Friday, December 19, 2014

5 Commercial Real Estate Lessons Learned in 2014...and how you can benefit!

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As 2014 draws to a close, I thought it would be beneficial to my clients and future clients to recap the five commercial real estate lessons I have learned in 2014.

I will recount these in no particular Letterman-onian order BUT will color each lesson with a real world example...or three.

This year marked my thirtieth in the did that happen? I could've written about thirty lessons, but would probably have age has a way of softening our memories. Five seemed like the correct amount.

So, without further ado, here goes:

Whatever you believe the time frame to be...double...or triple it! As I have written about countless times, the only two things that we have to sell, as commercial real estate brokers, are time and information. The time frame I reference above is different...I reference the time frames that the deal approval, loan approval, lease approval, building completion, construction time etc.. We were told this year by a lender that a loan would be approved in sixty days...120 days later...crickets. A conditional use permit in the city of Santa Ana was to be perfected in 120's been seven months (210 days for those of you counting at home) and we are not conditionally permitted. A new project slated to achieve occupancy in October just got finaled yesterday. Be mindful of this at the beginning of the negotiations...not in the middle of the deal when you need an extension of time.

Mergers and acquisitions create commercial real estate needs. When companies get married or divorced, frequently there is excess commercial real estate, or at a minimum, a change in the ownership or operation of the commercial real estate. I have experienced countless examples this year of the disruption that a merger or acquisition can create.  One rather painful circumstance has delayed the merger of two printing operations. Factor in the change in your commercial real estate when contemplating a sale of your business or the purchase of a competitor.

Greed is not good. We are deeply entrenched in an owner's market today, as previously penned . On four separate occasions this year, I have procured above market offers for clients who own commercial real estate. In three of the four cases, the offers were rejected or countered at higher prices. Mind you, our values today have eclipsed 2007 levels (the previous Mt. Everest of pricing). With some storm clouds on the horizon, currently, with the decline in oil prices, junk bonds, and big bank derivative exposure, I certainly hope these commercial real estate owners aren't kicking themselves a year from now! If you plan to be a seller within the next three to five years...NOW , may be the time.

I still have to pay my dues. Even though I 've been doing this since Reagan's first term, I still must hit the streets, prove my metal, and roll up my sleeves to make a deal. The business has not gotten any easier with technology...just more ways to contact folks. Find the expert that will REALLY work for you...we are out there.

Let the market be the good or bad guy. I can level with my owners or occupants. I can give them the benefit of my expertise and view of the future...based upon my witness of the past. BUT, they are STILL the client and sometimes we must let the market do our dirty work. The market is realistic in your expectations.

I hope that your 2014 was phenomenal! I wish all of you a VERY merry Christmas and a prosperous 2015.

Until next year, my BEST to you!

Friday, December 12, 2014

My #CRE ROOF is what?

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As SoCal braces for STORM WATCH 2014 and we receive some MUCH NEEDED RAINFALL, owners throughout Orange County, California can hear the collective screams of HELP from their occupants as seemingly water tight roof membranes start to leak.

One of the most common questions, we are asked by occupants of industrial/commercial real estate is, "who is responsible for the roof?" As I sit in my dry office penning this post, it is pouring down rain in SoCal. I felt the post was timely.

So let's dig in, shall we? Please understand that this post is a laymen's interpretation of the mechanics of roof responsibility and is not intended to be legal advice. I am not an attorney, nor do I play one on TV.

Before the water comes pouring into your office or warehouse from the latest downpour, do yourself a favor, grab a copy of your lease (if you have one) and take a look at a couple of areas.

First, take a look at the heading across the top of the first page. There you should find reference to "Net" or "Gross". This is an important distinction, as the main difference between the two leases is the roof responsibility. The vast majority of leases in Southern California are on a form known as an AIR form and could read something like this..."AIR Commercial Real Estate Association Standard Industrial/Commercial Single-Tenant Lease--Net". Generally, in a Gross lease the owner is responsible for the roof and in a Net lease the occupant is responsible. There are some specifics, however, that should be understood.

Next, take a look at a paragraph entitled Maintenance and Repairs. In the AIR leases, the paragraph is 7 on page 5 and 6.

Responsibility for the roof on an industrial/commercial building is specifically broken down into three categories...maintenance, repair, and replacement. You should read how your specific lease deals with each item.

Maintenance: Most leases (and definitely the AIR forms) specify which party maintains the roof and call for the maintainer to have a service contract for the maintenance. Many maintenance contracts include an annual visit for removing debris from the roof and making sure that the downspouts are clear. Sometimes roof leaks occur when ponding builds at the downspouts because they are clogged. The puddle sits at the low point of the roof, weakens the membrane and leaks occur. Another culprit is the area around roof penetrations (such as HVAC units) that are not properly masticked. When the mastic becomes dry and cracked, the material loses it flexibility and water can seep through. A normal maintenance visit can shore up these issues and prevent leaks during the rainy season...when we have a rainy season!

Repair: Once again, most leases outline which party is on the hook to repair a roof if repairs are needed. In the case of a Gross lease, the owner performs the repairs and in a Net lease the repairs are the occupants to perform except to the extent that the repairs exceed 50% of the price to replace the roof.

Replacement: In a Gross lease the owner is responsible to replace the roof at his sole cost and expense. In the case of a Net lease, the owner is generally also responsible but only when the cost of repair exceeds 50% of the cost to replace. Within the AIR language, the owner replaces the roof, at her expense, and then amortizes the cost over 12 years.

So, in the case of a Gross lease, blow up your owner's phone. In a Net lease, HELP is all you. Call a roofer!

Friday, December 5, 2014

Orange County, California #TopWorkPlaces...CRE and beyond!

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Last night, I had the privilege of attending a gala hosted by our local periodical...the Orange County Register! Honored were the 100 Top Work Places in Orange County, California in the small, medium and large company categories. My firm, Lee and Associates, with our three Orange County offices and approximately 100 agents is considered a small company but a Top one! Steve Churm did a brilliant job with his emcee duties and was assisted in his efforts by Donna Wares and others.

What struck me as interesting was the number of Top firms within real estate and health care. Of the nine companies honored (top three in large, medium, and small firms) as a Top Work Place, SEVEN were involved in real estate or healthcare! The only manufacturing company to receive an honorable mention was Van's. Scanning the list of the Top 100, did reveal some notable manufacturers...Exsilio, Behr, MicroVention, Trace 3, Fluidmaster, and Hybrid Apparel among others. I am pleased to call Exsilio and Microvention, clients!

So here, by category, are the honorees:

Large Firms (500+ employees):
  1. Evergreen Realty
  2. New American Funding
  3. Montage Laguna Beach
Honorable mentions to Solid Landings Behavioral Health and Vans

Medium Firms (100-499 employees)
  1. Surterre Properties
  2. The New Home Company
  3. Sea Crest Home Health and Hospice
Honorable mentions to John Patterson's OC Auto and Zillow

Small Firms (35-99 employees)
  1. Pacific Hospitalists Associates
  2. SureFire CPR
  3. Mattson Resources
Honorable mentions to Payoff, Inc. and Zumasys, Inc.

I cannot wait until next year! Thanks again to the Orange County Register!