Transitions!

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Family owned and operated businesses are the lifeblood of our California economy! I am passionate about helping them create legacy wealth through commercial real estate ownership. One of the coolest things I observe during my daily grind are the many ways Californians make a living. The entrepreneurial spirit is amazing. However, many of our family owned and operated manufacturing and logistics clients are facing a transition in their business which leads to a commercial real estate decision.

 These transitions include:

 Reorganization from Covid upheaval. Sadly, the pandemic has brutally thinned some industries. Others have crushed it. I walked the bulging warehouse with a COO of a family owned and operated business last week. They supply fabric to the likes of Walmart, Joanne’s, and Target. With stay at home orders, more now sew - therefore sales have exploded. Forward looking - their facilities will not handle the uptick in orders. We are exploring ways to minimize their short term pain - a need for more space, now - vs a longer term solution. On the flip side. A client who once supplied lights, video screens, and temporary power to concerts, festivals, and sporting events has no more business. Gone! Just like that. A thriving enterprise evaporated. Our task is more somber as we work through an excess of space and relieving this company of its lease obligations.

 A sale of their operating company or acquiring a competitor. Never since the halcyon days of Gordon Gecko have we seen a spate of mergers and acquisitions like now. Private equity capital - seeking favorable returns - has poured into traditional manufacturing. Plastic injection molding, aerospace tooling, and packaging have found renewed interest from these groups. Common is a “roll up” of these separate operations into a larger entity. Generally, the play is to manage the companies for a few months or years, continue to acquire additional units, shed the unprofitable pieces, and then resell the consolidation. Created - as you can appreciate - is a duplication of facilities - akin to a “yours, mine, and ours” that occurs when a family is blended. Cultures must be morphed, excess real estate shed, and a balance struck.

 Relocation out-of-state. California has made life quite difficult for anyone starting or managing a business. A noose of strangling regulation - licensing, enviro compliance, conditional use permitting, zoning - hangs over new and existing companies. Layer in a few wacky - sorry - new laws such as AB-5 (which unravels the way in which independent contractors are classified), the pending Proposition 15 (if passed, would tax commercial real estate differently than houses), and the new marginal tax rate - highest in the country - and you consider a moving van to tax and regulation friendly stares such as Texas, Nevada, and Arizona. The outmigration is startling yet understandable. Left behind are industrial buildings which must be leased or sold.

 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.blogspot.com.