Friday, April 16, 2021

Is the Grass Greener?


Much has been written about businesses vacating California. One “catcher’s mitt” state has even coined a phrase - “Texodus” - to describe companies bolting California for the Lone Star state of Texas. Catchy indeed. Another city has erected a mock Statue of Liberty on its strip - “give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore...”. Who knew that would be applicable to enterprise seeking asylum from California in a business friendly environment. Finally, governors are racking up frequent flyer miles traveling here to recruit our manufacturing base. The promise of economic incentives, cheaper houses, and smaller tax burdens lure our local operations to consider an out-of-state move. But is the grass really greener?
Certainly, the decision to move - in addition to the carrots afore mentioned - is a complex matrix of workforce availability, quality of life, affordable utilities, access to raw materials, logistics considerations, and to a small extent - the cost and availability of commercial real estate to house the organizations. That small slice - vacant locations - is the subject of this column.
So, I got my Jon Lansner on and examined several metropolitan service areas around the United States. Compared were available Class-A 100,000 square foot (used was a range of 75,000-125,000 square feet) industrial buildings built after 2000. Considered were the existing square footage - both vacant and occupied, number of spaces available, average asking lease and sale prices. Also, a benchmark for SoCal was included. All that was missing was his trusty spreadsheet.
Los Angeles County, California. 6,431,024 square feet existing and under construction - 35 buildings available - Average asking lease rates $1.03 psf - Average asking sale price $357 psf.
Orange County, California. 1,707, 949 square feet existing and under construction - 3 buildings available - Average asking lease rates $.93 psf - Average asking sale price $$296 psf.
Inland Empire East and West, California. 7,099,294 square feet existing and under construction - 10 buildings available - Average asking lease rates $.66 psf - Average asking sale price $170 psf.
Las Vegas, Nevada. 1,888,928 square feet existing and under construction - 6 buildings available - Average asking lease rates $.74 psf - Average asking sale price $260 psf.
Salt Lake City, Utah. 2,576,011 square feet existing and under construction - 10 buildings available - Average asking lease rates $.57 psf - Average asking sale price $150 psf.
Denver, Colorado. 4,139,989 square feet existing and under construction - 31 buildings available - Average asking lease rates $.73 psf - Average asking sale price $162 psf.
Chicago, Illinois. 9,810,710 square feet existing and under construction - 28 buildings available - Average asking lease rates $.52 psf - Average asking sale price $99 psf.
Columbus, Ohio. 792,518 square feet existing and under construction - 4 buildings available - Average asking lease rates $.54 psf - Average asking sale price $105 psf.
Nashville, Tennessee. 1,555,186 square feet existing and under construction - 7 buildings available - Average asking lease rates $.62 psf - Average asking sale price $94 psf.
Dallas Fort Worth, Texas. 11,749,896 square feet existing and under construction - 53 buildings available - Average asking lease rates $.48 psf - Average asking sale price $90 psf.
Houston, Texas. 9,695,070 square feet existing and under construction - 41 buildings available - Average asking lease rates $.58 psf - Average asking sale price $84 psf
Atlanta, Georgia. 5,464,511 square feet existing and under construction - 15 buildings available - Average asking lease rates $.50 psf - Average asking sale price $90 psf.
Jacksonville, Florida. 452,611 square feet existing and under construction - 1 building available - Average asking lease rates $.30 psf - Average asking sale price $73 psf.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, April 9, 2021

