A Week with a Two Year Old - 4 CRE Lessons

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I just concluded a week with our two - almost three - year old grandson. We’ve been blessed with five all together - four little boys sandwiched around a little girl. They range in age from 5 to one. Why was I caregiver? Well, my wife, AKA Nana - a budding stand-up comic - and our son-in-law were traveling to one of her gigs. You see, we also have a massive construction project underway that required supervision. Therefore the youngster’s mom - our daughter - and I became the village. She manages a team of customer care reps. Typically, Dad and Nana share the childcare load. But with two villagers absent, my work had to be planned carefully to correspond with his pre-school. On the two non-school days, he and I were joined at the hip. You may be wondering what any of this has to do with commercial real estate? As the title previews - several lessons were learned. Indulge me while I share a few.
 
Working in, on, and things most important. The life of a commercial real estate practitioner is segmented into three time expenditures. First, we must work in the business - finding, winning, and fulfilling transactions. Some agents consume all their waking hours in pursuit of deals. But, as my mentor says - this “transaction treadmill” will age you prematurely. Working on the business - thinking about how we find, win, and fulfill - must play a role in our days. Smarter not harder should be our mottos. Both of these pursuits - in and on - enable an opportunity to enjoy precious moments - dance recitals, little league practices, Scout outings, visits to the tot park at 10:00 AM on a Wednesday. All a two year old cares about are said moments. Too often we are so caught up in the daily cadence, we forget what is truly important. My grandson will not remember the deal I closed. He’ll only recall Papa missed grandad’s day at school.
 
Everyone is your friend. Watching our grandson interact on the playground with other kids was insightful. I’m not one of these helicopter grand parents who hovers over his every move. Sure, if he readies to clock some kid - I’m there. But, generally, I’ll allow him a bit of space. I observed and wondered. If I approached every prospect encounter with the non-judgement of a two year old - what then. Unfortunately, years of bias cloud our views and dictate our approach to new relationships.
 
If you make a mess, so what? Those of you with little ones are collectively nodding. I’m sure our three were messy but, man! He can dismantle a room quicker than the Tasmanian devil. But, you know what? It’s now all back in order - as if no one visited. Sure, in mid-demo it was overwhelming. But, everything returned to normal soon enough. Commercial real estate deals can get messy also. Sometimes, downright ugly. But, normalcy returns - albeit slowly sometimes. Once the closing occurs - we rarely remember the turbulence before landing.
 
A mid-day siesta is epic. Maybe the best lesson I learned! Two year olds wear themselves out and by 1:00 pm they’re cranky. A bit of reflection revealed - I am as well. But, at some point in our working careers, we are taught to “push-through”. Last week, in order to insure he went down and stayed down - I snuggled in. Voila! 30 minutes later, I emerged quite refreshed and ready to slay more dragons. Plus, I found an hour plus while he rested.
 
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.

Are Asking Prices Obsolete?

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Asking prices. By definition, an expression of a owner’s motivation to transact as reduced to a dollar amount. In other words, pay me this and we’ll make a deal. Easy? Not so fast. In our hyper-inflated industrial real estate market, every COMP is a new high watermark. Demand for manufacturing and logistics buildings outstrips supply. Read - there are approximately three to four times the number of buyers than there are sellers. Is this scientific? No. Strictly anecdotal from my experience this year and the last six months of 2020. 

Therefore, sellers are counseled to proceed cautiously lest they leave shekels on the sideboard. One way to accomplish tread carefully is to enter the market un-priced through a TBD or Price Negotiable. The traditional back and forth of a negotiation - offer, counter, counter, strike - is history. What’s replaced it is akin to the old adage of “bring me a rock”. Yes. That’s indeed a rock. Now. Bring me another rock. Once referred to as “countering oneself” - a no-no - is now quite common. 

Here is the typical cadence these days while representing a buyer. A quick scan of available inventory meeting the purchaser’s parameters is done. If there is one match you’re lucky. Two or three? Jackpot! You then check with the seller’s broker to confirm availability and touring protocol. Ooops. Sorry, we’re under contract. No, that sold last week. Nope, the tenant renewed. 

Our system is quite archaic compared to our residential brethren. Yes. We must call - quite inefficient - brokers to verify info. Realty boards streamline this with their levels of availability - active, active pending, active, contingent, etc. - no such luck in our world. Commercial real estate is not under the same purview. 

