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Developer.
Motivated by the
highest and best use the property can generate - a developer views a parcel of
commercial real estate in terms of a re-use, demolish and re-build, or new
construction. Critical in a developer’s pricing is their calculation of the new
construction’s ultimate value - rent or sales price. Considered are things such
as construction costs, construction time, city approvals, market trends, and
exit strategy. Generally developers are well heeled and can close once a city
gives them the green light. Price they will pay - Low.
Investor. If the building you are selling has
income - great! Where is that income relative to the market? How stable is the
tenant? How much lease term remains? In simple terms - an investor will value
the income stream based upon their risk tolerance. The higher the risk - the
lower the number he is willing to pay. Occasionally, an investor will purchase
a vacant building - one without a tenant. In this case - the cost to originate
a lease is formulated. Taken into account are market rents, downtime,
concessions, improvements, and broker fees. The dollar amount of lease origination
is generally deducted from the purchase price - akin to a car dealer who will
give you a wholesale price - retail less the cost of refurbishment. Price
they will pay - Low to Low Medium.
Out
of area occupant. Certain
areas of SoCal are “catcher’s mitts”. Meaning - the natural migration of local
buyers gravitates in their direction. Typically, this exodus occurs west to
east - as our basin developed this direction. Orange County attracted buyers
from Los Angeles and the Inland Empire attracted occupants from Orange County
and the San Gabriel Valley. Geography like the port of Los Angeles or the
greater Ontario area also can have national appeal. Folks looking east are
pleased with the affordability and quality of construction. Companies forging a
new Southern California location suffer from sticker shock. Price they will
pay - Medium.
In
area occupant.
These businesses are established within the community where your building
resides. Chances are their labor force is close by, they may own a home in close
proximity, and they attend Rotary and the Chamber of Commerce meetings monthly.
Plus, they don’t want to leave. Price they will pay - Medium High.
Neighboring
occupant. Take all the
components of an in area occupant and couple those with a facility next
door - Voila. Add in some stickiness to their existing operation - extra power,
excess parking, a use permit - Boom. Price they will pay - High.
Existing
tenant. I’ve said many
times - in this space - your best buyer is generally your existing tenant. Why?
They understand your building better than you do. They’ve found great utility
in the location and improvements. Their cost to move is huge. Trifecta! In some
instances your transaction costs - no broker - are less by selling to your
tenant - your bottom line is enhanced. They also pay rent to you while you are
closing the deal. Price they will pay - High to Very High.
Black
swan. Warning. These
are rarer than a Ram’s Super Bowl victory - they happen - but not often.
Defined as a buyer with a unique vision, need, or requirement that ONLY your
property will fill - these “swans” swim in elevated waters. Some recent
examples - a brewery operator who bought an industrial building across from a
sport’s venue, an investor motivated by a tax deferred exchange, a church who’d
sold their existing sanctuary and had a wad of cash to spend on a new location.
Price they will pay - Off the Charts High.
Allen
C. Buchanan, SIOR, is
a principal with Lee & Associates Commercial Real Estate Services in
Orange. He can be reached at abuchanan@lee-associates.com
or 714.564.7104. His website is allencbuchanan.com.