Friday, June 22, 2012

Five reasons why companies relocate

I provide location advice to owners and occupants of industrial buildings in southern California. I have discovered that a company's decision to relocate is generally for one or more of the following five reasons: rent savings, a chance to own, a better location or facility, an up size or downsize, or achieving a better efficiency. I will use real examples to illustrate each of the five reasons. Thanks to the occupants that are featured here that have allowed me to represent them over the years!

Rent Savings:
Over the past three years, companies have been able to achieve rent savings without moving. The strategy was quite simple...ask the building owner for a rent reduction in return for an extended term. Owners were willing to accommodate occupants in order to avoid a vacancy and the cost to originate new leases. I posted about the cost of originating a new lease recently and you can read the post by clicking here. As the market starts to recover, these "blend and extend" lease extensions become less prevalent and in order to achieve rent savings, a company must downsize, move to a cheaper area, or a cheaper with fewer amenities or with some functional obsolescence. IAS Industries, Raymond Handling Solutions, and King-Tek EDM all three benefited from renewing leases in exchange for lower rent. KLS Doors relocated to a newer, larger building for cheaper rent as did Advantage Adhesives.

A Chance to Own:
Assuming a company possesses the characteristics of a company that should own, the environment for purchase over the past three years has been a "perfect storm" of record low interest rates and motivated pricing. Should your company consider ownership? You can read the post here which outlines the criteria. We recently represented a chiropractor, Dr. Kang, of Zen Care Wellness, who purchased a shell medical office from a lender. The Dr.'s existing landlord was the Irvine Company...who rarely sells assets. Consequently, the Dr.'s only chance to own was to relocate. Once in, Dr. Kang's debt service was about the same as he paid in rent at the previous location...a net savings once tax benefits and future appreciation are considered. My favorite example was a deal that my client Raymond Handling Solutions recently accomplished in Las Vegas. They now own, have more space (in a brand new building), and have income from an adjacent building that was a part of the purchase...truly unbelievable!

A Better Location or Facility:
A flight to quality has been a big motivator recently. Our client, Limbach Facility Services sold their obsolete building in Compton in 2005 and leased the building back from the new owner for five years. When the lease expiration was approaching, Limbach engaged us to locate a facility with a better image and a more prestigious location. Both objectives were achieved at the new home in Garden Grove, California. Limbach's landlord, Kilroy Realty is thrilled to have them as a tenant.

An Upsize or Downsize:
Companies are bought and sold, business ebbs and flows, employees are added, products lines are discontinued, etc. All of the above can necessitate a relocation. Our client, DMG, has outgrown their current facility and have "band-aided" the company's growth by leasing expansion space down the street. This has created a need for a larger building. We have been engaged to assist DMG in the sale of their existing building and the purchase of an "up leg" larger facility. Our client, Direct List Technology downsized over the years because their need for space based upon "space consuming" computers became smaller and smaller as the computers and printers became smaller and smaller. DLT discovered that they could generate similar revenue in less real estate.

Achieving a Better Efficiency:
Prior to King Tek EDM's "blend and extend" referenced above, they relocated to their present facility and signed a four year lease. I believe the short clip below illustrates King-Tek's situation prior to their move. They occupied seven different units in a multi tenant building and were experiencing tremendous operational inefficiencies...thus the relocation to a single freestanding building.

Friday, June 8, 2012

Five great ways to promote your business with video

I provide location advice to owners and occupants of industrial buildings in southern California. I started using video in my commercial real estate practice in 2009...when my AT&T contract expired...I stepped into the light, and purchased my first Apple IPhone 3GS. The phone came fully equipped with a video camera and the ability to seamlessly upload video content to YouTube. My video production "minor" was started....I still major in CRE...thanks to my buddy Clif Fincher for that phrase..."don't major in the minors". Video started as a "minor" but has quickly become a very creative and effective way to market, prospect, preview, and virtually tour industrial buildings for me. I believe the applications of video transcend the commercial real estate industry. If you will think about it, I believe you will discover creative ways to use video in your business whether you a real estate investor, CPA, attorney (think video depos), manufacturer (how to, product demos), distributor, or another service provider such as insurance, advertising, or payroll. Below are five ways to creatively use video:

Virtual tours:
Trial...operative here since that is what virtual tours provide. This virtual tour of 500 S. State College in Fullerton, California has been viewed 74 times (at this writing). I can assure you that to conduct 74 in person tours would consume an enormous amount of time...vs the return. By use of this method, we have achieved great trial of our product and are currently negotiating with a buyer for the purchase.

