Does Your Team Have Too Many Quarterbacks

Image Attribution: www.flyclipart.com

Ahhh, winter! The smell of burning fires, a few sprinkles down low and snowflakes in the higher elevations, cooler temps, the non-stop cadence of Christmas carols - its college football bowl season! A sport that’s truly American in its origins. Whether you played at a professional level or are just a fantasy geek - we ALL have played football!
 
What the heck does football have to do with commercial real estate? Indulge me and I will try to explain.
 
Some would say that the quarterback is the most important player on the gridiron. Certainly, in every level the quarterback is in charge. For all of you who have coached football at any youth level, you know that every kid wants to play QB. I still recall my first practice as coach of the All Star team. I showed up to be introduced to several quarterbacks. How do you field a team with that? The answer is you can't and nor can every kid play the position. A successful football team requires eleven offensive and eleven defensive players who can block, tackle, snap, pass, catch, run, and kick - a group effort.
 
Now to commercial real estate. As some of you are aware, I recently added an administrative assistant. I am building a team. Our assistant will work across from another team member who’s position is to execute the business we generate. Some refer to the role as a transaction coordinator. So far everything is proceeding nicely. We are a week in and she is learning, helping, and assimilating the myriad things we do as commercial real estate practitioners. But why is she doing well? Is it my expert training, my good natured soul, my dashing good looks, dumb luck? Maybe all or none of these, but probably some of these reasons. I would offer that the main reason we are achieving some success is because we are not all quarterbacks. The three of us have our distinct roles and responsibilities which intersect but are autonomous at the same time.
 
Building a commercial real estate team, hints:

• Look for role players, not all "rain makers"

• Place an emphasis on compatibility

• Don't add a team member, just because your company will pay for it...

• Think long and hard about what is "missing" from your practice and staff accordingly

• Can the role be filled virtually?

• Pretend you have a virtual assistant for a week or so and imagine what the team member would be doing for you that day

• Consider carefully your strengths and weaknesses - I know, I hear a collective - we're good at everything" - Uhhh, no you are not! Or even in rare cases, just because you are doesn’t mean you should complete the tasks.

• Family members are great but they are family members. One step removed is good - one of our team members is our son-in-law. If you changed their diaper, they may not heed your mentor ship.

• Carefully craft a compensation package that will allow learning but provide incentive.

 
Good luck to you with all of the quarterback on your team. You may want to mix in a wide receiver. After all, someone must catch the ball when it’s thrown.
 
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.
 

How’s the Market?

Image Attribution:www.pinterest.com

In conversations with friends, colleagues, prospects, and the like - I get asked this question frequently - how is the commercial real estate market? My answer varies based upon the perspective of the questioner. Specifically, if you’re an owner/investor in a building where people make and ship things - AKA an industrial building - you’ve experienced an exponential growth in values. Chances are, the rent you receive from your tenant has outpaced our crazy inflationary uptick. The flip side? As an occupant of said industrial property - you’re facing dramatically increased costs for 2022. If a relocation is forecast, plan on very slim pickings of places to move.
 
As an owner of a suite of offices, you’re facing a different condition. You see, the uncertainty fraught by the pandemic has stalled movement. Consequently, most are writing shorter leases with little (if any) rent growth - to keep spaces filled and cash flowing. Tenants who can predict needs and are willing to commit to longer terms are finding significant motivation from landlords.
 
Retail - wow! That subject is column worthy by itself.
 
Now. How do we as commercial real estate practitioners deal with these meandering market metrics? Well, once again, it’s specialty focused - office, industrial, or retail and importantly - which side of the transaction you serve. Our team’s focus is approximately 40% owner and 60% occupant representation. If we’re on one side we rarely straddle the aisle and create a dual agency. Quick recap. Dual agency is allowed in California real estate transactions and refers to one broker repping both buyer and seller. Therefore. Our sale and lease assignments - where we are engaged to assist an owner find a buyer or tenant for a vacant building - are akin to attending a five year old’s birthday. Chaos and multiple gifts ensue. Myriad inquiries, requests for showings, multiple offers, over bids, and vetting occupant qualifications soon follow. All we need now is a bounce house. We recently took a listing in Santa Ana. We launched on a Friday. 61 inquiries, 22 tours, five offers - four at ask or over - unfolded over the next three days. Yeah. It was insane! And we hadn’t even cut the cake. A different effort is involved with our occupant needs. We resort to hand to hand combat. By this I mean - air support is over - a search of the multiple listings yields no alternatives. The heavy artillery has been expended - conversations with active brokers who may have something downstream don’t. Ammunition is exhausted - a quick mailer to the market also comes up crickets. What remains is mano y mano. We pull a list of everything - occupied and available - and start dialing property owners - hoping to catch a break. Two such searches have now eclipsed one year! Fortunately, we prepared their expectations. Another tactic we employ is a very frank conversation on how to stay put and make do. Adding an office or two, taking advantage of under utilized stacking, outsourcing a piece of the operation - all can achieve this.
 
I guess we could simply respond - when asked - how’s the market? Well, it depends!
 
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.
 

My Commercial Real Estate Holiday Wish List

Image Attribution:www.istockphoto.com 

With Thanksgiving a recent memory, Chanukah in full swing, and Christmas fewer than 30 days away - it’s time for some holiday spirit! Sure. Costco has had holiday decorations since October 1 - but I digress. Countless kiddos around the globe - including our five grandkids - are assembling their lists. I thought it would be fun to pencil my 5 hopes for the 2022 commercial real estate market, AKA my shopping list for this year. So, with no further ado, here goes. 
 
A more balanced market. Industrial real estate - buildings where folks make, store, and ship things, has been on a tear for the past six years. Currently, fewer than one in every one hundred structures are without an occupant! With demand outstripping supply, lack of new construction, a shift in the way consumers shop, and a hyper appetite for stuff - we find ourselves with an acute imbalance. Pricing for offerings has skyrocketed as a result and many wonder if rents are sustainable. So next year, I’m wishing for a bit more sanity. 
 
Disappearing office uncertainty. I’ve often opined, transactions occur when activity is waxing or waning. But uncertainty is a killer for a business reliant upon movement. Our office market has witnessed some big office deals - the sale of the former OC Register site and purchase of the campus previously occupied by Bank of America in Brea - by Amazon alike. But, a repurpose is in store for both. Gone are the former suites housing executives to middle management to clerical staffs. Replaced by worker sedans are countless blue delivery vans. Pandemic pressures shifted the office paradigm as companies countered with “hybrid” approaches - smaller footprints, virtual workplaces, less collaborative layouts. Wishing here for some long term leases on big blocks of offices. 
 