10 Things to Seek in Lease Negotiations


As commercial real estate professionals - a portion of our day is consumed negotiating leases. These can be renewals - someone stays put; or new deals - which are triggered by a relocation. Depending upon your specialty, up to 90% of your time is spent in lease endeavors. Compare this to a residential agent and you find the opposite - 90% in the sale of homes vs the lease of homes. So, with so much of a commercial real estate broker’s bandwidth filled with lease conversations - we get pretty good at the “ask”. In other words, what to seek from a landlord. If you find yourself in the midst of such a back and forth - consider the points below.
Rental rate. Folks in the business speak in terms of per square foot. You’re most likely concerned with the size of the check you write each month. Regardless, both are important. Why? Prices per square foot provide a benchmark by which alternatives can be compared. And, the total allows you to determine affordability. Your rent will be net of operating expenses (known as a Triple Net, NNN, or modified net figure) or included within the sum (Gross, Full Service, Modified, or Industrial Gross). Each has its pros and cons. Make sure your professional explains.
Term. Your enterprise is committing to lease the premises for a period of time. Generally, the smaller the space - the shorter the term. As an example, incubator locations - fewer than 5000 square feet - are month-to-month to two years whereas a 250,000 logistics hub might carry a 10-15 year arrangement.
Increases. Unfortunately, your rent will increase throughout the period of your tenancy. In theory, these are tied to inflation. But, with inflation all but flat - a bump of 3-3.5% per year is standard. The crazy thing is - rents have increased far in excess of 5% per year for the past two years.
Tenant Improvements. Generally, a TI will fall into one of two categories - special purpose or general purpose. Think of the former like a chef’s kitchen for your home. Sure, you may require a 12 burner Viking range but will the next occupant find value. If the answer is no, most owners won’t spring for it. Conversely, an upgrade of the power that feeds the plant will appeal to the next resident. Therefore, you may find a willingness to participate in the expense.
Refurbishment. Typically - paint, carpet, flooring and cleanup. Depending upon how recently the landlord rolled over a tenant - refurbishment may be more involved.
Extension Rights. Relocating is expensive, time consuming, disruptive, and inefficient. Therefore, in addition to the initial term of your lease - consider requesting an ability to stay past the expiration. Also known as “options to extend” - your tenancy is preserved if you decide to exercise.
Options to buy. Rarer today than an open amusement park, options to buy are a concession frequently sought by a prospective tenant and seldom given by an owner. Ask away. Expect the answer to be - ummmm, no.
Opt-outs. Seen this year with office leases - where space need uncertainty prevails - flexibility is achieved. Given is the right to walk away before the lease term expires. If a parcel holder agrees, expect there to be a penalty.
Free or abated rent. The difference? Free is Free and can’t be clawed back if you default - whereas abated can be. Some relief - in either flavor - can ease the expense of a move.
Form of lease. Finally, your agreement will but placed into a contract for both parties to sign. This becomes the document from which rules are noted, obligations created and a mechanism for settling disagreements outlined. Therefore, the form is critically important - so make sure you know what the owner is proposing and seek counsel.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, April 2, 2021

Shortage of Inventory? No Problem


There is an acute lack of available buildings for lease and sale in Orange County and the Inland Empire. In most cities and size ranges, 98 to 99 of every 100 spaces is occupied. The culprits? Lack of new construction, exponential growth of industrial operations, and increased competition from well funded investors. In short, demand outstrips supply and has for several years. This time last year - when a pandemic fueled pause persisted - we believed the end to shortages was finally near. But alas, in June of 2020, the turbo charged appetite for manufacturing and logistics locations voraciously returned.
But, there are ways to creatively solve the dilemma. Below, are just a few.
If you’re looking to buy, consider leasing. Currently, we represent a well qualified buyer looking to purchase 200,000 square feet in the IE. Alternatives to buy are rarer than Elvis sightings. A quick scan of the multiples yields fewer availabilities than digits on your left hand. However, a similar survey of lease options is brighter with several more choices. Sure. With a lease you pay rent to another when you could be funding your retirement - but at least your revenue will grow in the larger building. Once your lease terms out - consider re-entering the buying fray.
If you’re looking to lease, consider buying. Our food processing client is having a bear of a time locating a facility to lease. Ideally, the spot will have some of the special purpose goodies he needs - floor drains, washable walls, and substantial power. Slim pickings! However, we did source a prime deal for him to buy. We can couple our tenant with an investor who can buy the building, construct a long term lease and voila - everyone wins!
Make unsolicited proposals. Occasionally, we will find a gem by panning for gold. Be aware - offering on a property not on the market is inefficient. Generally, there is little room for negotiation. Sellers have not fully considered the tax impact. Third party reports such as inspections, surveys, environmental, and appraisal must be generated. Finally, motivation to sell is strictly based upon the price you offer. Any variance from your offered price - if you discover something wrong - will be met with a resounding no. We have found a few sale opportunities by scanning buildings for lease. The math of selling a vacancy vs waiting for a tenant can sometimes make sense.
Wiggle, wiggle, make it work. My wife is a seamstress. In the past, she taught countless young folks to sew. One of her sayings was “wiggle, wiggle make it work” when shoring up a pattern. If you look at your current setting, additional square footage may be found. How wide are the aisles in your warehouse? If you slim them down to “very narrow” - you multiply the capacity. Are you maximizing the cube of your space? By stacking higher - this is accomplished. I’ve seen some very cool production mezzanines which double your floor space. If you have no place to put that new injection molding machine - consider a mezzanine.
Find the soft spot. Recently, we completed a deal with a logistics company. When all of their musts were identified - nothing was available to tour. The reason? Required was more office space than the typical warehouse building sported. Our solution was to separate the office need from the operation. We found a plethora of available suites close to the mother ship.
Outsource! People, inventory, machinery. Generally, these three drive increased revenue - and require more space - albeit different types. Folks require an air conditioned, carpeted office. Inventory? Racking and stacking. That new CNC machine that cranks out parts needs floor space. A careful dissection of the increased enterprise is in order. Will the business be generated by a larger sales force? Maybe a virtual group could be considered. Factory reps do this sort of work. For finished goods that need a place to rest - many of our clients use a third party logistics provider for the ebb and flow of warehousing. Avoided is a long term commitment to square footage. Have you considered using another producer to manufacture for you? Until you scale and the cost benefits level - you can produce more without the investment in machinery and the need for a place in your plant.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, March 26, 2021