"How to":
I have not figured out a creative "how to" for CRE but the guys at Raymond Handling Solutions certainly have. The video below is one of a series of "how to" clips that receive tremendous user traffic.

Introducing a special offer:
Brokers touring 28 Hammond, Irvine, California are greeted with this video clip offering them a special gift.


I had tried for weeks to get through to a company across the street from one of my listings. I finally emailed the owner a link to this video and he called me! The building was not a match but at least I made contact.

Video Blogging:
Video is the easiest way to create content quickly...much quicker than writing or emailing. This video was part three of a five part series called "Location Advice on Location". Check back for episode six!

So there you have it...five great ways to promote your business with video. Happy filming.

Friday, June 1, 2012

Most frequently asked Location Advice questions

As frequenters to this blog, you know that I provide location advice to owners and occupants of industrial buildings in southern California. I recently considered the five most frequently asked questions that I receive as a commercial real estate professional. Part of my research involved polling several of my colleagues. I believe the questions and the responses are interesting...I hope you do as here goes. I will handle these ala David Letterman by discussing least to most.

Question number five: Can I make changes to the space and if so, who pays for it? Generally and it depends.

*Changes to a location...additional office, power upgrade, sprinkler retrofit, paint and carpet, moving walls, installing racks, distributing power, etc. can generally be accomplished subject to ownership approval and governmental approval with the proper permitting and code construction.

*Changes to the square footage (IE: adding a structural mezzanine), changes to the common area, fencing required parking spaces, creating windows in bearing walls...not so easy.

*Changes are typically paid for in one of three ways: the owner pays for all of the cost and concedes the cost (rare), the occupant pays for all of the cost (even rarer), or some combination of the two. This combination could be an owner paying for the refurbishment of the space...paint, carpet, and cleanup...and conceding the cost and paying for the cost of a sprinkler retrofit and amortizing the cost over the term of the lease.

*The "acid test" of who pays depends upon the owner's ability to pay, the owner's motivation, the general or specific nature of the improvements (think future marketability) and the market (is the competition delivering space to the market completely refurbished). Sometimes an owner will be willing to compensate a tenant in the form of free or half rent to offset the cost of changes.

Question number four: How do you get paid? The owner of the property pays us.

*A common misconception is that the fee adds to the purchase price or lease rate. The reality is that an engaged location advisor can achieve a much higher purchase price than the typical owner because of market knowledge and experience. On the occupant side, an experienced location advisor can negotiate a better lease rate and concession package because of our knowledge of comparables, availabilities, motivation and our expertise. The net result is a better deal for both parties. Our system for insuring the best deal is outlined in a previous post. You can read the post by clicking here.

Question number three: How long have you done this? Since 1984.

* Real estate content (comps, avails, absorption, current pricing) is the same but the method of delivery is different. Who would have foreseen in 1984 that I would be blogging and forwarding location advice electronically in 2012...prior to fax machines and the world wide web! Or, that we could survey inventory of available our car...or at the beach...and send a list with images to our clients with the click of a button. Or, that we could send a real time...of the property...unbelievable!

Question number two: How much is my building worth? That depends on a number of factors.

*We consider the market...up trending or down trending, comparables and availabilities. If the market is up trending, chances are your building is worth more than the comps suggest. If the market is down trending, you might be best served to price lower than the recent comps and preempt a long marketing cycle. Marketing time plays a role. How long can you afford to market the building?...a fire sale motivation will cause the building to be worth less. Does the building have special amenities...excess or surplus land, excess power, fenced yard, freezer/cooler space, special AQMD permits, etc. For the right buyer or tenant, these amenities can add to the price.

Question number one: How is the market? Weird.

*In southern California, the market has sufficiently rebounded to cause shortages in certain product types...100,000 + warehouse distribution buildings as an example. We are seeing some price appreciation as well. The occupant's mindset is that we are still in 2009 and the opposite is true. Our market is healthier than most admit. We have occupants in the market believing that motivation is still at 2009 levels and owners who believe the market has rebounded and that they should hold firm. Not a great dynamic for deal making. Another thing that has changed dramatically is the amount of regulatory approvals necessary to make a move. A recent 20,000 sf transaction was reviewed by seven governmental agencies before approval could be achieved. Wow!

Did I leave any out? Please comment below with your question and I will promptly respond.