Solving the port issue. Talk about a perfect storm! Akin to an anaconda consuming a Thanksgiving meal or six - the bulge of e-commerce containers is slowly moving through. Many much more informed than I have waxed about the causes. Simply, all points of the supply chain are crimped - causing massive delays, shortages, and escalating price tags. Certainly, some reduction in regulation would help. A bit more warehouse space could counter. Asking America to pause its purchasing for a period? I’m wishing for a stable flow by July 4th. 
 
Continued low interest rates. Rising interest rates might be the best for us - like ripping off a bandaid. But, wow! How incredibly painful for an economy reliant upon cheap money. Our ten year treasuries - the benchmark for commercial real estate lending - has hovered in the low 1% range for a few years. Great for borrowers, but awful for savers. As our population ages and more of us are on fixed incomes - a bump in returns would be welcome. However, don’t forget that $1.2 trillion bag of goodies that must be repaid. Rising rates would make the payback more costly. All in all, my wish is for more of the same. 
 
A more diverse industry. Commercial real estate brokerage has historically been male dominated. However, two fall conferences we attended, evidenced change. I was thrilled to see over 40% women and minorities at the Commercial Real Estate Influencers Summit and Society of Industrial and Office Realtors Global event. My wish is for the face of commercial real estate to reflect our world. 
 
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.
 

37.2% Inflation?

Image Attribution: www.shutterstock.com 

Encouraged by my late father - thank you, Dad - I studied economics in school. Little did I know, the degree would provide me with an understanding of things such as supply, demand, inflation, markets and the like. Inflation. Much about this subject has been written, opined, commented upon, and dissected recently. Sure. Inflation is a tax. Why you might ask? Because if you go to your local Chevron, insert your debit card, pop open your tank and fill ‘er up - you’re shocked at how few gallons $20 will buy. Not long ago - like in early 2020 - gasoline prices were in the mid $3.00 per gallon range. Now? North of $5.00. Simple math. Gasoline is now 42.8% more expensive! Have your wages increased 42.8%? Yeah. I didn’t think so. So, with slightly more in your paycheck this year - say 4.5% - and with one of the things we buy often - gasoline - 42.8% more expensive - your take home pay has been “taxed”. Because, quite simply, your dollars are fewer and buying power decreased.
 
A similar bump is occurring with industrial real estate sales pricing. In 2009 and 2010 - during the Great Recession - here’s what was happening. If you drove down East La Palma Avenue in East Anaheim - one of our industrially zoned corridors in North Orange County - you’d have encountered approximately 22 buildings larger than 50,000 square feet available for sale. Average asking sale prices were $75-$80 per square foot. Thus, you could buy a 65,000 square foot building for just under $4,900,000. Recently, a similarly sized offering closed at over $25,000,000! For those scoring at home, that’s an annual increase of 37.2%!
 
What about rents? Let’s use an example in the Inland Empire East - that area east of I-15 including the cities of Riverside, Perris, Moreno Valley, San Bernardino, Colton, Rialto, Fontana, Beaumont and Banning. Massive amounts of new construction have occurred in this corridor as vacant land abounded and the demand for taller, bigger, well equipped logistics space prevailed. After all, that stuff you buy on Amazon must be stored and distributed from someplace. Only four short years ago, prevailing market rates were in the mid $.40s. Therefore, your thirst for 250,000 square feet was quenched by paying a landlord $112,000 per month. Now? That same 250,000 - if you could find one, BTW - would require $250,000 per month! A 123% increase over four years - 30.8% per year.
 
Ok. So what does this portend for owners and occupants of industrial real estate in Southern California? As predicted in the darkest days of the financial meltdown, the worm will turn! Idiomatically, “you say the worm has turned if someone who has accepted a lot of bad treatment from other people without complaining suddenly decides that they are not going to accept the situation any longer.” Indeed, the worm has. Owners are enjoying an unfathomable increase in their fortunes - as anticipated eleven years ago - but the extent of which no one could have foreseen. Occupants - the beneficiaries of motivated owners and plentiful vacancy - are experiencing a spike in their facility costs. And. Expect much higher rents going forward as exampled above.
 
Akin to a Space X craft, will this astronomical upward trajectory continue? In the short run - two to three years - in my opinion, yes. Why? Back to my economics degree studying supply and demand. With a ravenous appetite for more space (demand) coupled with a limited number of available buildings (supply) and mix in $1.2 trillion of stimulus dollars and you create a classic case of too many dollars chasing too few goods - which results in a higher price tag.
 
But, there’s hope. The worm will eventually turn! She always does.
 
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.
 
 

Courses for Horses

Image Attribution: www.clipart-library.com 

In my formative years in Texarkana, Arkansas - I played a fair amount of golf. You see, I was too slow and skinny to play football, and found it difficult to create space under my sneakers - making basketball a non-starter. We didn’t have the cool school sports of today such as lacrosse, swimming, and volleyball. Who knows. I might have sucked at those as well. Relegated to the golf course were my extracurricular sporting efforts. A saying during that time - “horses for courses” became a part of my lexicon. It describes how certain golfers do well on specific golf courses - while others languish. Jack Nicklaus won six Masters green jackets on one course while Lee Trevino never won at Augusta National. Weird.
 
You might be wondering - what the heck does that have to do with commercial real estate? Please indulge me as we play a round…figuratively.
 
As described many times in this space - industrial occupants are either manufacturers, warehouse logistics providers, or some combination. As examples - plastic injection molding, aerospace tooling, and Ramen noodle producers are all making a product. Raw materials are received, a process is completed, the finished goods are temporarily stored, and out the door they go. Simple. You may be thinking. Hmmmm. Are the types of companies above manufacturers or warehouse logistics operations? After all, some things - raw materials and finished items - are stored and shipped. They are by definition manufacturers because something that enters - flour, oil, and water - exits differently, Ramen noodles.
 
So with that background - what kind of “course” does this “horse” need in order to succeed? Certainly, a building zoned for manufacturing - generally classified as M-1, M-2, Light or Heavy manufacturing, or business park. Next, given the specific process undertaken - in the case of our Ramen guy - where and how (truck or rail) will things such as flour, oil, and water enter the plant. Once in, will they be stored or thrust immediately into machinery? How will the enterprise deal with layout? We’re making food. Can a dirty warehouse suffice or will we require a more sterile area? Those large mixers, boilers, and cutters will require many amps of electricity. Finally, will the finished food be temporarily warehoused or packed onto idling trucks? As you can appreciate, not every “course” will be suitable. So, critical are said power, appropriate zoning, layout conducive to food production, and adequate ways to get in and out. Less important are amenities such as the height of warehouse ceilings, fire protection for the high piled commodities stored, and massive truck courts.
 
