Friday, September 18, 2015

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.

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