 |
Image Attribution: www.clipart-library.com |
My
days are filled counseling business owners. You see, my commercial real estate practice
focuses upon family owned and operated manufacturing and logistics companies
experiencing a transition. Frequently, this transition causes a decision to be
made about their locations. As an example - let’s say the operation is
considering a merger. When two groups morph into one - a duplication of their
facilities emerges - and in some cases excess capacity results. Our services
are engaged to dispose of the overage through selling or subleasing the
unwanted space. An expansion into another state also requires a partnership
with us. We are able to locate vacant buildings in need of an occupant and
negotiate lease or sale transactions. A dramatic increase in orders could lead
to the need for a larger building. Yep. We see that transition a lot these days.
But
today, I’d like to focus on the conversations I’m having with entrepreneurs -
outside of their commercial real estate concerns. After all, small business is
the fabric of our economy and employs a substantial percentage of our
workforce. Never in my four decades as a commercial real estate practitioner
have I heard this much angst.
Hiring is tough. The pandemic of 2020 placed many
people on the unemployment roll. To combat this - state and federal government
created unemployment benefits which in some cases could reach $1000 per week.
Additionally, the time an unemployed or furloughed worker could receive these
benefits was extended. Consequently, a worker could make a fairly nice living
by not working. Now, that our economy is opening again - manufacturing and
logistics companies are finding it difficult to persuade workers back into
their plants. An acute shortage of available candidates for job openings
exists. Even prior to the pandemic, skilled workers were difficult to find.
Those who operate CNC machining or other specialized equipment were in short
supply. Now it’s downright impossible to employ these experts. Plus, our
community colleges have done a lousy job of preparing students for
manufacturing careers.
Raw material pricing is skyrocketing. Copper,
petroleum, plastic resin, building materials, lumber, and steel, are all in
terribly short supply. Doubt but I say? Go to your local Home Depot and check
out the price for a piece of 2 x 4 lumber. You might want to bring your
mortgage broker along with you as a purchase could require a second mortgage on
your home! Manufacturers are pinched at every stage - stocking enough
components for the creation of their product, increased wages for the folks
running their machinery, and higher gasoline prices which cause shipping costs
to escalate. Expect to see your pocket book affected eventually.
Is the grass greener? Regardless of the size of an
operation - many are considering locating outside the state of California. But
are other states really more receptive?Yes! I just concluded a trip to Georgia
on behalf of one of our clients. They have engaged us to locate three
facilities for them nationally – one of the west, one in the central part of
United States, and one in the east. We found the state of Georgia and the
individual communities to be extremely receptive to the 200+ jobs our client
will deliver to the local economy. Incentives, reduction in regulation,
property tax rate rebates, streamlined building permits, sales tax reduction,
industrial development bonds, employee training, tax credits for hiring, are
all on the table. We were shocked at the red carpet that was rolled out for our
requirement. And here I thought the red carpet was only seen at the Academy
Awards. Boy was I wrong!
Government overreach. AB5, new AQMD requirements,
increases in the minimum wage, noise abatement, and lengthy permitting
processes all have an impact on the operation of a manufacturing or logistics
company. Layer in some uncertainty about property taxes, long-term capital gain
increases, the potential abolition of the tax deferred exchange, and the
absolutely insane pricing for commercial real estate and you get a sense what’s
keeping owners awake at night.
The
California I remember embraced small business and provided a platform to
succeed - by stepping aside. Hewlett Packard, Disney, Microsoft, Apple
Computer, Amazon all started with a dream in someone’s garage. My how far we’ve
drifted.
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