Let’s now shift to our warehouse logistics operators. Easiest to describe is Amazon - the masters - sorry - of supply chain distribution. Simply, all of the items you source, click, and purchase from your device follow a similar path. Someone - not Amazon - but like the manufacturers described above - makes something. In the case of a Kohler faucet, in Wisconsin. A Kraus sink, in China. A head of lettuce, the San Joaquin valley. Then the gargantuan Amazon distribution center gets it - by ocean container or rail to truck - refrigerated or not - to warehouse. Your online order is received, picked, packaged, boxed, labeled, and shipped to your door. Boom. I’ve over simplified the entire supply chain - but you get the idea. In order to efficiently house an Amazon warehouse - certain features are mandatory. Clearly zoning. Some cities limit truck traffic. Ooops. Can’t go there. Because of the volume of goods intake, needed are a significant number of doors that can unload trucks. Now what? Well, pile it up as high as possible while inside. You’ll need to think about the stacking height and whether the stuff will burn. For example, our Kohler sink will not burn but our plastic bottles of shampoo will. Therefore, the fire department will have a say on the fire suppression used. Even with all the prevention - an Amazon warehouse burned to the ground in Redlands, recently. Liberty, Liberty, Liberty…Liberty! - but I digress. Finally - and in an ideal setup - different doors capable of loading the orders onto departing trucks or vans. Less important? Power. Because production machines aren’t employed.
 
As if the amount of available inventory was not acutely lacking - now we understand not every “course” fits the “horse.” Further limiting supply.
 
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.
 
 

RIAOC Interview on Industrial Trends

Image Attribution: www.dreamstime.com 

I was honored to be interviewed during the recent RIAOC meeting. My thanks to Lew Elliott, Mel Wagstaff, and Nick Lieberman for the kind invitation. All are avid readers of this column, BTW. If you’re unfamiliar with the organization - here’s a brief history:
 
“In 1968, a small group of investment specialists led by Art Turner and Woody Johnson formed the Investment Division of the East Orange County Board of Realtors to share ideas and cooperate in marketing investment properties. Today, RIAOC members come from several Southern California counties where our motto is "Success Through Cooperation". The Association provides for the dissemination of information regarding investment real estate and business opportunities. We also provide education through financial, legal, legislative, and technological updates, courses, and seminars on investment real estate and related subjects. We promote cooperation among real estate agents, maintain high standards of conduct and professionalism, and protect individual rights of real estate investment and property ownership.”
 
If you’re so inclined - you can consume the entire interview by clicking the link below.
 
Link to the interview:
https://drive.google.com/drive/folders/1vm61kSzNi0dKISuE3Es_8OkUNAJTVcnA?usp=sharing
 
If you’d prefer the Clif Notes…here goes.
How will the Green movement affect industrial real estate? Industrial real estate comes in two main flavors - manufacturing and logistics spaces. The former is used to make and ship things - the latter to stage, store, and ship. In both genres, raw materials or finished goods must arrive and finished merchandise must leave. Trucks do this. Anything that causes a disruption in trucking creates a kink. Regulations such as the Bus and Truck law, AB-5, or all electric vehicles by 2030…yeah, you get the idea.
 
Has the Pandemic caused an increase or decrease in activity? We hit pause for 60 days and then the turbo-charge button was pressed. Already experienced - pre 2020 - were record low vacancy rates. With the pop in demand because folks are buying items - there is very little vacant inventory.
 
What’s happened to cap rates? They’re the lowest I’ve ever seen - in some cases below 3%.
 
Where does occupancy stand? True vacancy - empty buildings - stand at less than 1%. Yep. 99 of every 100 are occupied.
 
Critical amenities with logistics buildings. Warehouse clearance - minimum 30 feet, hefty sprinkler systems to stop a fire in the warehouse and ample area for arriving, staging, and unloading trucks.
 
What data sources are used to gather market information? We use anecdotal, proprietary, and third party sources. But data these days is a commodity - everyone has access. The “story” is what every owner and occupant seeks.
 
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.
 
 

Commercial Real Estate Deals Abound

Image Attribution: www.gograph.com

Much of my time is filled counseling family owned and operated manufacturing and logistics companies. Some lease the buildings from which they operate and some own. These closely held entities are typical of our Southern California economy and employ hundreds of thousands of people. Generally a transition is happening - a death, a merger, an acquisition, selling the company, a move out of state - all of which create a commercial real estate requirement. I witnessed many of these transitions in my formative years - which I believed was column worthy. So indulge me as I weave the story. For those readers who own their business, I’m sure the tale is relatable. 
 
My passion for helping small business was rooted in my youth. You see, my family owned a soft drink bottling and distributing plant in Arkansas. Planned was my stewardship as the third generation of ownership. However, my wife and I moved to SoCal and a career in commercial real estate soon followed. Our family business was sold and my father, his mother and two brothers profited nicely. A year later, the enterprise was bankrupt. I guess my Dad’s sale timing was prescient. 
 
I didn’t realize at the time - but a roadmap for my career was was forged. Witnessed were the transitions which occurred during the life of an operation. First, a huge risk was taken by my Grandad in 1930. Yeah. There was a bit of a wrinkle that occurred in that year - the Great Depression. Yet, he moved his wife, three young boys and his dream to Texarkana, Texas to open a Dr Pepper bottling company. During the thirties - Dr Pepper was an unknown soft drink. Schlepping it proved challenging. But the family prevailed. Grandad had to find a property owner willing to take an equal risk - leasing to a start-up. 
 
As the business prospered - Grandad realized he was writing a sizable check each month to his landlord. Sure. The owner risked everything when leasing to a “maybe” but once the company proved viable - where was the uncertainty? Options for Buchanan Bottling Company - whose desire was to own the real estate - were to move and build a new facility or convince the owner to sell. The latter occurred and the era of commercial real estate ownership began. Now, in addition to the enterprise appreciating - the land and buildings also became more valuable. 
 