But, I digress. Back to the search. Faced with limited or no avails - now what? Well. We then scan the list of buildings available for lease. There might just be a seller in hiding among the lease listings. You must filter out the “portions” of larger buildings as a buyer would have to buy something much bigger, factor out the owners who are atypically sellers, and yep. Hop on that phone and dial your fellow agents. Ok. Cool. You found a possibility. A proposal must check ALL the boxes - price north of where the last sale traded, superior financial qualifications, very few - if any - contingencies, quick close, large deposits, a bit of pixie dust, a hope and a prayer. Frequently, the off-market Hail Marys are dropped in the end zone. No score as the time expires. But, you still have the buyer. Now what? Hand to hand combat. You pull a list of everything - vacant or occupied. Put together a nice letter outlining your need and be very specific. Send them to the owners. You might just hit pay dirt. 

So, are asking prices obsolete? It would certainly appear so! 

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.

 

Do Buyers Stand a Chance?

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I read with great interest last week, Leslie Eskildsen’s column on a relatively new residential listing class known as Registered Status. If your unfamiliar - as was I - here are the Clif notes. A seller hires a broker to sell his house by executing an agreement. Twelve choices are given - among them - Active, Coming Soon, or Registered. If “Registered” is chosen, the broker may share the information with agents employed beneath the broker’s license - but not with the Multiple Listing Service. Read. Cooperation, if you carry a different card, is eliminated and the pool of potential purchasers is pruned to those represented by the broker. In today’s robust seller’s arena - buyers are more plentiful than houses available for sale. No issue. The transaction occurs free of hassle, multiple tours, and myriad proposals. Do sellers leave shekels on the counter? Maybe. But that’s the sellers prerogative. Wow!
 

OK. You may be wondering what any of this has to do with COMMERCIAL real estate as that’s my forte. Indulge me as I relate a few similarities.
 
Residential precedes commercial by 9-18 months. If you’re curious about the future landscape for commercial real estate - just watch what’s happening residentially. In 2007 residential sales plummeted due to the sub-prime meltdown. CRE didn’t feel the pinch until 4Q of 2008. Social media marketing took root with residential agents well before any of us used Facebook, Instagram, YouTube, or Twitter to broadcast our listings. Will “Registered Status” become a thing with our inventory? My prediction is yes!
 
A type of Registered Status already exists. Some brokers already employ a form of registered status marketing. As an example. If a seller engages me to peddle a freestanding 10,000 sf manufacturing property in Anaheim - I can generate 10 offers with ten phone calls. A recent land sale we made was preceded by a select “invitation to offer”. The competition was fierce and the resulting COMP set the new high. If you have a buyer for a leased industrial building in the Inland Empire, and the offering is listed - chances are there is no fee for the buyer’s side.
 
Buyers are at an EXTREME disadvantage. Akin to a season of the bachelor - sellers have their pick of qualified purchasers and may present the rose to anyone they choose. It’s quite common for avails to hit the market un-priced. We are given “guidance” as to the seller’s expectation. Plus, water in the Mojave is more plentiful than buildings to buy. All factors causing pricing to hop 32% since October 2020! If something hits the market - you must take the Gretzky approach. Skate to where you believe the puck will be.
 
Traditional deal structure is waning. Common, prior to this crazy activity, a buyer could expect to receive a reasonable time to secure financing, clear title, and inspect the roof for leaks - all while under no obligation to close if something untoward was discovered. Now. Forget it. You’re lucky to get any time to conduct due diligence - without money at risk.
 
Buyer reps MUST innovate. If your business is representing buyers or tenants - you must manage your client’s expectations. In a recent round of talks - we offered a number 13% higher than the last market sale, non-refundable money day one and no financing contingency. We didn’t get a counter! Why? Even though our deal was not conditioned upon us getting a loan - we still needed financing. Confusing? Yes. But, we were willing to risk it - and with a large sum of money as the assurance to the seller. In effect we were told “show us the money”! Prove up funds in a liquid account equal to the purchase price or no deal.
 
In the darkest days of 2009-2011, sellers were at a disadvantage. Not anymore!

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.

A Look Back at my Commercial Real Estate Predictions?

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Residents of state of California received some good news in the past few days. Assuming our case rates, percent of infection, and equity measures remain steady - we could be fully open for business in a couple of months. Good news indeed! That giant sigh of relief you sense is aired by restauranteurs, bar owners, theatre chains, and gyms. Disneyland, Universal, Knotts, Staple Center and Angel Stadium will soon welcome back patrons - albeit with reduced levels and safety protocols. Our lives, in short, could be getting back to some sense of normalcy - whatever that means. 