4 Ways to Insure Your Office Space Remains VACANT!

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Occasionally, I transact office deals although my specialty is industrial - manufacturing and logistics warehouses. Differences between the two genres are minimal yet vast. Recently, a client requirement thrust me into the world of office leasing. You see, we fulfilled a need with a long term agreement on a new warehouse building. An amazing space was procured with all of the modern amenities - except for one - enough office space to house the employees. We encountered an owner unwilling to construct more. Why? Because the dollars needed to build wouldn’t yield an adequate return. Plus, once our guy vacates - the next occupant won’t find value. Solution? Find a suite of offices close by. Easy. Hmmm. Not so fast.
My expectation? We would find acute motivation and many viable choices. We’d just experienced a year of pandemic lockdowns, working virtually, and throttled demand for office space.
As we ventured into the market, I was amazed buy the voracious pursuit of our tenancy. Wow! Compared to skimpy industrial avails and colleagues who don’t return calls - office space alternatives abound. Akin to an episode of The Batchelor, we suddenly had ten proposals and five more warming in the pen. A red rose was the only thing missing! But, as we toured the options, each had its negatives. The good news is I believe a couple of the spots could work. However, the ones that didn’t provide great column fodder. So here goes. The FOUR ways to insure your space remains VACANT.
As is. “Just take the space as it sits and we will discount the rent.” Good in theory - bad in reality. Moving a staff into a new location carries infinite variables, time constraints, and pitfalls. Layer in some construction and an occupant will vapor lock. If you lined up 100 office tenants - 1-2 would be willing to undertake a refurbishment. The savings rarely offset the aggravation. Spend some money. Put the suite in move-in condition.
Tuppence. One of the stops was a scene from Mary Poppins. As we entered, a flock of pigeons massed the doorway. Feed the birds, indeed! Two thoughts occurred to me. Man. This space has been empty a LONG time and how is the owner ever going to remove the months of guano? Yeah. Might want to visit the vacancies a bit more often - after all, it’s only tuppence!
Is Green Day performing? No kidding. At our first visit, I flashed back to a former address where I worked in the 1990s. Complete with burgundy and grey carpet squares, black aluminum door frames, parabolic light lenses and privates large enough for a Pentium processor and loads of paper files - I truly expected to be awakened as September ended. For those not scoring at home - that’s was a hit by the band Green Day - but I digress. However, the goods outweighed the bads here and this one emerged as the front runner. A quick coat of paint and eliminating the carpet in favor of a tripod with flooring choices would have cinched it.
Someone didn’t get the memo. If the tenant occupying the space you’re touring isn’t aware they are moving...yeah. That’s uncomfortable. Especially since no one met us at the building to explain the situation and buffer the stares. At least the layout there was decent.
So, if your desire is a vacancy - simply follow these four steps. Don’t spend any refurbishment money, never visit your suites, leave potential to imagination, and don’t require your representaive to attend tours. Guaranteed success!
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, March 19, 2021

When will the Crazy Pricing End?


Never have we seen the staggering prices being paid these days. And, never is a long time! So, when will they end and return to normal? And what is normal? Bear with me as we dissect the topic.

Pricing. The metric from which returns on investment are achieved, business operating expenses derived, and rents determined. Think of prices as a conveyor belt or a motorized sidewalk - like the ones at giant airports. You hop on at a point and continue to ride. But, it’s a continuous loop. Those who entered early - say in 2010 - have seen massive appreciation in the value of their purchase. If you jumped into the fray last year - we shall see. But it all starts with pricing - the basis, or starting point of your buy.

Commercial real estate - regardless of genre - retail, office or industrial - carries with it a number. As brokers, we typically talk in terms of prices per square foot. Sure. Owners and occupants might also consider per square foot figures but frequently are concerned with the total. As an aside, early in my career I prepared for a tour of leasing alternatives. Carefully memorized were all the lease rates. Yep. Knew em all! Problem was - when asked by the client what amount monthly was to be paid - I sheepishly deferred to my HP 12-C calculator for the answer.