My Dad and his brothers were now working in the business. One loved it - my Dad - and the other two hated it. You bet. They enjoyed what the lifestyle business afforded them but hated the back breaking toil of delivering heavy cases of soda to retailers. Because of their efforts - the operation was in need of a bigger footprint from which to thrive. But, alas - the manufacturing location - which they owned - was landlocked. In order to gain a bigger swatch of land, they had to convince their neighbor - an A & W Root Beer stand - to sell. They had amazing burgers, BTW, but I digress. A deal was struck allowing the hamburger stand to lease for a period until our company could get city approval and bank funding for the expansion. 
 
My Grandad, as you might appreciate, was a larger than life entrepreneur who had a difficult time allowing the next gen to succeed his tutelage. My dad nearly moved us out-of state just to “show him”. Fortunately, the patriarch settled into retirement and allowed the second generation to assume the reins. During my dad’s years - competitors were purchased, product lines added, and exponential growth occurred. I recall the “growing pains” experienced as dad managed the expansion. 
 
Once my Grandfather died in 1975, an open road appeared for my dad, his mom, and two brothers. The scrutiny under which dad operated was gone and he had a field day! Climaxing in a sale of Buchanan Enterprises in 1986 - the life of our family business ended. A strategic competitor was the buyer of the real estate and operation it housed. 56 years was a great run. The old buildings still stand on State Line Avenue but the vitality of family operation was lost decades ago.  

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.

Five Love Languages - Readeaux

Image Attribution: www.shutterstock.com 

If ever you doubt the power of digital reach - please consider this brief recap. Flash back eleven years. My bride of 31 years - at that time - suggested I “work out loud” while transacting commercial real estate. Yeah. Me too. What the heck does that mean? Simply, put in digital form those tasks you accomplish daily lest someone searching for “how to” accomplish said task will find you. Boom. Brilliant. 
 
Started was my Location Advice blog which provides the columns you read here. Well. Here’s where the reach comes in. Hiding in my inbox last week was a note from Chad Massaker - CRE Strategist with The Pisaneschi Group at Compass Commercial - Palm Beach Florida! Wow. You see, Chad read a column from two years ago on the Love Languages of Commercial Real Estate. He found it on-line. If you missed it, you can quickly catch up here. http://allencbuchanan.blogspot.com/search?q=Five+love+languages
 
I found Chad’s comments column worthy. So from my new digital connection in Florida - here goes. 
 
“I feel that there is a little bit of each type in each agent, but I am only 2 years in as a CRE agent. Here's what do I know:
 
I've traditionally been the Relationships and Network archetype all of my life in business. I'm not sure how the relationship part plays out once I sell a building to an owner-operator and then they have no need for me for years, if ever again. It's not like my IT company in Atlanta, where conversations we're ongoing. 
 
Def hate the Legalities & Drama archetypes. Talk about people who can't get out of their own way. Probably the arch-villains The Deal types. 
 
Here are a few more I would add to your list: 
 
Good Enoughs: Incredibly lazy agents who post only the bare minimum information on a listing, making you call them for the info, which 1/2 the time they don't have. "What do you mean you don't know the clear height of the Warehouse you have listed?" They also take advantage of the owner's ignorance of how real estate is marketed - not just listed, but marketed. 
 
Ignorers: Agents, who with a high degree of certainty, never answer their phones and only rarely (if ever) answer their texts or emails. These also tend to be the same people that leave For Lease signs up on their building and listings live on CoStar despite being at 100% capacity. I love these types. they give us a lot of business.
 
Lifetime Realtors: Instantly recognizable when speaking with Entrepreneurs, Owner-Operators, etc. on the buyer/tenant side because they have never run a business before. Their knowledge drops off of a cliff outside of real-estate. Real Estate was probably their first career and it is all they've known. Also, these people tend to be Relationship and Network types in my experience.”
 
Well done, Chad! I’d say there’s a news organization in South Florida that would publish your writing. 
 
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.
 

Takeaways from CRE Conference Season

Image Attribution: www.clipart-library.com

Every year, about this time, the commercial real estate industry congregates for conference season - a time to gather, learn, and network. 2020 found us attempting to accomplish this virtually. I’ve embraced virtual meetings in a big way but conferences just don’t work. Sure. The learning sessions are ok but the real fun of a convention is passing someone in the hall on the way to dinner and inviting them to come along or grabbing a quick cup of Joe with an acquaintance from another market. Lost when conducted virtually are these chance encounters. 

Annually, two or three of these decorate my docket - the Lee & Associates Summit, Society of Industrial and Office Realtors (SIOR) and another. The “another” this year was the Commercial Real Estate Influencers (CREi) Summit. But others such as NAIOP, CCIM, Crew Network, ICSC abound. If so inclined - one could bounce from one to another for the entire month. But two - this year - were enough! 

What’s in store for our industry in the years to come is the subject of this column.
 
Diversity. Commercial real estate brokerage has been a male dominated industry for decades - and once was tightly held among families such as the Daums, Dunns, Cushmans, Beitlers, Klabins, and others. Akin to an apprentice program within trades - our craft was passed to the next generation - primarily males. But that is changing! I say, Bravo! It can’t happen soon enough. Half the participants in the CREi Summit were women and minorities. Slotted among the leadership team for this event were several women who have made themselves quite famous through social medial marketing. Commercial Real Estate Women (CREW) Network incoming president, Barbi Rueter from Tucson, Arizona along with Casey Flannery from Memphis, Tennessee presented at the SIOR conference. SIOR Global CEO, Robert Thornburgh has signed a pledge for our organization which can be found here. https://www.crewnetwork.org/crepledge-for-action. I look forward to the days ahead when our business reflects the world.
 
Futurists. There were speakers galore in both of the gatherings I attended. Generally, these are folks who have taken down Bin Laden, scaled Everest without the aid of oxygen, or a similar super human feat. Motivation is the theme. Gained from their experiences are applications to our business. Certainly, some of my deals this year have been tantamount to a K-2 summit attempt - but I digress. This year, however, found our attention peaked - sorry - toward the future. David Nour has written a new book, entitled Curve Benders. I found the story of Amazon’s rise to prominence especially intriguing. You see, we all plateau in our careers. Finding a way to bend our “curve” upward is the challenge. Southern California’s own Mick Ebeling of NotImpossible Labs. “Commit and then figure it out” is Mick’s mantra. Please look into some of the “impossibles Mick has made possible”. Truly mind blowing!
 
