the newest building or the most polished project. Sometimes, it is simply well located dirt that solves a real operational problem.
 
IOS is no longer the leftover. It is no longer the forgotten corner of industrial real estate.
 
It is now a critical piece of the supply chain and a growing opportunity for those who understand its value  

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.
 
 

Where Has All the Urgency Gone?

Urgency is a funny thing.

In some markets, it shows up whether you are ready or not. Decisions get made quickly, options disappear, and hesitation has a cost. In today’s industrial real estate market, however, urgency has become surprisingly rare.

You might be wondering why.

Let’s start with the occupant.

If you are a business owner looking for space, the process usually begins with a clear need. You engage a commercial real estate professional, define what you are looking for, and tour a few buildings. Inevitably, a couple rise to the top. One might check most of the boxes, maybe even all of them.

But then time passes.

You circle back for a second look and something interesting happens. The buildings you liked are still available. Not only that, but a few new options have entered the market. The list has grown, not shrunk.

At that moment, a very logical thought enters your mind. The market is moving in your direction.

And if that is the case, why rush?

Why commit today if waiting might produce a better deal, more concessions, or an option that fits even better? So you slow down. You take another look. Then another. And without really noticing it, the urgency that once existed at the beginning of your search quietly fades away.

Now let’s look at the owner.

From the ownership side, the experience feels very different, but it leads to the same result. The activity you are seeing is likely below what you expected. The inquiries may be fewer. The proposals that do come in might not hit the rental rate you had in mind. The use might not be ideal. The credit might not feel as strong as you would like.

So you wait.

You tell yourself that the market will improve, that stronger tenants will surface, that rates will return to where they were not that long ago. It feels reasonable. It feels patient. It even feels disciplined.

But in that decision to wait, something else disappears.

Urgency.

What we are left with is a market where both sides believe time is working in their favor. Tenants feel no pressure because options remain. Owners feel no pressure because expectations remain. And when both sides are comfortable, deals tend to slow.

It is not that demand has vanished. It is not that supply is overwhelming. It is that the natural tension that drives decisions has softened.

Here is the part that often gets missed.

Markets rarely announce when the opportunity is at its best. They do not send a signal that says now is the moment. Instead, they shift gradually, almost quietly.

The tenant who waits for the perfect situation can find that the best buildings are leased while they are still evaluating. The owner who holds out for yesterday’s pricing can discover that extended vacancy carries a cost that is far greater than a small concession would have been.

In both cases, the absence of urgency creates a different kind of risk. It is not obvious. It does not feel immediate. But it is there.

So what is the answer?

If you are an occupant, recognize that having more choices does not mean you have unlimited time. The market may be giving you leverage, but that leverage only has value if you use it.

If you are an owner, understand that patience only works when it is aligned with reality. Waiting is a strategy, but only if the market is actually moving in your direction.

Urgency does not mean panic. It does not mean forcing a decision that is not there.

It means clarity.

It means recognizing value when it presents itself and having the confidence to act.

Because while urgency may be harder to find in today’s market, opportunity is still there for those willing to move when it makes sense.

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.

 

 

4-20

I’m penning this column on April 20. According to PBS, this day is widely recognized as an international counterculture holiday for cannabis culture, marked by celebrations, consumption, and advocacy for marijuana legalization. Originating in the 1970s with a California high school group known as the Waldos, the term and date became a popular code for meeting to smoke cannabis.
 
So what, you may be wondering? Has the day clouded his judgment?
 
Indulge me while I share a story about cannabis and my one and only experience with its use in an industrial building.
 
Let me take you back to a time when medicinal cannabis was legal in the state of California. Recreational cannabis, however, had yet to be approved through a ballot initiative.
 
We had connected with a family owned and family operated diesel mechanic who had run his business for decades out of a shop in Los Angeles. When we presented our broker opinion of value for what we believed the property was worth, he countered with a significantly higher number. My associate Joshua and I took a flyer and decided to market the building at somewhat less than his expectation, but meaningfully more than our estimate.
 
We prepared our marketing collateral and published the availability on several multiple listing services, including AIR, LoopNet, and CoStar, and commenced our marketing efforts.
 
Over the weekend after the property hit the market, we received no less than 20 phone calls with urgent requests to see the building first thing Monday morning. We could not believe the activity. When we questioned these prospective occupants about their intended use, every single one of them cited diesel repair, auto body, towing, or other compatible industrial uses.
 
We scheduled tours beginning at 8:00 a.m. on Monday morning, running through noon. About five in total.
 
It did not take long to realize that none of these operators were actually in the automotive industry. Instead, they were in the medicinal cannabis business. The building, as it turned out, was located in a zoning pocket that was slated to allow recreational cannabis in the near future.
 
We chose what we believed to be the most credible group and were completely transparent with our owner about the proposed use, the expectations, and the likelihood of closing.
 
I would like to tell you that everything went smoothly, but that would not be accurate. The transaction included more than its share of twists and turns. We had to reinstate the owner’s limited liability company, which had been inactive for over 30 years. There were back taxes and registration fees that needed to be addressed. Financing was delayed. Timelines slipped.
 
But in the end, we closed the transaction on April 20, 2016. A fitting and somewhat ironic conclusion to a deal that began with a bit of skepticism and ended with a lesson in market awareness, adaptability, and the importance of reading between the lines.

