Friday, December 30, 2022

Transfer Taxes

       We sold two buildings last month in Los Angeles county - Chatsworth to be exact. The deal was lengthy - spanning the horrors of the changing finance market  and Jerome Powell’s ratcheting up of bank borrowing rates. But alas, we got it done, satisfied the buyer’s 1031 exchange, and provided the seller a long term lease from which to operate his business. 
Chatsworth, as well as most of the San Fernando Valley cities is considered the city of Los Angeles. For context, imagine if all North Orange County cities of Anaheim, Buena Park, Orange, Placentia, Brea, La Habra and Fullerton weren’t sovereign and were under the purview of say Santa Ana? Yeah. That’s the situation. Consequently, Los Angeles wields tremendous clout when determining taxation - especially in the transfer of real property. 
One line item in our estimated closing statement caused the county recorder to pull our file. It seemed the transfer tax was improperly computed - or so they thought. When our able title officer pointed out the correct calculation - which appeared on the deed - the county capitulated and allowed the recording. Never, had I spent so much time understanding how such taxes are determined. My education, I believed was column worthy. But recently, another development in Los Angeles known as Measure ULA or the “mansion tax” - which was passed by voters - encouraged a deeper dive. So here we go. 
From the website - a wonderful resource, BTW - “California’s Documentary Transfer Tax Act allows counties and cities to collect tax on documents that transfer real estate. The Documentary Transfer Tax Act is broadly worded, imposing a tax on: 
each deed, instrument, or writing by which any lands, tenements, or other realty sold within the county shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his or their direction, when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds one hundred dollars …” In reading further, “this language covers almost every interest in property that can be created or transferred under California law. It includes:
·        Outright property transfers;
·        Tenancy in common interest;
·        Joint tenancy interests;
·        Community property interests;
·        Life estates and remainder interests;
·        Long-term leases;
·        Non-temporary easements;
·        Mobile homes installed on permanent foundations.
A transfer of any of these interests is subject to documentary transfer taxes. The documentary transfer tax is due even if the instrument is not recorded in the county real estate records. The creation and delivery of the deed causes the documentary transfer tax to become due.” 
Most counties in California impose a transfer tax equal to $1.10 per thousand dollars of value. In addition to the county rate, cities may impose additional documentary transfer taxes. From  “The amount that the city may impose depends on whether the city is a charter city or a general law city. A charter city is a city in which the governing system is defined by the city’s own charter instead of by California law. Charter cities have supreme authority over their municipal affairs and have broad leeway to impose their own tax rates. Many of California’s 121 charter cities have enacted their own tax rates. Cities that are not charter cities are known as general law cities. General law cities may impose a transfer tax equal to one-half of the rate imposed by the county. When the city imposes a tax, the county transfer tax is reduced by the amount of the city’s transfer tax so that the amount that the taxpayer pays remains at 55 cents per $500 of property value or consideration.
The website below gives you a breakdown of all the counties and cities in California, which are charter and general law, and the respective transfer taxes. But to save you some reading - Anaheim, Buena Park, Cypress, Huntington Beach, Irvine, Los Alamitos, Newport Beach, Placentia, Santa Ana and Seal Beach are charter cities. The balance of OC is general law.
Now to Measure ULA which recently passed in Los Angeles city. From “Measure ULA, commonly known as the “mansion tax,” would impose a new “Homelessness and Housing Solutions Tax” on transfers of residential and commercial real property in the city of Los Angeles valued in excess of $5 million.[1]  The revenue raised by the new tax, expected to be between $600 million and $1.1 billion annually, is intended to be used to fund affordable housing and tenant assistance programs.  As of the date of this Client Alert, the measure is ahead in the latest vote count. Under the measure, sales of residential and commercial real property valued at over $5 million but less than $10 million would be subject to an additional tax at the rate of 4%, while sales of properties valued at $10 million or more would be subject to an additional tax at the rate of 5.5%.  The new tax would apply to the entirety of the sale value, not solely the amount in excess of the $5 million and $10 million thresholds, and regardless of whether the property is sold at a gain or a loss.  The thresholds would be adjusted each year based on inflation.  The tax would apply to property sales occurring on or after April 1, 2023. The new tax would be in addition to the existing documentary transfer tax imposed on property sales in the city of Los Angeles, which is imposed at a combined city and county rate of 0.56%.”
So what does all of this mean? Selling a property greater than $5,000,000. in Los Angeles just got a lot more expensive. A $10,000,000 property used to cost $56,000 to transfer. Starting April 1, 2023 that same $10,000,000 transfer will be taxed at $606,000 - more than a ten fold increases. And by the way, a $5,000,000 residence is a big deal. A commercial deal in LA will trigger the tax on a very small square footage - affecting many occupants who own their building and choose to sell. But so what? We’re in the OC. Just this. Will unfunded pension liabilities straining city budgets cause city governments to search for revenues to bridge the gap? 10 of the 34 cities within Orange County have charters that allow such an increase in transfer taxes - with voter approval. We will see. 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, December 23, 2022