Story Telling. Everything is so much better when a story is told. I suspect many of you are like I am when I say - stories are memorable when they inform, educate, or entertain - oh yeah, and they’re not too long. Sure, I can tell you I closed a tough deal similar to the assignment we are discussing. But, if a story is weaved into the fabric - the experience is forever with you. Bolstered by a beautiful baritone voice and riveting stories - Phil Darius Wallace ranks within my top three of BEST speakers I’ve ever enjoyed. Still within my psyche are his descriptions of the lovely eagle and the chicken who didn’t realize her potential. You see, the chicken had been told her entire life she was a chicken - when in fact she was an eagle. My, what soaring goals she missed laboring under someone’s opinion of her.
 
Wow! What an incredible two weeks. But, I’m happy to be home and invigorated for the months ahead.
 
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.

The Importance of Dates

Image Attribution: www.clipartmax.com 

Today, dear readers, I’d like to talk about dates. No, not those that emerge from swiping right - where’s the challenge there, btw? Or, for those frothy products of palm fronds that find their way into a shake. But, those calendar creatures that presage the passage of time. You see, dates are quite important in a commercial real estate transaction. Indulge me, as I share a few examples.
 
Time is of the essence. A fancy legal way to let you know - hey, pay attention! I learned this the hard way early in my career. We negotiated a five year lease. My guy ultimately wanted to buy the building. Thus, we convinced the landlord to grant us an option. Well, the date for exercising said right - by notifying the owner in writing - came and went as did our opportunity. Ooops! Fortunately, the title holder was forgiving and allowed us a bit of grace - but not before a finger wagging letter was sent our way. Contained within most commercial real estate agreements are these words - “time is of the essence.” Governed are all the dates - commencement, expiration, notices, and extensions. Wise agents calendar the important ones lest they blink past. I’m penning this post three days late. Hopefully, my editor will allow some latitude.
 
Leases. Leases memorialize the terms and conditions of landlord and tenant understandings. Generally, a commencement date signals the start. Early possession may indicate an earlier date under in which the occupant is granted access. Expiration occurs at the end. Easy! Not so fast. Don’t forget rent increases that bump throughout the term - typically on the anniversary and by a preset or calculated amount. Then there are expense reconciliation dates. Expect these in February. As mentioned above - extension rights such as options to renew, extend, expand, contract, and ownership options such as rights of first offer, refusal, to buy come with dates. Fortunately, in the case of options to extend - you’re afforded a window - like no earlier than nine or later than six months from expiration. Approaching expiration - you’ll make a decision to stay or move. Staying might be for an additional term or month-to-month. Yes. Dates are involved.
 
Escrows. Purchasing commercial real estate is a rather involved dance defined by days on the docket. A signed purchase and sale agreement is delivered to a clearinghouse of documents and dollars - AKA an escrow holder. Date of the agreement, yep. Date of full execution, sure. Dates for deposits to be received, uh huh. Date for additional deposits, boom. Ok, got it. But, lurking within the boiler plate are dates under which contingencies are outlined. How much time will a buyer have to arrange financing, inspect the condition of the roof, visit the city and check on uses, review title for any exceptions - etc. And. When will these time stamps commence? Upon buyer and seller signing the contract, seller delivery of an important document, preliminary title commitment or the opening of escrow? Yes, yavol, oui, and si! As you may have gathered - a cacophony of calendar credits consists. And ALL of the dates are as important as your first one with your significant or as memorable as waiting in line on PCH. You may be wondering - how does an agent keep track? Many employ a critical date calendar produced by the escrow holder. Or, we group certain waivers together. Or, we simply write into the contract language that reads - “the later of 30 days from opening of escrow or five days from receipt.”
 
So, don’t date yourself by using a paper calendar or singing “Eye of the Tiger”. Simply, use a modern tool that can provide calendar alerts - like when it’s time to head to Laguna and wait in line for a shake.
 
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. 

Crazy Deal!

Image Attribution: www.canstockphoto.com 

When you’ve plied your trade as long as I, you see some nutty stuff. Today, I thought it would be fun to share one of those transactions with you.
 
First, a bit of background.
 
Once there were lending institutions known as Savings and Loans. These thrifts were an awesome source of home loans prior to 1990. However, in the early eighties interest rates spiked to double digits and trouble ensued because they were ill-prepared to handle the surge. A number became insolvent. As a solution, deregulation allowed the S & Ls to invest in riskier real estate assets to bolster returns. Good in theory, bad in practice. Groups such as Far West Savings, American Savings and Loan, and Cal-Fed became capital sources for commercial real estate investors and developers. Sure. Many amazing projects resulted but there were also a number of train wrecks. We had the task of marketing one such train wreck.
 
A group from Tennessee acquired a portfolio of non-performing assets in California from American Savings & Loan. Most were foreclosed houses but one was a multi tenant industrial complex. Understand. Most bulk buys included dozens of buildings across numerous cities. It’s akin to the line from Forrest Gump - “like a box of chocolates - you never know what you’re gonna get”. Limited due diligence occurred prior to close. How could it? Sellers (the S & L) needed cash, had a ton of loans on their books, and transaction speed was paramount. So folks who bought - discounted price to offset their risk, held their noses and jumped into the abyss.
 
Concurrently in mid 1986, we noticed a problem. New in my career, I did a lot of door to door canvassing - looking for someone who needed to move. On one particular project in North Orange County, we witnessed rampant vacancy, more weeds than fescue, and a couple of abandoned cars in front of one of the units. Danger, Will Rogers! Our instinct was correct - there was a deal. We just had to figure out who owned the project. Today, we have access to title holder information on our mobile devices. In 1986, you either called First American, Ticor, or Chicago or searched a bank of microfiche - similar to reviewing building plans in cities. Yeah. Cities haven’t progressed much past the mid eighties - but I digress. As mentioned, we connected with the buyer from Tennessee. Good news! To manage the sale of all the houses and such - a gentleman was deployed to SoCal. Great guy and we hit it off.
 
With a freshly inked agency agreement - we set about marketing the buildings for sale. Selling a listing in the eighties consisted of creating a brochure (no desk top publishing), planting a sign out front (not allowed lest we spook the few occupants who remained), contacting the neighbors (easy enough), figuring out which investors had bought a similar offering (reviewing hard copy comp sheets), and talking to our fellow brokers. Mind you, no multiple listing service existed - so available properties were paginated and MAILED to brokerage houses - snail mail - the horror!
 
