The
Commercial Real Estate Industry lost a lion this week. Bill Lee passed away peacefully
on April 5, 2021 surrounded by family. We are deeply saddened by our loss but
grateful that Bill suffers no more and is with the Lord. Many of you knew Bill,
transacted deals with him, and had great respect for his prowess. In honor of
the life Bill led and the impact he had on our business - I revived a column I
wrote in 2019 in his honor. Rest well my friend!
I
am penning this post from a palatial suite - not the font seat of my car, btw -
at the Aria in Las Vegas. It's early and I am one of the few that is witnessing
the sunrise at the BEGINNING of my day. My company, Lee & Associates,
journeys to Las Vegas each fall for our annual Summit. My thoughts drifted to a
Summit past - the last one Bill Lee attended.
At
that Summit - I re-connected with my old friend - Bill - hint, his name is on
the front door. It was so great to see Bill and spend some time with him. Bill,
unfortunately has been absent from recent Summits. I REALLY miss him. The cool
thing is, it felt as though we talk weekly. He watches
my TUESDAY Traffic Tips - my weekly video series - and complimented
my work. Bill is LEGENDARY. But, how did he become a legend?
Bill observed a problem. Bill was the
top guy at Grubb and Ellis before Nixon was a crook. He was/is the most
competitive guy I've ever met. But, Bill realized that intra-office competition
was wreaking havoc on the greater good of the office. Bill tells it like this.
"I had a 30,000 sf listing. A guy (competitor) in the cube next to me had
a 30,000 sf occupant requirement. I didn't tell him about my listing because I
didn't want him to get part of the fee. The culture of the office dictated that
approach." Bill later realized that the "company" suffered and
created a platform, that through profit sharing, rewards cooperation but
still encourages competition. This was heady stuff, folks. Talk about
disrupting the way in which commercial real estate is brokered. WOW!
Bill had the courage to change. Great, there
was a problem. Now, Bill had to convince some fellow brokers that CHANGE was
the key to their collective future. Getting brokers to change ANYTHING is
tantamount to separating conjoined twins. But, Bill, ever the persuader,
convinced a small band of brothers to follow him into the cooperative abyss.
John Matus, John Sullivan, Mel Koich, Larry O'Brien, John Vogt, Tom Casey,
Dennis Highland, Len Santoro, Bart Pitzer, and Bill's college friend, Al
Fabiano heeded the siren call and left the building.
Bill had a tireless vision. One of
the other old timers and I were marveling at how those eleven guys, in an
executive suite in El Toro, California, created a company that now boasts 65
global offices, close to 1200 agents, Billions in revenue, an International
presence, coast to coast visibility, and the BEST place in the world to
transact commercial real estate. Period! I asked Bill if he ever, in his
wildest dreams, believed the company would someday be this big. He looked at me
rather puzzled and said, "of course! Once we got your Orange, California
office opened, I knew we were on our way to becoming an international
company." Tireless vision!
Bill got out of the way. At a point, Bill
realized that for Lee & Associates to grow, he needed to step away
and let the eaglet fly. Knowing Bill, as I do, this was warranted but was the
toughest thing for him to accomplish.
Bill
along with Craig Coppola, a recent William J. Lee lifetime achievement winner,
have authored a book entitled Chasing Excellence, Real Life Stories from
the Streets. It is available on line and in book stores.
So,
want to become a LEGEND? Just do those four things. Simple, right?
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.
As
commercial real estate professionals - a portion of our day is consumed negotiating
leases. These can be renewals - someone stays put; or new deals - which are
triggered by a relocation. Depending upon your specialty, up to 90% of your
time is spent in lease endeavors. Compare this to a residential agent and you
find the opposite - 90% in the sale of homes vs the lease of homes. So, with so
much of a commercial real estate broker’s bandwidth filled with lease
conversations - we get pretty good at the “ask”. In other words, what to seek
from a landlord. If you find yourself in the midst of such a back and forth -
consider the points below.
Rental rate. Folks in the business speak in
terms of per square foot. You’re most likely concerned with the size of the
check you write each month. Regardless, both are important. Why? Prices per
square foot provide a benchmark by which alternatives can be compared. And, the
total allows you to determine affordability. Your rent will be net of operating
expenses (known as a Triple Net, NNN, or modified net figure) or included
within the sum (Gross, Full Service, Modified, or Industrial Gross). Each has
its pros and cons. Make sure your professional explains.
Term. Your enterprise is committing to lease the premises for a
period of time. Generally, the smaller the space - the shorter the term. As an
example, incubator locations - fewer than 5000 square feet - are month-to-month
to two years whereas a 250,000 logistics hub might carry a 10-15 year
arrangement.
Increases. Unfortunately, your rent will increase throughout the
period of your tenancy. In theory, these are tied to inflation. But, with
inflation all but flat - a bump of 3-3.5% per year is standard. The crazy thing
is - rents have increased far in excess of 5% per year for the past two years.
