JOB CREATION through Commercial Real Estate Transactions...DON'T Squelch them!

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Are Commercial real estate deals a job creator? Conversely, if commercial real estate transactions are NOT occurring, does that mean that jobs are lost? To add one additional layer to this discussion - if  the governing agencies adopt policies that limit commercial real estate transactions, are jobs lost as a result? Well let's dive in, shall we?

Commercial real estate transactions. Deals come in three flavors, a purchase, a new lease or a renewal of an existing lease. In a purchase or a new lease, there are two sides of the transaction - the owner and the occupant. Generally, these two sides engage representation in the form of a commercial real estate professional(s). Our services are employed by an owner to find occupants for empty buildings or to assist occupants in their search for a building. When we are successful in bringing an owner and an occupant together and a lease or purchase closes, we are paid a fee for our services - simple, right? So where is the job creation in that circumstance? Easy, the more deals that are occurring, the more professionals that are needed. But how about other job creation? Let's examine the stages of the deals and the potential jobs that result.

Pre-transaction. Quite possibly, prior to searching the market for a new business home, an occupant consults with his CPA to gain some insight into the tax advantages of a move, the viability of taking on additional expenses, and the justification of leasing vs. owning a location. Preparation of tax returns and financial statements for lender or owner approval may also be an element of the pre-transaction - job one. Consultation with the occupant's business bank typically occurs - job two. Some sense of the legality of owning or leasing a building and the best entity from which to own or lease commercial real estate is done with legal counsel - job three. Depending upon the complexity of the occupant's operation, an occupant may consult with a project manager that can shepherd the occupant through the moving process - job four. Certainly, an owner or an occupant gets a feel for the market, lists the building for lease or sale through a commercial real estate professional and/or teams with a broker to search for a building - jobs five and six...not counting support staffs that make deals happen!

Transaction execution. Escrow officer - job seven. Title representative - job eight. Natural Hazard Disclosure consultant - job nine. Building inspector - job 10. Project manager - job 11. Governmental agency consultant - job 12. Fire consultant - job 13. Environmental consultant - job 14. In the case of a purchase, a lender - job 15. An appraiser - job 16. The attorney, CPA, and business banker also may play a role in the execution of a commercial real estate deal but their jobs were counted in pre-transaction.

Post transaction. An architect - job 17. Contractors for office construction or remodel, flooring, painting, electrical, heating and air, plumbing - jobs 18-24. Office furniture purchase and installation - job 25. Internet cabling and phone system - job 26. Material handling equipment, forklifts, warehouse racking, conveyor systems - job 27. Security systems - job 28. Maintenance folks for the new location, landscape, heating and air, roof, parking lot, fire sprinkler systems, janitorial - jobs 29-35. A moving and storage company - job 36.

So, as I have illustrated, commercial real estate transactions create jobs - LOT'S of jobs! So, absolutely, if the governing agencies limit, through regulation, the propensity of commercial real estate deals - movement - then jobs are lost.

Five BIGGEST Challenges to a Commercial Real Estate Deal

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As I have commenced my 32nd year in the commercial real estate brokerage business, I have a great perspective on the challenges that confront owners and occupants of commercial real estate. I have categorized these challenges into the following five. In no particular order, here you go.

Governmental regulation. I have to laugh at the absurdity. If I didn't laugh, I would cry. Some beauties. A use that is allowed in a building by zoning right, yet a city demands a conditional use permit - an extra layer of permitting that requires a minimum of 120 days and over $5000 to process - just because. A manufacturing company - that will employ fifty people - required to secure a parking variance - even though the building has far more parking spaces than the fifty employees will consume. A trade school that will teach our youth to weld and repair air conditioning equipment that spent OVER A YEAR getting the proper permissions from the city. The absurdity has progressed to the point that I recommend that each of my occupant clients engage a person who can speak "government ease" when dealing with a governmental agency.

Shortage of available buildings. Frankly, this is as bad a market as I've EVER seen for occupants. There are simply not enough available buildings to fill the demand of growing companies. What exacerbates the problem is that the supply of new construction is non existent. Currently, 97.5 of every 100 buildings in Orange County, California is occupied. As I have written about extensively, what is left is a misfit toy - there is something functionally or financially wrong with the building or the building is occupied and the occupant cannot vacate because - yep - he has no place to move.

Unrealistic owners. The shortage of available buildings has caused owners of commercial real estate to puff our their chest and declare that their property is now worth so much more than the market can bear - why not, nothing else is available!

Unrealistic occupants. A great number of leases are expiring this year and next. These leases were transacted in the 2010-2012 era when we were entrenched in an occupant market. When these occupants must now renew a lease or seek a new home in an owner's market - there is a severe shock at how quickly things turned in the owner's favor.

Miscellaneous. Bank underwriting, environmental issues, office space that is not approved, Americans with Disabilities Act requirements, Energy bench-marking, high pile storage permits, seismic retrofitting...I have to stop before I throw up.

Is YOUR Commercial Real Estate Broker Cooperative?

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Many would agree that a customer's experience is paramount to a successful business. Southern California is filled with many, many places to shop, dine, and be entertained. If your business is not customer centric, the customer will quickly shop, dine and seek entertainment elsewhere.

Additionally, a customer can now research, shop, and read reviews on line. If a disgruntled customer Yelped you negatively - lights out! Your business won't get a first look - much less any repeat business.

As I considered the importance of the customer experience, and the ways in which folks research and shop these days, I wondered about a parallel with commercial real estate.

Commercial real estate availabilities - vacant buildings - are the merchandise. Potential occupants of commercial real estate - buyers and tenants - are the customers. Commercial real estate brokers are in effect the shop keepers - we represent owners of available commercial real estate. However, we also represent commercial real estate customers - the buyers or tenants.

Generally, the lease or purchase of commercial real estate is negotiated by these commercial real estate shop keepers. Because you place the marketing and shopping tasks in the hands of your commercial real estate broker, your broker's willingness to cooperate with other commercial real estate brokers is critical!

Is your commercial real estate broker cooperative? I believe you should understand the items below to know for sure.

Fee sharing. Generally, commercial real estate commissions - fees - are split between the owner's representative and the occupant's representative. In rare occasions, an owner's representative is unwilling to share a fee. As an owner, you just eliminated any cooperation with a broker who may represent the perfect buyer or tenant for your property. You should fully understand how your representative treats fee sharing with occupant brokers.

Information sharing. Your commercial real estate representative should share information on your available building with all of the available multiple listing services - including the ones that charge for entry - such as LoopNet.

Property tours. Is your representative present when your building is shown by another broker to a potential tenant or buyer? Being present at tours is a huge time commitment but one that your broker should be willing to make. After all, would you allow a customer to walk through your store without asking them if you could help them?

Responsiveness. Your representative should respond to all property inquiries the same day that they are received. Can you imagine visiting a store on Black Friday that was closed? If your commercial real estate broker is not responsive, your store is closed!

Accuracy of information. Sharing information is tantamount to a successful marketing campaign but your representative should insure the accuracy of the information as well. Searches for commercial real estate are conducted with several criteria - percentage of office space, warehouse clearance, size, location, electrical service, etc. If the information on your building is in accurately represented, your building may not appear in a search - and your building will not be considered by a tenant or buyer.

Ethics and integrity. The reputation of your commercial real estate broker can really attract potential occupants to your commercial real estate. If there is a belief that your representative is accurately communicating motivation and urgency, and will deal with all requirements fairly and openly, there is a greater chance that your commercial real estate will be leased or sold quickly.