A buyer was quickly identified through a CB broker, purchase terms negotiated and boom. Escrow underway. As an aside this was October of 1986. Massive changes in tax laws occurred on January 1, 1987. To wit, many commercial real estate write-offs were to vanish at the end of 1986 so our buyer made it infinitely clear that a close date could not eclipse December 31. Easy enough. We had three months. Hmmm. Things progressed as normal until…
 
The buyer called me in mid-December. We were scheduled to close in a week and I figured he wanted to discuss the details. Wrong! I’ll never forget his words. “Allen, I’m at the project. There’s a giant sink hole in front of the rear structure and it’s getting larger buy the minute!” At first, I thought he was joking. No such luck. Twenty minutes later, I’m witnessing a scene from the movie Earthquake. You could have buried a Volkswagen in the hole!
 
We spent two days discovering a water leak was the culprit and the city was responsible to fix the deluge. Cool. Oops. It was December 22. There’s this thing called the holiday season. Attempting to get anyone to respond quickly during this time of year is tantamount to moving an elephant with a pallet jack. Slow sledding. With the remainder of 1986 trickling away and our close dependent upon city workers - we resorted to unconventional tactics. A few In-N-Out lunches for the crew, a case of Miller Light - shhh it was after hours, and lots of praying yielded a successful close on December 30, 1986.
 
Our client was so thrilled with our performance - he attended my 30th birthday 11 days later. Yeah. That’s a story for another time.
 
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.

True Down Payment Amount

Image Attribution: www.clipartpanda.com 

As you’ve read here a number of times - purchasing commercial real estate is a great way to build generational wealth. It’s like a jelly of the month club. By that, I mean the gift that keeps on giving! Many who read this column founded an enterprise housed in a parcel of commercial real estate which they also own. So. The occupying company earns income through its business operation and pays rent for use of the building. Company value increases over time and the address appreciates. A double whammy! Southern California has countless entrepreneurial stories whereby a generation took a risk, formed a company, bought a location and succeeding family members benefited. I have the privilege of counseling these family owned and operated manufacturing and logistics businesses. 

Recently, a conversation occurred which I believed column worthy. Specifically, how much should be allocated for a down payment when considering a buy? The easy answer is 10% of the purchase price if leveraged through the Small Business Administration and 20-30% when financed conventionally. Boom. Done. See y’all next week. But, there is substantially more to the story of originating a loan. So please stay tuned for a minute more. 

In addition to the 10-30%, suggested would be to budget for the following: 

Appraisal. Regardless of your lender choice - SBA, bank, insurance company, or hard money - an appraisal will be completed. Contained within the bank’s underwriting - this confirms the price paid is in line with the market. Plan on $2500-$5000 for this review. 

Environmental. Lurking beneath the surface of your purchase could be a problem. These unseen issues are caused by something toxic deposited in the soil. A review of the previous occupants in the building, messy neighbors, and the smokestack down the street combined with a look at old aerial photos - forms what is known as a phase I environmental report. Generally, this does the trick and provides a clean bill of health. If recognized environment concerns - such as stained concrete or containers of waste - abound, a phase II will be employed. Soil borings are sampled and tested. Recommendations range from no further action to remediation. Have you ever witnessed a pile of dirt inside yellow tape next to a gas pump at your local station? No. It’s not an episode of CSI. Aeration is one way to get the bad stuff out of the soil. Plan on $2500 for a Phase I to ?? If remediation is required.

Legal. You’re going to want an attorney to review the purchase agreement, title commitment, and draw your LLC formation documents. Budget around $10,000. 

Escrow and title. Sure. Seller pays for a standard policy but any lender policies or extended coverage are yours to bear. Plus, you’ll pay 1/2 of the escrow fees. Another $10,000 but dependent upon deal size. 

Survey. Not always necessary unless you’re after an extended policy of title insurance. Unrecorded easements, abandoned driveways, and recorded leases are typically not covered with a standard policy. Utility locations, property lines, and underground pipes are clearly mapped as well. $5000 is reasonable. 

Loan points. In addition to the interest payments due over the term of your debt - you’ll pay a percentage of your loan amount to the bank. 1-2% is pretty typical. 

Cost segregation. One of the really cool things about owning commercial real estate is the depreciation which lowers your income tax burden. The improved portion of your parcel - the buildings - can be depreciated over 39 years on a straight line. 1/39th each year. But, other components of the improvements such as walls, doors, glass, and air conditioning have a shorter useful life and if properly segregated - can be written off sooner. Usually your CPA can help with this. She’ll want to be paid, though. $15,000 seems fair.

Once you become the owner, gather and total your receipts. Add all you spent to the 10-30% down payment. What results is the “true” investment into your buy. 

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.

Random Commercial Real Estate Thoughts

Image Attribution: www.clipart-library.com 

As one Register columnist once wrote - “they’re only opinions - but they’re all mine!” Today, I purge my inbox for another edition of a random Commercial Real Estate thoughts. I find the occasional purge cathartic. So here goes.
 
Gender reveal. Some of you may have noticed my more frequent use of “she” when describing the gender of property owners or tenants. Yes. One of my readers scolded me. I realized I had erred and thus the morph. So sorry I offended.
 
Insomnia. My recent column on the number one problem I hear voiced by business owners - lack of skilled workers - met with some commentary. Specifically, my reference to our “subsidy” for those without work. The fact remains. Unemployment is rampant and we’ve done a poor job training our youth in the jobs that exist - specifically the trades. Electricians, carpenters, structural steel erectors, concrete finishers, roofers, and like crowd any construction site. These craftsmen create the concrete caissons commercial real estate agents are tasked to fill. Unfortunately, there’s a huge yawn with those trained in more white collar arenas - especially over a certain age. However, I don’t see these capable grey hairs as candidates to build structures.
 
Frothy or calm. Folks ask “how’s the market?” I respond with “it depends”. If your specialty is industrial - manufacturing and logistics properties and you represent owners - you are an order taker. You simply manage the flood of activity surrounding your offering and choose from a number of takers. Conversely - counseling tenants or buyers - finds your days filled with endless searches to locate an availability and setting expectations when one is uncovered. The rules pursuing an off-market offering change. Owner motivation is not as keen. Brokers who market suites of offices must deal with systemic uncertainty. Questions such as - “how much space do we actually need and when” are board room topics.
 
Coming downturn. “When will the music stop” columns always garner some interest. Inflation is rampant, supply chains disrupted, shortages of everything occurring, and national debt levels are rising yet we continue to torpedo previously high sale and lease comps. These days we are forced to price offerings as TBD - a hedge against leaving dollars on the dais.
 
Finally, what will the balance of 2021 bring? Many opine - more of the same. Some are wary and see the amount of government spending massing on the horizon and are preparing for a trove of tax law changes. After all, we must repay the debt somehow, right? Are tax strategies such as carried interest, tax deferred exchanges, and long term capital gains - which play into commercial real estate activity - in jeopardy? Many believe so. Others realize the massive lobby the real estate business leverages and are secure. Hopefully, any change will not be retroactive.
 