Tenant Improvements. Generally, a TI will fall into one
of two categories - special purpose or general purpose. Think of the former
like a chef’s kitchen for your home. Sure, you may require a 12 burner Viking
range but will the next occupant find value. If the answer is no, most owners
won’t spring for it. Conversely, an upgrade of the power that feeds the plant
will appeal to the next resident. Therefore, you may find a willingness to
participate in the expense.
Refurbishment. Typically - paint, carpet,
flooring and cleanup. Depending upon how recently the landlord rolled over a
tenant - refurbishment may be more involved.
Extension Rights. Relocating is expensive, time
consuming, disruptive, and inefficient. Therefore, in addition to the initial
term of your lease - consider requesting an ability to stay past the
expiration. Also known as “options to extend” - your tenancy is preserved if
you decide to exercise.
Options to buy. Rarer today than an open amusement
park, options to buy are a concession frequently sought by a prospective tenant
and seldom given by an owner. Ask away. Expect the answer to be - ummmm, no.
Opt-outs. Seen this year with office leases - where space need
uncertainty prevails - flexibility is achieved. Given is the right to walk away
before the lease term expires. If a parcel holder agrees, expect there to be a
penalty.
Free or abated rent. The difference? Free is Free and
can’t be clawed back if you default - whereas abated can be. Some relief - in
either flavor - can ease the expense of a move.
Form of lease. Finally, your agreement will but
placed into a contract for both parties to sign. This becomes the document from
which rules are noted, obligations created and a mechanism for settling
disagreements outlined. Therefore, the form is critically important - so make
sure you know what the owner is proposing and seek counsel.
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.
There
is an acute lack of available buildings for lease and sale in Orange County and
the Inland Empire. In most cities and size ranges, 98 to 99 of every 100 spaces
is occupied. The culprits? Lack of new construction, exponential growth of
industrial operations, and increased competition from well funded investors. In
short, demand outstrips supply and has for several years. This time last year -
when a pandemic fueled pause persisted - we believed the end to shortages was
finally near. But alas, in June of 2020, the turbo charged appetite for
manufacturing and logistics locations voraciously returned.
But,
there are ways to creatively solve the dilemma. Below, are just a few.
If you’re looking to buy, consider leasing. Currently,
we represent a well qualified buyer looking to purchase 200,000 square feet in
the IE. Alternatives to buy are rarer than Elvis sightings. A quick scan of the
multiples yields fewer availabilities than digits on your left hand. However, a
similar survey of lease options is brighter with several more choices. Sure.
With a lease you pay rent to another when you could be funding your retirement
- but at least your revenue will grow in the larger building. Once your lease
terms out - consider re-entering the buying fray.
If you’re looking to lease, consider buying. Our food
processing client is having a bear of a time locating a facility to lease.
Ideally, the spot will have some of the special purpose goodies he needs -
floor drains, washable walls, and substantial power. Slim pickings! However, we
did source a prime deal for him to buy. We can couple our tenant with an
investor who can buy the building, construct a long term lease and voila -
everyone wins!
Make unsolicited proposals.
Occasionally, we will find a gem by panning for gold. Be aware - offering on a
property not on the market is inefficient. Generally, there is little room for
negotiation. Sellers have not fully considered the tax impact. Third party
reports such as inspections, surveys, environmental, and appraisal must be
generated. Finally, motivation to sell is strictly based upon the price you offer.
Any variance from your offered price - if you discover something wrong - will
be met with a resounding no. We have found a few sale opportunities by scanning
buildings for lease. The math of selling a vacancy vs waiting for a tenant can
sometimes make sense.
Wiggle, wiggle, make it work. My wife is a
seamstress. In the past, she taught countless young folks to sew. One of her
sayings was “wiggle, wiggle make it work” when shoring up a pattern. If you
look at your current setting, additional square footage may be found. How wide
are the aisles in your warehouse? If you slim them down to “very narrow” - you
multiply the capacity. Are you maximizing the cube of your space? By stacking
higher - this is accomplished. I’ve seen some very cool production mezzanines
which double your floor space. If you have no place to put that new injection
molding machine - consider a mezzanine.
Find the soft spot. Recently, we completed a deal with
a logistics company. When all of their musts were identified - nothing was
available to tour. The reason? Required was more office space than the typical
warehouse building sported. Our solution was to separate the office need from
the operation. We found a plethora of available suites close to the mother
ship.
Outsource! People, inventory, machinery.
Generally, these three drive increased revenue - and require more space -
albeit different types. Folks require an air conditioned, carpeted office.
Inventory? Racking and stacking. That new CNC machine that cranks out parts needs
floor space. A careful dissection of the increased enterprise is in order. Will
the business be generated by a larger sales force? Maybe a virtual group could
be considered. Factory reps do this sort of work. For finished goods that need
a place to rest - many of our clients use a third party logistics provider for
the ebb and flow of warehousing. Avoided is a long term commitment to square
footage. Have you considered using another producer to manufacture for you?
Until you scale and the cost benefits level - you can produce more without the
investment in machinery and the need for a place in your plant.
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.