To add some context, 50,000 square foot industrial buildings were plentiful in 2010 for well under $5,000,000 ($100 per square foot for you brokers out there). Sure, in the bowels of SoCal, you might be thinking. Nope. In Anaheim, California. Just along the stretch of East La Palma between Kraemer and Imperial there were 12. Now? You’d be lucky to find one for under $15,000,000!

You might be wondering. What’s causing the astronomical rise? 
Certainly cheap money is a culprit. You see, when an occupant can borrow 90% of the purchase price from the Small Business Administration and have the first six months of payments forgiven, tremendous buying power is unleashed. Couple that with an obscenely low supply of buildings to buy and voila - the perfect storm of appreciation.
Next, returns on capital are puny. Even though we’ve seen an uptick of 10 year treasury yields this week - 1.6% is still anemic. Wild stock market gyrations spook investors also. Commercial real estate becomes a safe haven. As these well heeled groups compete - once again - for skimpy availabilities, the upward march continues.
Companies who can’t or choose not to buy are forced to rent. A similar competition ensues for vacant lease alternatives - which are rare. As an example. If your goal is to lease a new 100,000 square foot spot in north Orange County - you have ONE choice - and construction is not complete.
In the past, when pricing got crazy - you could head east to the Inland Empire. Now, even the IE is no bargain. We represent a well qualified eCommerce outfit looking to buy 200,000 square feet. Recently, we pursued a site under construction. Our full price offer was countered with a higher number, an unwillingness to allow a financing contingency, and an enormous non-refundable deposit request. Next!
So, to the question. When will this insanity end? The answer is. When one or all of the above shift. We’d need something cataclysmic to occur to return to a normal 5-6% vacancy - such as a pandemic. Wait. We had one. Hmmmm.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, March 12, 2021

3 Transcendent Figures in Commercial Real Estate

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Last Wednesday I agreed to an early meeting - in person, no less. On the drive back, I tuned in to my favorite radio talk station - KABC 790. It was there I sadly learned of Rush Limbaugh’s passing. I must admit, rarely did I listen. As a matter of fact, I can’t recall the last time. But, his brand saved AM radio and created a whole genre of content - conservative talk. Many of the stalwarts in the industry today have Rush to thank - including the two gents - Armstrong and Getty - to whom I was listening. Rush Limbaugh transcended his craft. Meaning? Everyone knew him - even if you weren’t a fan. Michael Jordan, Arnold Palmer, Muhammad Ali, Vince Lombardi, Oprah Winfrey, Billy Graham, and Stephen Spielberg all shared a similar impact upon their professions. Even if you never watched golf or consumed a lemonade iced-tea - you recognize Arnold Palmer. Transcendent figures do that - become household names.
You may be wondering. What does this have to do with commercial real estate? Only this. Our trade has similar figures who’ve broken the shackles of normal and transformed our industry. Allow me to introduce you to a few. Wait. You probably already know them.
Roger Staubach. Founder, The Staubach Company. United Stated Naval Academy. Heisman Trophy winner. Multiple Super Bowl titles with the Dallas Cowboys. Thanks for that Roger! You made this young man - a life long Cowboy fan - very happy in the 1970s. However, when Roger retired from the NFL his focus turned to commercial real estate brokerage. Roger moonlighted in brokerage during the off-season with the Henry S. Miller company. While there, he observed a need. Corporate tenants were lacking representation. During those days, owners of commercial real estate engaged brokers to market their assets and locate occupants to fill their spaces. But, who was the tenant’s advocate? Generally, a hybrid agent who did landlord and lessee work. Roger’s company forged the Tenant Rep concept whereby his company’s only clients were the occupiers of office and industrial buildings. Contractors, space planners, architects, attorneys, project managers, and moving companies were all components of Staubach’s offering. When you hired Staubach to secure a location - all of those service providers were part of the deal - at no cost. Revolutionized was the way in which corporate occupants were represented. Staubach was sold to Jones Lang LaSalle in 2008 for $613 million. How’s that for timing?
Andrew C. Florance. Founder, Director, President and CEO of Costar Group, Inc. According to the CoStar website - “Andrew C. Florance founded CoStar Group, Inc. in 1987, fundamentally changing the way commercial real estate professionals access, use and share information. Through CoStar, Mr. Florance pioneered the concept of commercial real estate firms outsourcing research functions to a third-party information provider, combining the operational efficiencies of a computer-based information system with the more thorough, standardized and higher quality property information produced by the industry’s first independent research organization.”
From experience CoStar is best in class and we rely upon its data daily. Tasks such as sourcing available inventory, researching ownership, and reviewing market trends - CoStar is the gold standard.
Bill Lee. Founder, Lee & Associates Commercial Real Estate Services. Bill was a top producer at Grubb and Ellis in the 1970's. Bill's observation was that there was no intra office cooperation. An agent within the office had zero incentive to work with his fellow agent. Quite the contrary, in many cases the agent would "pocket" the information so that he could "double end" the deal with his own buyer. Bill wondered if there was a way to create intra office cooperation through a sharing of commissions and profit.
Bill Lee and four of his Grubb and Ellis friends started Lee and Associates in 1979. The theory was simple but revolutionary; create a system that would reward profitability and encourage cooperation. Each of the original "partners" was free to broker in any area, call upon any client they chose (as long as another Lee agent didn't have an existing relationship) and the agents were encouraged to share with each other. Profit was divided at the end of the year and apportioned to each partner according to his contribution. The resulting "splits" exceeded anything in the industry then and now. Lee and Associates "principals" (as we are now called) enjoy the best splits in the industry. Lee & Associates is now the largest broker owned company in the United States boasting over 60 offices globally.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, March 5, 2021