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.

Deal Issue? Now What?

Image Attribution: www.clipart-library.com 

Last week I reviewed the the steps in purchasing commercial real estate. Whether you’re buying to house your company’s operation or simply to enjoy the rent a parcel of commercial real estate produces, the steps are essentially the same. The possible exception could be the financing portion - which some investors abandon in favor of deploying large sums of cash into the buy. 

Today, I will complete the orbit and describe some challenges that can occur and some suggestions on how to overcome them. 

From last week:
 
“Due diligence. Also referred to as a “contingency period”. Ranging from as few as 15 days to as long as 90 - a ton must occur during this time frame. Financing must be secured, title exceptions approved, inspection of the building - roof, electrical, HVAC, etc. accomplished, vesting documents drawn, financial aspects of the tenancy - if any - analyzed, and environmental health diagnosed. Whew! Within each of the main categories of approval - there are checkpoints which guide toward the end. Financing, for example, involves - credit of the buyer, the tenant, an appraisal, an enviro report, and lender concurrence. There’s a lot to be done in a short time. What if something isn’t approved? That, dear readers, is a subject for another column.”
So, here goes.
 
Generally, purchase and sale agreements include a mechanism for solving issues that arise in a deal. Specifically, the most widely used contract is published by the Association of Commercial Real Estate - AIR. Clearly defined within paragraph 9 are the various categories of approval items - inspection, title, tenancy, other agreements, environmental, material change, governmental approvals, and financing. Within the boiler plate language are roadmaps for resolution. If your contract is not the standard AIR form - results may differ. As always, it’s wise to seek legal counsel before engaging. But within the document - typically, offered are three choices - cancel, accept, or fix. A fourth creeps in which is a buyer and seller compromise.
 
Indulge me as we walk through some quick examples.
 
Let’s say a building inspector discovers the HVAC units are past their useful life. From experience - this is quite common. So, here’s what happens. The buyer objects to the condition of the cooling systems by disapproving a portion of the physical inspection contingency. You may be wondering. Wait, I thought the buyer was buying the building “as-is, where-is, with no seller warranties”. She is. But that refers to relying upon her inspection to alert her to any fixes necessary. Confusing? Yes, it is. Sure. A seller may simply refuse to repair or replace the units and cancel the escrow but cannot do so immediately. You see, here’s where the “mechanism” takes place. Buyer objects. Seller has 10 days to respond - yes, no, or maybe. A no vote on the recall - ooops, sorry. Wrong issue. If seller refuses, buyer can cancel the deal within another ten days, opt to continue and purchase with the faulty units, or accept a compromise - the “maybe” offered by the seller.
 
Financing is trickier. You see, if the buyer is unsuccessful in their pursuit of a loan by the date specified - generally, the seller can walk away. Therefore, it’s imperative to be quite transparent with the seller during the loan approval process. Because prior to the financing condition date - there may be some leverage. If an appraisal comes back less than the contract price - which causes a lender to renege on the amount - it’s recommended to level with the seller. Sure. You or the seller can cancel, additional dollars can be added to adjust for the delta - accept, an appeal can be made to the lender - buyer fix, purchase price can be reduced - seller fix, or a compromise between buyer and seller can be struck whereby buyer adds some dough, seller reduces the price - and voila!
 
I’ve witnessed these go every way you can imagine over my decades in the business. One certainty - there must be issues. It’s a thing. The next deal I close without one will be the first. But, fair warning. In today’s overheated industrial market, I’d not plan on a seller being terribly receptive to what’s referred to as a “re-trade.” Chances are there is a line of suitors waiting for the chosen buyer to blink.
 
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

 

Buying Commercial Real Estate - Closing the Deal

Image Attribution: www.shutterstock.com 

Today, I focus my labor on the closing process. After all, I’m penning this post prior to the Labor Day weekend - so it proved prescient. Whether you rely upon the rent generated or for the utility gained by your business - an investor or an occupant - you execute a similar process to become a owner. Let’s dive in, shall we?
 
A search is conducted, a candidate for purchase selected and negotiation commenced. Simple. Once the terms of the buy are settled between you and the seller, a contact is drawn - known as a Purchase and Sale Agreement. Easy. But now the fun begins. The parties - buyer and seller must now complete the deal. What occurs after the paperwork is signed is the subject of this column.
 
Purchase and Sale agreements - whether standard or proprietary - provide a roadmap for how to proceed. Price, financing - if any, due diligence period, escrow holder, title company, deposits to open, deposits once contingencies are waived, and closing period are all neatly niched.
 
Price. Fairly straightforward but typically a combination of cash and debt. The seller - unless providing a loan - receives all the proceeds - less closing costs once a deed is recorded. Can this sum vary from what’s agreed? Yes. See “due diligence”.
 
Financing. Many deals we see these days are financed but not subject to lender approval. Confusing? Yes. But this seller’s market, in which we are mired, has produced this wrinkle. A seller may say - sure, Mr. buyer. Go get a loan. But, failure to qualify won’t allow you to cancel. Plus, if your lender is tardy - tough taco. In a more conventional approach, a buyer seeks loan proceeds to couple with her cash infusion to make the buy. If she can’t get a loan, she walks away and her deposit is returned.
 
Escrow. Generally, in California, an escrow holder is a clearinghouse to accept the agreement and conduct the symphony - also known as executing the deal. Deposits, documents, and closing instructions are all neatly folded into an escrow holder’s task.
 
Title. Most title companies also have an escrow department but frequently, these two functions are separate. Your title officer will produce a preliminary title report - a “prelim” early in your transaction. This uncovers things such as loans the seller has ordinated that must be paid, easements, liens, status of property tax payments, legal description, and other “exceptions”. A commitment to insure a clean title will be issued. Should a problem arise post close - you’re covered.
 
Deposits to open escrow. In commercial deals - there is no real standard. It’s whatever the buyer and seller negotiate. However, typically these run about 3% of the purchase price. Should the buyer elect not to proceed with the purchase and prior to waiver of contingencies - in most cases, the deposit is returned.
 