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.
 
 

Florida

Last week was quite special. You might have noticed my absence from these pages. That wasn’t what made it special, by the way. My wife and I spent an amazing week with our oldest grandson fishing in the Florida Keys. We told all six of our grandchildren that once they turned ten years old, we would take them anywhere in the United States they wanted to travel. Our oldest chose Florida.
 
Watching him spend countless hours on the pier at our hotel fishing - baiting, casting, playing the line, reeling, rinsing and repeating, I was reminded of a saying: “every expert is a beginner who didn’t quit.” Witnessing his tenacity, I drew a parallel with those who succeed in commercial real estate.
 Stay with me, please, as I expand this idea.
 
At first glance, fishing and brokerage seem worlds apart. One involves patience and time on the water, the other conversations, negotiations, and problem solving. Yet at their core, both demand consistency and a willingness to keep going when results are not immediate.
 
Our grandson did not catch a fish every time he cast his line. In fact, most of his efforts produced no result at all. Still, he stayed with it. He adjusted his approach, asked questions, and paid attention to what worked and what did not. Over time, he improved, not because of a sudden breakthrough, but because he refused to stop.
 
That same principle applies directly to commercial real estate. Success in our business rarely comes from a single moment of brilliance. It comes from steady, repeated effort. Calls that are not returned, meetings that do not convert, proposals that do not result in a transaction are all part of the process. Those who succeed understand that consistency, not intensity, is what produces results over time.
 
There were moments when the conditions were not ideal and it would have been easy for him to walk away. Instead, he leaned in, remained curious, and stayed engaged. Eventually, his persistence paid off. Not through luck, but through effort sustained long enough to create opportunity.
 
In our business, there is often a temptation to search for shortcuts or quick wins. In reality, progress is built through a disciplined approach and a commitment to the process. Each step matters, and each action builds upon the last.
 
As I watched our grandson at the end of each day, tired but satisfied, I was reminded that growth rarely happens all at once. It happens gradually, through repetition, patience, and a willingness to keep going.
 
The lesson is simple. You do not need to succeed every time. You simply need to stay with it long enough, remain consistent in your effort, and trust that the results will follow.

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.
 
 

Will AI Replace Commercial Real Estate Brokers? A Thought Experiment Through SEQUENCE

Lately, I have been doing something I do not often allow myself to do. I have been wondering if I am becoming obsolete.

Not because the phone has stopped ringing or because deals have dried up. Quite the opposite. But artificial intelligence has arrived with such speed and capability that it forces an uncomfortable question.

What happens if a machine can do what I do?

Last year, I wrote a book titled The SEQUENCE, a framework that outlines the lifecycle of a commercial real estate transaction. Source. Evaluate. Qualify. Under Control. Execute. Negotiate and Close. Expand.

Every deal follows this cadence. Every broker, whether they realize it or not, is executing some version of this sequence daily.

So I began to ask myself what it would look like if AI replaced each step.
Let’s walk through it.

Source
AI already knows who owns what, when their loan matures, what they paid, what their tenant roster looks like, and whether they are likely to sell. It can scrape, sort, and predict motivation faster than any human prospecting effort.

The days of pounding the phones may give way to prompting the machine.

Evaluate
Need a comp analysis. Done in seconds. Need a lease versus own model. Instant. AI can analyze market trends, demographic shifts, and financial scenarios with precision and speed no human can match.
What used to take hours, sometimes days, can now be done almost instantly.

Qualify
Here is where it gets interesting. AI can ask questions. It can even ask good questions. It can analyze responses, detect patterns, and score the likelihood of a deal closing.

But can it read hesitation. Can it sense when a client says one thing but means another.

That remains to be seen.

Under Control
Proposals, presentations, and follow-ups can be automated. Perfectly formatted. Delivered instantly. AI does not forget to send the email. It does not get nervous in a meeting. It does not miss a detail.

But it also does not build trust over lunch. It does not shake a hand. It does not look someone in the eye and say, I have got this.

Execute
Transaction management is already being streamlined by technology. AI can coordinate timelines, track documents, and ensure deadlines are met without error.

No dropped balls. No missed signatures.

Negotiate and Close
Now we enter the gray area.

AI can model outcomes. It can suggest optimal terms. It can even simulate negotiation scenarios.
But negotiation is not just math. It is emotion. It is timing. It is knowing when to push and when to pause.

It is reading the silence on the other end of the phone.

That is harder to replicate.

Expand
AI can absolutely help here. Marketing the deal. Broadcasting success. Identifying the next opportunity before the ink is dry.

In fact, this may be where AI becomes a broker’s greatest ally rather than its replacement.
So where does that leave us.

If I am being honest, parts of what we do are already being replaced. The administrative. The analytical. The repetitive.

And that is not necessarily a bad thing.

Because what remains, the part that is hardest to automate, is the part that matters most.

Judgment. Trust. Relationships. Experience.

A machine can process data. It cannot sit across from a business owner who has built something over 30 years and understand what that building truly means to them.

At least not yet.

So no, I do not believe brokers are going away.

But I do believe the brokers who ignore AI might.

The future is not a world without brokers. It is a world where the best brokers use AI to eliminate the noise and focus on what only humans can do.

The SEQUENCE does not disappear.

It evolves.

And maybe the brokers who embrace that evolution will find themselves more valuable than ever.

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.