Random Commercial Real Estate Thoughts

Occasionally it’s good to purge my inbox and my mind. After a week in the place of my birth - Texarkana, Arkansas - there’s much to unpack - literally and figuratively. So, allow me to unload a few items swirling in my consciousness.
Thanks to all who commented. The outpouring of love and kindness resulting from my column last week - 6 Lessons my Mom Taught me About Commercial Real Estate - was amazing! Thank you to each of you who took your time to read the column and send me a note.
28th Annual AIR CRE Fall Market Trends. The Association of Industrial Real Estate met in November for a discussion of what’s happened in 2022 and what we can expect in 2023. On the dais were Jaclyn Ward of JLL, Kelly Johnson of Colliers, Michael DiBernardo of the Ports of Los Angeles, and Gerald Singh of Oltman’s Construction. Moderating the discussion was James Breeze of CBRE. As panels go, this was very well done, rehearsed and filled with information.
I found particular value from Jaclyn’s description of the state of office leasing - given the uncertainty that mires long term space decisions. But three applications were unveiled in her talk which I found interesting. Office tenants are separating into distinct genres - office first, home first and hybrid. Firms such as Goldman Sachs have adopted the attitude - you’ll come in to an office to ply your trade or you won’t. But if you don’t, look for employment elsewhere. Many of the content creators - Apple, Amazon, Facebook, Zoom, DropBox eschew the work anywhere mantra. And then you have those - our firm being one - that allow a mix of in an out. The out is fine so long as productivity is maintained. Our production is easy to track - you’re either selling buildings or you aren’t. Ok. Maybe these are old themes. Certainly since 2020. But, home first and hybrids realize that culture, employee attraction and retention, mentorship, and training all ebb as time away flows. There’s a concept know as clubhouse which is gaining traction. Addressed are these issues in a space suited for same. Akin to a ballroom at the Marriott reserved for an annual meeting - club housing retools space to suit the needs of an organization.
Michael DiBernardo answered a burning question I posed in this space a couple of months hence. Why are there Christmas decorations in Lowe’s in September? The answer is simply many big box retailers front loaded inventory early in 2022 to avoid supply chain snags. Faced with warehouses filled with seasonal items - retailers shipped things like fake Christmas trees to their stores to free up space. Things at the port of Los Angeles have largely returned to normal with four to six cargo ships waiting in the unloading queue. At its zenith some 104 waited at anchor. Container costs have also returned to par with a cost of $2000 vs the $20,000 this time last year. You’ll see some changes in the months and years to come as the basin edges toward zero emission vehicles by 2030 and 2035.
Gerald Singh recapped construction topics - cost escalation, and lead times since March of 2020. Since May of 2020, construction costs have increased 67.7%! A typical 100,000 industrial box now weighs in at $86.75 per square foot. Before you race out to build your own - remember land, architectural, engineering, off-site costs such as storm drains and curbs, on-site costs such drainage plus carrying expenses must be added. Oh yeah. Don’t forget if you said go today - you’d be lucky to have a building completed by Q4 of 2024 - largely due to the city’s entitlement processes and long lead times for construction elements. As an example, a roof structure requires one year to deliver.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104.

