Commercial Real Estate Advice - When Do You Need It?

Seemingly an easy retort? Certainly. I need advice when I’m buying, leasing, or selling. These three circumstances would apply to either side of the aisle - whether you are an owner or an occupant of commercial real estate. Ok. Done for this week. Well, not quite and since I’ve a few more words - indulge me as I share a few more situations in which commercial real estate advice may be necessary.

A transition. Twice last week, I counseled occupants that shared this circumstance. Both enjoy the benefit of owning the buildings their companies occupy. When the buildings were purchased - Bill Clinton was president. Ownership of the business and building were synonymous - albeit with different entities. Flash forward. Due to a couple of untimely deaths - the LLC building ownerships only have one common link to the operation’s management. Plus, in one case, the company finds itself with too much space - in other words the building no longer works. Where before both occupant and owner sang from the same song book - now the music is a bit off key. Needed is a careful parsing of objectives and a clear path forward.

Efficiency discussion. How do you get the very most productivity out of your manufacturing location, your suite of offices, or your retail store front? Often, the answer is not a move but a re-tool of the flow of the operation. Countless times I’ve toured a warehouse distribution building with the premise - the operation is out of space. Sure. The floor is consumed but the inventory is only stacked to half capacity. This “cube” space is free if you can utilize it. You see, commercial real estate is billed by the square footage. Simply, you pay for the floor area - not the volume of the building. A better investment - vs a move - might be in a new forklift to reach the heights of the building’s ceilings.

An alignment of motivation. What is optimal? Often, I find an in-depth discussion leads to a solution no one had considered. For instance. If operating capital is needed - why sell a building you own with no debt - only to suffer the consequences of Uncle Sam’s outstretched hand. A better cure may be a re-finance of the building’s equity. Another circumstance. Why hold out for the last dime with your occupant who is approaching the expiration of his lease? A simple math exercise should show you how costly replacing his tenancy will be. Share the savings. If he renews - even at less than a market rate - you both win.

What is ahead. Many of my meetings these days start with the question - how is the market? My response. We are seeing signs of cooling - variance in closed amounts vs asking prices, more time on the market, fickled investors, a more cautious - “let’s wait and see” attitude from occupants. The crazy thing - this slow down in activity hasn’t resulted in a rise in our vacancy - but it will. You heard it here.

Allen C. Buchanan, SIOR is a principal with Lee & Associates Commercial Real Estate Services. He can be reached at 714.564.7104 or abuchanan@lee-associates.com  his website is allencbuchanan.com

The Downside of a Move out of State

Yesterday, I concluded a meeting with a local manufacturing and distribution company. Family owned and operated by two California born and raised principals - the business has experienced exponential growth over the last couple of years.

That seven year lease signed in 2015 - which was to adequately house the operation - has now become a liability - as the operation is bursting at the gills. All measures have been taken to efficiently use the space available - creative material handling, automation, storing product off-site, outsourcing - but the fact remains. The company will have to move before the lease terminates in 2022.

Three options are now on the table - a relocation down the street to a space 50% bigger or a move out of California - to either of two business friendly states. Moving a mile or two down the road is a simple fix with measurable benefits - more space, less disruption, employees retained, done! However, this ownership has seized the opportunity to consider another - more forward thinking and long term solution - a move east - like well east of the 57 Freeway.

As previously described - a move out of California carries significant upside - a more business friendly environment, fewer regulations, cheaper housing, no state income taxes, and utility subsidies.

But with the ying of reasons to move - there is also the yang of negatives. That downside - dear reader - is the subject of today’s column. So, before you load that moving van - please consider the following.

Lack of available buildings. Even with the desperately low availability of commercial real estate these days - we still have created a base of existing buildings which totals billions of square feet. Anaheim alone has close to 100,000 million square feet of existing industrial buildings. A visit to Allen, Texas or Greenville, South Carolina and you’ll find acres of vacant land - but very little standing inventory. The oweness is placed upon you to build your own facility. Even with a land gift and streamlined permitting - you’re looking at 12 to 18 months of construction. Don’t forget the land freezes in certain places east of here. Oh, yes, and consider other delays - such as rain.

Skilled labor shortages. If your operation requires a level of expertise to operate computer numeric machines or tool medical devices - you may be sorely disappointed in the pool of employees. Granted, states are working with community colleges to train people with the necessary chops - but you’re still looking at a deficit.

It’s difficult to move back. Once you decide to sell that home in Corona Del Mar and move to Nashville - the barriers for re-entry are akin to an Apollo spacecraft returning from Lunar orbit. Sure, you can keep your place here - but our golden state will want a taste of the company’s profits - which defeats the purpose of an out-of-state location.

Cultural differences. There is no place quite like California - even with its warts. This from a man who lived his formative years well south and east of here. It’s said in the South - “folks will treat you nicely - but, won’t trust you unless they trusted your grandfather.” Where do you think the “old boy network” originated? My 85 year old mom still refers to her neighboring Cooper Rubber execs as the Yankees up the street. The family moved there in 1965! Just sayin.

The WEATHER! Folks who have never experienced six weeks of sleety ugliness each year take for granted the 300+ days of sunshine we enjoy. What’s overlooked is the loss of employee productivity where weather is a factor. Sure, four seasons are cool - unless you have to live through them. If you want to see leaves turning - or snow - just make a weekend jaunt to Oak Glen. There! Seasonal fix administered.

Allen C. Buchanan, SIOR is a principal with Lee & Associates Commercial Real Estate Services. He can be reached at 714.564.7104 or abuchanan@lee-associates.com  his website is allencbuchanan.com

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