On March 20, 2020, I penned a post which appeared in these pages on March 29, 2020. The title - Think Present’s Upended? Wait for Future. Just how clear was my crystal ball? I decided to check.

From the archives: “Social distancing, shelter in place, “Coronacation”, learning from a distance - phases now rooted in our lexicon which weren’t used just one month ago. My how things have changed - and how quickly! My column from March 1 - in this space - recapped an event I attended the week prior. Hosted by Northwest Mutual - the gathering focused upon ways to keep more of your businesses profit. Also reviewed were the five causes of a bear market - one of which was recession. I cautiously opined that I wasn’t predicting a recession - even though the disruptions to our supply chains were forming as China suffered the impact of a workforce largely bridled. Why run around like Chicken Little? After all, the job creation numbers in February were remarkable. Man was I wrong! Often stated - you see the big things coming, it’s the little things that get you! Little indeed - microscopic in fact.

As our local economy is in virtual lockdown and the raging tsunami of disruption roils our psyche - will commercial real estate, and it’s owners and occupants change? Maybe forever? In a word, yes! Indulge me while I recap a few.

Office space. Although we are open for business - our physical location at 1004 W. Taft in Orange is closed to the public. Agents can come and go as they please - being mindful of the governor’s guidelines - but are encouraged to work remotely. Staff members are home bound with an internet connection to projects that need attention. For the first time in our office’s 37 year history - we are completely virtual. We own our building with a partner who services auto loans. Roughly 85 employees - in both companies - reside in the 21,700 square foot, two story structure. Per agent - we pay approximately $731 per month in rent - albeit to ourselves. Is space overhead necessary? Certainly for some companies. However, I’m certain many others will do the same math and ask the same questions. Nailed it!

Retail establishments. Wow! Traditional retail was in a world of hurt before the pandemic. Now? Pure carnage. Many stores - straddling the ledge of viability - just got shoved into the abyss. Few will return. Sure. The biggies - Walmart, Target, Costco, Home Depot - will rebound with a vengeance. But Amazon and other on-line portals will consume what retail business is left. Some restaurants will decide on-line and takeout is more profitable and adjust with smaller spaces. What will be left is a landscape of empty storefronts. Investors who rely upon rent from these tenants to service their debt and fuel their lifestyles? They just got a pay cut. Nailed it!

Automation. Hmmm. I don’t believe a conveyor system ever called in sick, filed a worker’s comp claim, sued an employer, or showed up late to work after a crazy weekend. My prediction is manufacturers and logistics providers - once they navigate the mine field of business interruption - will restructure accordingly. Less reliance upon employees and more automation. Akin to lack of preparedness in advance of a big shaker - local employers were not geared for this level of disruption. Somewhat nailed it. What I underestimated was the voracious demand for industrial space that would surge in June of 2020. 

Technology. I’m penning this from an iPad on our living room sofa. Many of you are reading this column on line from your breakfast rooms. Wednesday my strategic business coach - The Massimo Group - hosted a webinar entitled “how to be a lighthouse in a storm”. Yesterday, three strategic partners and I joined a Zoom call to discuss their worlds and some suggestions on servicing our client’s uncertainty. Sure. This is not new technology but the ways in which we used it was innovative. Look for expansion in internet bandwidth, mobile solutions, and other advances in technology. Tele-diagnosis’s? Wow! Triple nailed it. 

Public gatherings. 9.11 changed security protocol forever. Remember when you could show up to the gate as your flight was revving to taxi? I do! Or walk into a courthouse through a doorway and not under a metal detector. Emptying your pockets of wallet, phone, keys and stripping belt buckles was never required at amusement parks or sporting events until the past few years. Will we now have our temps checked when we enter the Honda center? Sorry sir. You’re running a bit hot - we cannot let you in. Will networking events - chambers of commerce, Provisors, BNI - now be held virtually? How about city council meetings? No public discourse? Well, maybe that’s positive. Pro games without fans? Return of the drive-through theatre? Wedding venues, country clubs, convention halls. Preposterous? Maybe. Maybe not. Think airline security now vs 2000. A lot has changed in twenty short years. Hmmm. I was a bit psychic, here. Scary true!” 

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.