Due diligence. Also referred to as a “contingency period”. Ranging from as few as 15 days to as long as 90 - a ton must occur during this time frame. Financing must be secured, title exceptions approved, inspection of the building - roof, electrical, HVAC, etc. accomplished, vesting documents drawn, financial aspects of the tenancy - if any - analyzed, and environmental health diagnosed. Whew! Within each of the main categories of approval - there are checkpoints which guide toward the end. Financing, for example, involves - credit of the buyer, the tenant, an appraisal, an enviro report, and lender concurrence. There’s a lot to be done in a short time. What if something isn’t approved? That, dear readers, is a subject for another column.
 
Deposits once contingencies are waived. Ok. You’ve traveled the gauntlet of contingencies and are full speed ahead. You’ll now add some “skin” - in the form of an increased amount of money - to the escrow. Deposits, by the way, are generally applicable to the purchase. But, once you nod your head - deposits are non-refundable. Can you still back out? Sure. But not for free.
 
Closing. A cacophony of chords completes the transaction. Akin to a family reunion group photo - all must be looking at the camera and smiling before the image may be captured. Lender funds the loan, buyer adds the supplemental dollars, granting deeds are deposited and recorded, and monies are apportioned - seller gets hers, buyer gets title, lender gets a trust deed, and agents get their fees. 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.

Number One Concern

Image Attribution: www.gograph.com 

Thanks to my neighbor Rudy - my staunchest critic and biggest advocate - for the column idea. As I pen this post from my garage office, I’m reminded of myriad conversations I’ve had lately with manufacturing and logistics companies throughout the OC and the IE. Ask any small business owner what their number one concern is these days - AKA what keeps them up at night - and universally you’ll hear…the lack of quality employees from which to choose. Doubt what I say? Just drive around and you’ll be feted with featured “now hiring”, “help wanted”, and “apply within” signs. One of our clients - who operates an adhesives manufacturing operation - has resorted to “bounties”. He pays his existing workers $500 per referral that result in a hire. His only qualifier is the new employee must stay for at least six months.
 
You may be wondering what any of this has to do with commercial real estate? Just this. Relocations are triggered by several factors. One of these is an expansion of commerce. Added business is fulfilled through the addition of employees, machinery or both. Commercial real estate houses said enterprises. If a building has capacity - ie: places for the extra folks to sit or spaces in the plant for the equipment - no issue. In the alternative - big issue. Now, the company must place a “band aid” by doubling up offices, adjusting the shop, or moving to larger quarters. As I’ve written ad nauseam - there is an acute lack of vacant industrial space in the market - so the problem compounds. But, this tete-a-tete will be tabled for another time. Today, I want to focus on the shortage of workers and my suggested fixes.
 
I read with great interest today how California’s unemployment rate is one of the highest in the nation. Hmmm. Then why is hiring such an issue? Some may opine. In the early days of the pandemic - our government paid people to not work. Good decision? Initially, yes. But, from what I hear from employers - the prolonged subsidy has created lethargy in our workforce. After all - why rise early, schlep the freeways, and encounter a cranky supervisor if you can make just as much by NOT working?
 
But in my view, the drought is more systemic. I believe we’ve done a substandard job - sorry for the pun - of preparing tomorrow’s workforce for the jobs that will exist when they graduate high school or college. Specifically, in our trades - carpenters, painters, electricians, plumbers, welders, contractors who repair air conditioning and heating, appliance and flooring installers, etc. there’s a huge imbalance. If you’ve a stopped up drain - good luck getting someone out to repair it anytime soon.
 
Most of these trades are learned through an apprentice program. Unions understand and train accordingly. But many times, a more seasoned non-union individual passes along her craft to the next gen. But what about vocational training in high schools? Remember the days of wood shop, auto shop and home economics? But how about building stuff?
 
The next gen should be willing to learn because the income potential is unbridled! Maybe these jobs lack a “coolness factor”. It’s not that appealing to work in a hot attic versus an air conditioned suite. Plus, we as a society are partially to blame. But, I won’t go there.
 
As to skilled labor such a CNC machine operators, plastic injection molders, die cut operators, truck and fork lift drivers - I believe the solution might lie within our community colleges. Wonderfully positioned - and state funded - to serve the local employer needs - these centers for learning are perfect! How about a partnership with the largest local job creators and academia to understand the needs and accommodating them?
 
With a little planning and leadership - we got this!
 
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.

Why Make it So Hard?

Image Attribution: www.dreamstime.com 

My neighbor constantly reminds me my voice echoes with commercial real estate owners well above his pay grade. Certainly not my intention but I take any comments to my missives seriously and attempt to morph into a more meaningful messenger. Regardless of the size of a commercial real estate portfolio - one multi-family property or global holdings of distribution boxes populated with Amazon-eque tenants - investments are simple! Why do we make them so hard? You see, any investment of money seeks a return. Period. Sure. You’d like the return to be commensurate with the risk. But after all the fancy terms of capitalization rates, internal rates of return, replacement cost, source of capital, exit strategy, expense leakage, cash on cash, leverage, etc. it’s really about this. I shell out this much money and get this much back. Mic drop.
 
Commercial real estate brokerage is simple. Why do we make it so hard? A real estate transaction - a sale or lease of commercial property - has two sides - an owner and an occupant. Now. The occupant may seek to lease or own and the owner may want to sell or lease - but you get the idea. Inject our representation and you now understand what we do. We are matchmakers of sorts. An owner engages us to locate a tenant or buyer to fill her vacant building and/or an occupant awards us the opportunity to source a location for their use. The former assignment is known as a listing and the latter an occupant representation. If you ask me what I do and I respond - “I sell commercial real estate” - you’ll probably wonder - “what the heck is commercial real estate?” But if I explain - “many of our clients are family owned and operated manufacturing companies experiencing a transition - such as a move” - my guess is you’ll have a better idea what fills our days.
 
Networking is simple. Why do we make it so hard? I’ve often opined - “the true value of a commercial real estate professional is the depth of her network.” Need a roofer? Got you covered. How about a legal professional to draw a new LLC? Hold on - I have several. Someone to install new warehouse racking? Yep. Got just the gal. But all of these examples are “downstream” of the deal. By that I mean the need is after - or “downstream” of the sale or lease. But, what about “upstream”? What classes of professionals see a transaction before it takes flight? The answer harkens back to what we do. Remember - “many of our clients are family owned and operated manufacturing companies experiencing a transition - such as a move”? If we focus on those professional service providers who complement not compete with our efforts - a treasure trove emerges. As an example - let’s say a manufacturing concern experiences a record year but leases their building. During a periodic meeting with her CPA these facts are discussed - revenue and leasing. If the CPA advises his client to buy a building - you get the idea.
 
Business is hard enough. Your commercial real advisor should make it easier for you.
 
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.