How to Become a Commercial Real Estate Legend? Simple! R.I.P. Bill Lee

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.

5 Random Commercial Real Estate Thoughts

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Well, we are clipping along at warp speed - three months of 2021 in the books. But, occasionally, several issues burden my in-box. Therefore, please consider this column a “spring cleaning” of sorts.
 
Two recent appearances. Recently, I was honored to sit on a panel of commercial real estate experts and as a guest on a radio show. The cool thing was I never left my garage office. The Institute of Real Estate Management - IREM - panel was conducted via ZOOM and the radio spot over the phone. Coincidentally, both had similar themes - what impact has the Pandemic had on Commercial Real Estate? Of course the answer depends upon what genre - industrial, office, or retail. The differences between the three are as stark as the Mojave desert. Chances are, if your company makes or ships things - you’ve high-fived your employees for a record 2020. Conversely, if you visit a suite of offices each day - considered are ways to reduce your square footage, when your workforce will return - if ever, and how to conduct business in a hybrid environment - virtual and in person.
 
Shortage of Inventory. Never, in all my years have I seen the shortage of industrial inventory this skimpy. At the same time, vacant regional mall space abounds. You may be thinking - why not simply convert that vacant Sears store to a logistics hub? Good thought! But, the challenges lie with zoning and the physical plant. Simply, that behemoth store that formerly housed more Kenmore tools than the Carpenter’s Union once generated monster sales taxes for its city. Warehouses don’t. Plus, modern industrial buildings are equipped with much higher ceilings - the cost to retrofit would be mammoth.
 
Prices, prices, prices. The acute lack of available industrial space has caused prices to jump higher than a Gonzaga player at the buzzer. Yeah. Maybe next year, Bruins. But I digress. In one small slice of the Inland Empire East and in a sliver of sizes, witnessed was a 12% hop in pricing - in four months!
 
My favorite time of year. NCAA Final Four, MLB opening days, Masters golf tourney, the fragrance of Orange blossoms, more daylight. All are experienced this time of year! Considered. A tournament basketball game is akin to my profession - you lose, you go home. Consolation doesn’t pay the bills. Professional golfers start their year the same way brokers do - at zero earnings with no safety net. Finally, 162 baseball games over six months is a marathon. Some of our deals are long races as well.
 
Live, live, live. Three of my close friends have gone home to the Lord in the last thirty days. I’m reminded. This is not a dress rehearsal. It’s caused me to focus on what’s important, squeeze my loved ones a bit tighter, look past petty squabbles and LIVE each day as though it may be my last. Rest In Peace Erik, Kevin, and Mike!
 
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.

Is the Grass Greener?

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Much has been written about businesses vacating California. One “catcher’s mitt” state has even coined a phrase - “Texodus” - to describe companies bolting California for the Lone Star state of Texas. Catchy indeed. Another city has erected a mock Statue of Liberty on its strip - “give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore...”. Who knew that would be applicable to enterprise seeking asylum from California in a business friendly environment. Finally, governors are racking up frequent flyer miles traveling here to recruit our manufacturing base. The promise of economic incentives, cheaper houses, and smaller tax burdens lure our local operations to consider an out-of-state move. But is the grass really greener?
 
Certainly, the decision to move - in addition to the carrots afore mentioned - is a complex matrix of workforce availability, quality of life, affordable utilities, access to raw materials, logistics considerations, and to a small extent - the cost and availability of commercial real estate to house the organizations. That small slice - vacant locations - is the subject of this column.
 
So, I got my Jon Lansner on and examined several metropolitan service areas around the United States. Compared were available Class-A 100,000 square foot (used was a range of 75,000-125,000 square feet) industrial buildings built after 2000. Considered were the existing square footage - both vacant and occupied, number of spaces available, average asking lease and sale prices. Also, a benchmark for SoCal was included. All that was missing was his trusty spreadsheet.
 
Los Angeles County, California. 6,431,024 square feet existing and under construction - 35 buildings available - Average asking lease rates $1.03 psf - Average asking sale price $357 psf.
 
Orange County, California. 1,707, 949 square feet existing and under construction - 3 buildings available - Average asking lease rates $.93 psf - Average asking sale price $$296 psf.
 
Inland Empire East and West, California. 7,099,294 square feet existing and under construction - 10 buildings available - Average asking lease rates $.66 psf - Average asking sale price $170 psf.
 
Las Vegas, Nevada. 1,888,928 square feet existing and under construction - 6 buildings available - Average asking lease rates $.74 psf - Average asking sale price $260 psf.
 
Salt Lake City, Utah. 2,576,011 square feet existing and under construction - 10 buildings available - Average asking lease rates $.57 psf - Average asking sale price $150 psf.
 
Denver, Colorado. 4,139,989 square feet existing and under construction - 31 buildings available - Average asking lease rates $.73 psf - Average asking sale price $162 psf.
 
Chicago, Illinois. 9,810,710 square feet existing and under construction - 28 buildings available - Average asking lease rates $.52 psf - Average asking sale price $99 psf.
 
Columbus, Ohio. 792,518 square feet existing and under construction - 4 buildings available - Average asking lease rates $.54 psf - Average asking sale price $105 psf.
 
Nashville, Tennessee. 1,555,186 square feet existing and under construction - 7 buildings available - Average asking lease rates $.62 psf - Average asking sale price $94 psf.
 
Dallas Fort Worth, Texas. 11,749,896 square feet existing and under construction - 53 buildings available - Average asking lease rates $.48 psf - Average asking sale price $90 psf.
 
Houston, Texas. 9,695,070 square feet existing and under construction - 41 buildings available - Average asking lease rates $.58 psf - Average asking sale price $84 psf
 
Atlanta, Georgia. 5,464,511 square feet existing and under construction - 15 buildings available - Average asking lease rates $.50 psf - Average asking sale price $90 psf.
 
Jacksonville, Florida. 452,611 square feet existing and under construction - 1 building available - Average asking lease rates $.30 psf - Average asking sale price $73 psf.
 
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.

10 Things to Seek in Lease Negotiations

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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.

Shortage of Inventory? No Problem

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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.