5 Random Commercial Real Estate Thoughts

Image Attribution: www.brianbolding.com

Occasionally it is healthy to purge the inbox - in a manner of speaking - and share with you some happenings in the world of commercial real estate. As Jim Barksdale cleverly stated - “'If we have data, let's look at data. If all we have are opinions, let's go with mine.” We’ll, here you go - a bit of both - data and opinions.

Mis-direction. Please be informed when entering your favorite supermarket these days. Petition gatherers are out in force with all manner of messaging about Proposition 13. Few I’ve encountered get it right. One initiative has qualified - garnered the necessary signatures - and will be on the ballot next November - The California Schools and Local Community Funding Act. Also know as the split roll initiative - if passed, will assess commercial and industrial real estate differently than residential and agriculturally zoned property. The pen wielders want your John Henry for a re-write of the already qualified initiative plus another that would allow homeowners over 55 to transfer their property tax basis to a new purchase.

Prime time. Ever head out to the Inland Empire - maybe to pick apples at Oak Glen or catch a flight from an airport that allows Uber to drop you off at - not near - the terminal? As you’re gazing at the San Bernardinos in front of you - you catch a glimpse of the famous Amazon logo. What is that anyway? But, I digress. Do you wonder if Amazon owns or leases those massive concrete card houses? Generally, they are leased. Why, you may ask - with more green than an AOC proposal - would Amazon waste money on rent? Three reasons. Their space needs are fluid, depreciation on balance sheets dampens earnings, and a plethora of property owners clamor to host their tenancy - and build accordingly.

Highway to the danger zone. Many sellers of commercial real estate employ the IRS tax code chapter 1031 to defer capital gains on the sale of an appreciated parcel of commercial real estate. Certain rules apply - you must identify the property(s) you intend to buy on or before 45 days from the sale, like kind must be purchased, you’re obliged to spend as much as the sale’s price - including debt, and all must be done on or before 180 days - almost. This time of year is the “danger zone”. A commonly overlooked provision is you must purchase the replacement property(s) in 180 days. True. Unless the following April 15th is sooner. So if you close after October 15 and before December 31 you only get the benefit of 180 days if you file an extension of your next year’s tax return. Complicated? Yes. Please seek counsel from your tax professional.

Eeney, meeney, miny, moe. What is the most sought after commercial real estate asset class these days? The travails of retail thread the airwaves. Office space is costly to re-tenant. Sure, appetite for industrial - manufacturing and logistics space - is ravenous. But, demand is highest for religious facilities - churches.

What happens in Vegas...Another conference season is squarely in the books culminating with our company Summit in Las Vegas last month. SIOR, CCIM, Core-net, and NAIOP all host soirées this time of the season. You’ll know when you see a bunch of old white guys in suits “networking” at the popular watering holes. So, what’s up? The “Amazon” factor disrupting retail and supply chain logistics, generally robust industrial activity nationwide, the slog of bringing new inventory to market, and whispers of a recession.

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.