Reconciling Operating Expenses

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Today, we venture into the weeds to discuss an event that occurs this time of year. Nope. Not Chinese New Year - which is cool, by the way. But, that of reconciling operating expenses including common area maintenance charges. Fun stuff - huh? Generally, this proceeds with occupants of commercial real estate who do not own their building. In other words, tenants. You see lessees have contracts with landlords - also known as leases, rental agreements, or the like. Contained within each understanding is an outline of such things as base rent, commencement, expiration, rental increases, and responsibility for mowing the grass and fixing a leaky roof. It’s VERY important you - or someone within your group - understand how each of these cost categories is handled.
Typically, leases call for you - as the resident - to pay for expenses related to the operation of your address. If your company occupies a suite of offices - most likely you executed a Full Service Gross lease. Similar to other Gross Leases, a FSG lease lays out a rate inclusive of rent, property taxes, insurance for the premises, and general exterior maintenance. Unique to this arrangement is a charge for utilities and janitorial services which are baked into the monthly check you write. If you consider a high rise building with many enterprises - there is a prorata sharing of electricity, water, trash, and the crew that vacuums your conference room in your absence. It would be impractical to contract separately for these services - so owners don’t. Most, however, include an Expense Stop. Simply, anything above is billed to you. Below, base tent takes care of it. More on this in a moment.
Industrial landlords take a slightly different approach to re-capture costs. As an occupant of a manufacturing, warehouse, or service building - your lease probably is a TRIPLE Net Lease or an INDUSTRIAL Gross Lease. The main difference here? Rent with a NNN Lease excludes operating expenses with your monthly payment whereas an Industrial Gross Lease lumps them together. Am I saying no expenses are passed along in a NNN arrangement? Quite the contrary. They are invoiced as they occur or annualized and collected monthly.
So with that preamble - let’s get to the meat, shall we?
Each year between October and December, owners of commercial real estate budget for the following year. Taken into account are such line items as rent, property taxes, insurance, and yes - common area expenses like parking lot sweeping, trash collection, landscape maintenance, and system repairs. Considered? Is a vacancy anticipated? Are lease term extensions expected? Reviewed is how the current year fared. Were expenses properly predicted or dramatically overstated? Next, will the gardener charge us more next year? Have insurance coverages been impacted by a hurricane in South Texas? We know property taxes will increase by 2% unless a change of ownership occurred. Once calculated - a projection of next year’s - starting in January - plus budgeted expenses is forwarded.
You may be wondering - what happens if the principal collected too much money this year? Ahhh. That is where the February reconciliation begins. Akin to sending Uncle Sam too many tax dollars in anticipation of a refund - an accounting of charges collected vs realized is accomplished. If you paid too much - expect a bonus from your landlord. Conversely, an underpayment will foster a note that you owe more. Please understand. You have full rights to request backup information on anything for which your owner seeks payment. Typical would be a request for documentation outlining why a winds in Texas would affect a California insurance premium. Or why did trimming the trees cost so much.
Finally, the “more on this in a moment” promise. Delve into the terms - Base Year and Expense Stops which Full Service Gross and Industrial Gross leases highlight. Simply, these clauses limit the amount of common area expenses an owner can recover.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is