Industrial Deals Soar Amidst the Pandemic?

Image Attribution:www.nytimes.com

As the year of the pandemic 2020 dawned - many in our industry prepared for a continuation of the past nine years - robust leasing and buying from owners and occupants of commercial real estate. Derailed was the market as Covid-19 case positivity, hospitalizations, and death ravaged the globe. In March, commercial real estate largely hit the “pause button”. We collectively held our breath - albeit behind face coverings - awaiting the next wrinkle in our state’s lockdown and business hiatus. June brought encouragement as akin to Rip Van Winkle - our state awakened from its slumber - to a changed world indeed! Commercial real estate activity for manufacturing, logistics, and warehousing outfits returned with a vengeance! Currently, in Orange County, there are fewer buildings available than pre-virus. Amazing! By the way, and as previously noted, space geared for office and retail applications is not experiencing the same froth as industrial.

 So what is going on? Indulge me while I expand the discussion.

Essential businesses. Largely, manufacturing and logistics concerns were deemed essential to our economy. Simply, these businesses continued to operate. As a matter of fact, some never shuttered. Many conducted business as usual - as usual as a masked, sanitized, and temperature checked workforce can be. Construction, aerospace, packaging, food production, plastics, hardware, furniture, etc. all find their homes in industrial buildings. Demand for additional space soared as did revenues because many rely upon machinery to drive sales and complete orders. Additional real estate was needed.

No gray area. Unlike past economic slow downs, the pandemic of 2020 quickly picked it’s winners and losers. Absent from this downturn were companies that simply maintained. This blip found businesses thriving or bankrupt with very few in between. Take for example a group that places adhesive material on tape. With all of the on-line purchases and home delivery in boxes - tape is needed - a lot of tape! How about an operation manufacturing recreational vehicles? An inventory glut in early 2020 quickly evaporated into a shortage as folks sought different ways to vacation. Compare these to the poor guy who formerly catered conventions or provided stages to outdoor concerts. Point made.

Government assistance. The Small Business Administration - SBA, which is a primary loan originator for closely held business real estate purchases - responded to the slow down with two unique incentives. First, any existing Small Business Administration borrower was granted six months of payment forgiveness - not forebeafance, mind you - but forgiveness! New transactions - using SBA funding - that occurred prior to the end of September - received the same loan forgiveness. Spurred was a number of purchases. Remember the CARES act? Contained in the trillion dollar legislation was the Payroll Protection Plan - PPP. Afforded for those maintaining or re-hiring furloughed workers was 75 days of expenses - 60 days for wages and salaries and the balance for “other expenses” such as rent. Did I mention these loans are forgiven? “Ducks on a junebug” describe applicant attitudes toward the “free money”. Sorry! Occasionally my southern roots take hold. Ducks on a junebug is parlance - whenever someone is absolutely on and after something. One of the deals we completed in July was a direct result of PPP money. Received was a $300,000 forgivable loan. Our client used some of the money to defray moving expenses to a new facility. Boom!

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.