Wednesday, March 27, 2013

The Yin and Yang of Moving

I provide Location Advice to owners and occupants of industrial buildings in Southern California. Generally this location advice involves a move of some sort. Today, I want to discuss the relocation of an occupant from an owner's point of view AND from an occupant's point of view. Recently, I wrote about the cost to originate a lease from an owner's perspective. You can read that post by clicking here. The net result, using the assumptions contained in that post, was that a new lease will cost the owner 20-25% of his future cash flow.

As the market in SoCal has tightened, and occupants have fewer alternatives, I believe the origination cost will trend toward the lower end of this range...primarily because buildings are selling and leasing quicker AND concessions are less plentiful...but re-tenanting a building is expensive. From an owner's perspective, it is far easier (and cheaper) to retain a tenant than find a new one...The Yin.

So what about an occupant relocating to a new industrial building or office suite? How much does a move cost? Simply stated, it artful dodge but there are sooo many factors involved, that the cost is tough to quantify. I will, however, endeavor to identify some of the major areas involved in the move...stay tuned.

A recent move into a 28,000 square foot building by a light manufacturing company cost approximately $100,000. Approximately 10 medium sized machines were relocated along with inventory, racking, and approximately 3000 square feet of office space and 20 employees.

Machinery-number of machines, size, weight, calibration (or recalibration), electrical hook-ups, UL rating, etc. One of my clients received a surprise when relocating machinery that was not UL rated...even though the machinery was new and had the European equivalence of a UL rating. The city my client moved to required my client to UL rate the machinery at a cost of $7500.

Special Purpose Improvements- Office space, paint booths, electrical distribution, freezer/cooler space, food processing space, racking, conveyor lines, clarifiers, etc. In Southern California, relocating a paint spray booth requires several approvals...Air Quality Management District and city. If you plan to stack over 12 feet...check the sprinkler may be in for a surprise!

Licensing-business licenses,  ISO certifications, spray booth emissions credits, racking permits, building permits, certificates of occupancy...all may be required.

Office-Any new office space will require building permits...which take time...which is money.

Infrastructure-Plumbing, sewer, water, electricity, Internet, cabling. One of my clients re-located into an office space that had inadequate Internet connectivity. We fortunately did our diligence, were aware of the issue, and were able to negotiate an allowance from the owner to cover an upgrade.

Physical move-According to Ron Larrieu of Penn Corporate Relocation Services, moving the contents of an office space can cost approximately $50 per employee or $1-$2 psf. This cost can be added to the cost of moving the "shop space" which includes the above items.

Miscellaneous-business cards, stationary, note pads, promo items, social media, websites, employee disruption, business interruption...all costs that need to be considered.

From an occupant's perspective, it is is far easier and cheaper to renegotiate an existing lease or remodel an owned location than to relocate...The Yang

My advice to you if you are considering a move:

Read my recent post entitled we have outgrown our location but don't want to move.

Analyze your re-location alternatives carefully...number of buildings on the market, pricing, concessions, etc.

Engage a professional relocation specialist such as Penn Corporate Relocation Services to analyze your location and provide a moving budget

Friday, March 8, 2013

The Market...they are only opinions, but they are all mine

I provide Location Advice for owners and occupants of industrial buildings in Southern California. I am frequently asked this question by owners and occupants that I meet and with whom I is the market? Here is what I tell them.

Almost an owner's market: We are not in an owner's market but we are close. So what does that mean? Our industrial inventories are at historic lows and with a few exceptions, we have not seen any new construction since 2007. A few new projects are planned and a few are under construction but they to date have been large warehouses north of 100,000 sf. The projected asking rents for these big boxes is $.50 NNN plus...a very expensive rent for a commodity. My experience has been that as rents on these big boxes approach or exceed $.50 NNN, occupants seek cheaper our case east of town in the Inland markets or beyond. Smaller, newer inventory (20,000-50,000) that hits the market these days is gobbled up quickly...sometimes with multiple suitors. Incubator space (fewer than 10,000 square feet) has rebounded nicely with absorption at a blistering pace. We haven't seen a great deal of rent growth or price appreciation to date although the latest round of transactions (that are in escrow) should evidence some upward change.

Occupants have very few choices: During the depths of the depression...anyone who calls it a recession did not sell or lease commercial real estate for a occupant could "write his own ticket" as to lease rate, terms, concessions, etc. These market conditions are a mirage in the rear view mirror today. At this stage in the cycle, there is disbelief by the occupants that the market has rebounded as quickly and thoroughly as it has. Occupants should prepare themselves for fewer alternatives, fewer concessions, and be in a position to react when the right alternative hits the market. Gone are the days of touring endless buildings (with new ones becoming available each day), picking the most aggressive owner and making a deal.

The cost of money has to increase: Interest rates (since 2009) have been at lows not seen since the Eisenhower administration. Occupants in some cases can purchase a location and have the resulting payment be less than that of a rent payment...a great motivator to own your location...if, your company is of a stable size, the daily need for operating capital is not crushing (allowing for a down payment), and the business has been profitable for the last two years. In my opinion, these days of "cheap money" are numbered as logic will tell you that if the economy heats up a bit so will the cost of money.

So, what should we do? If you are a tenant and signed a lease after 2008, congratulations! You have benefited from cheap rent for the past five years. Potentially, you can renew for a slight increase. If your owner is savvy, expect a big rent increase. Should you venture into the market to look at alternatives, be prepared for a shock...not many available buildings and less motivated owners. If you can buy your it! This cheap money won't last. If you are a tenant and signed a lease prior to mid 2008, approach your owner now about an extension. Chances are you can save some money on your rent payments. If you are considering selling your building and can wait...wait. The prices are increasing and will be better a year from now. If you are considering buying a building and your lease arrangement is flexible or expiring, do it now! Be prepared before you survey the market. Hire a competent broker and engage him exclusively (he will bust his hump for you). Get yourself pre-qualified for financing. When the right alternative comes along, you will be ready!

Monday, March 4, 2013

A Piece of Location Advice in Orange, California

I provide Location Advice for owners and occupants of industrial buildings in Southern California. Richard Clough of the Orange County Register recently featured one of my assignments in the article below and highlights one of my clients, DMG Corporation.

This deal took a village to complete. My thanks to the folks at DMG, Ron Sweet, Will Clark, Victor Murphy, Steve Weston, Jerry Carpenter, and Jeff Bulkin. H. Hendy provided the architectural design and execution...Jennifer Bartelt and Kerry Wilson. My good friend and colleague, Marc Cunningham from All West Environmental assisted us in evaluating the physical condition of the building. The building had been vacant for 26 months and there was substantial deferred maintenance. The city of Orange was tremendous and thanks to Lisa Kim, Ed Knight, Ian McDonald, and David Khorram. Bob Dumont of JLC Associates accomplished the impossible by completing the tenant improvements in six weeks! Without all of your contributions, this deal would not have happened. Thanks to ALL of you!

If you would like to read the complete article by Rick Clough, please click on the link below.

Engineering company moves to Orange | group, complex, square - Business - The Orange County Register