Friday, December 16, 2022

Six Lessons My Mom Taught Me About Commercial Real Estate

Mary Collom Buchanan Fore departed this life on Tuesday November 22, 2022. She died peacefully surrounded by family. She was 89. Ironically, the day was the 59th anniversary of a tragic event in our nation’s history - the assassination of President John Fitzgerald Kennedy. Mom was in Dallas the day that happened. The motorcade had passed, she’d waived to Jackie from a downtown department store and returned to shopping with my grandmother when they heard the sirens. Mom always liked the number 11. So it’s no wonder her last day on Earth was 11.22.2022.
You may be wondering what this has to do with commercial real estate? Please indulge me as I share some lessons I learned from Mom that prepared me for a career providing location advice to owners and occupants of manufacturing and logistics companies. 
Use your imagination. My Mom grew up an only child. With no siblings to harangue - she resorted to her mind to keep entertained. Sugar cubes became building blocks for igloos and empty spools of thread were transformed into end tables for her doll houses. I’ve relied countless times on my imagination to solve complex real estate problems and see everything for what it could be. 
Kill them with kindness. Mom was quite regal but treated everyone with a joyful smile. A crabby clerk got the same bright greeting as a high school classmate she’d not seen since graduation. Her theory was you attract a lot more flies with honey than vinegar. So now, I attempt to be nice to folks. I’m not as good as she - but I had a great role model. 
Give back whenever possible. Mom devoted her life to her three kids, our wives and husbands as well as her nine grands and thirteen great grands. But she was truly mom to all who graced her doorway. Whether it was a young friend with relationship issues or a wayward teen with parental woes - Mom gave back. Her true legacy lay in the civic involvement through countless clubs, ladies groups, and cotillions. Likely, my belief the universe is abundant, therefore share your time and knowledge freely had it’s genesis with Mom. 
Family first. Mom’s marriage to my Dad ended in divorce - largely due to the absentee nature of his involvement with us. Mom was a huge part of all of our lives here in SoCal even though she lived across the nation. Calls, cards, visits, and always present at key events was her cadence. My wife reminds me the kids don’t care whether you’re at a bar or closing a multi-million dollar deal - you’re away. My life has balance thanks to these two strong ladies. 
Don’t wish your life away. Mom would not allow us to say “I wish…”. Her response always followed - “if you can wish it - you can do it.” Today, I calendar a time to consider even my craziest ideas. I’m a man of action largely because I wasn’t allowed to wish my life away. 
Adversity can be your friend. Mom lost her Dad to suicide at age 22. Her mom was crippled at age 38 and relied upon my Mom for care in her later years. Mom was diagnosed with cancer in 1970 -when it was a death sentence. Dad left the next year and she raised us as a single parent. Never complaining, always with a positive attitude - she took each setback with grace and poise and with an outlook things would improve - and they always did. I embrace challenges in transactions the same way. What is God trying to teach me? - and a solution is close if you simply allow your positivity to reign. 
Rest well, Mom. We’re sad you’re gone but thrilled you’re in a better place. I love you! 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, December 9, 2022

Advice We’re Giving These Days

It’s been said March comes roaring in like a lion and leaves like a lamb. Metaphorical for the weather patterns experienced - this can be said for our commercial real estate market this year.
Shaking off the cobwebs of a post pandemic hangover, 2022 started with great momentum - only to be cooled mid year. We received some decent economic news of late with the consumer price index not increasing as fast and some major retailers posting better earnings than expected - but our path forward still remains murky.
So what advice are we giving to tenants, investors and occupants who own? Allow me to categorize each.
Tenants. We recently recommended a client of ours renew for a short period of time - six months - to gauge the market trajectory. Our tenant is faced with a lease expiration at the end of this year and we’ve been watching what’s become available for several months. His options to relocate were limited and we’d even created a plan B to stay put if we didn’t see some loosening. Low and behold - we noticed a trickle of new buildings hitting the market in October. Now it’s running about three per week. If you’re looking for space - this is a vast improvement versus six months ago when we were lucky to see one every three weeks. Another interesting metric is the asking rates have declined. Gone are the days when a new avail was swept up before it was widely marketed. Every new deal was a new high. Not anymore. Our advice centers around our belief of future softening. Tenants are becoming valuable again - especially if they pay on time and are easy on the building - which our clients is. What’s causing the increase in supply? Some businesses, faced with the new rent structure are headed out of state or out of business. What’s left in their wake are vacancies.
Investors. We see two sets of motivation these days - tax deferral and non. Unless motivated by tax reasons - it may be wise to put your money in short term treasuries - two years - and wait for the right opportunity to come along. Institutional capital is largely sidelined and occupants are priced out. Private investors rule. If belief suggests a softening of rents in the face of rising interest rates - values can only decline. Will there be better deals mid 2023 than today? Our opinion is yes. Certainly, if your investment is dictated by tax deferred timeframes - you either transact or pay the gains taxes. But remember, the impetus of those buys was a sale. Our sense is they’ll be fewer equity sales as values have declined or the market’s evaporated - leading to fewer tax fueled purchases.
Occupants who own. We saw a voracious appetite from institutional capital targeting these arrangements. Their pitch was a sky high purchase price in return for a leaseback of two-ten years. This activity peaked in June. With the uncertainty of recession, inflation, and rising rates - these deals weren’t as attractive. With more lease deal hitting the multiples - our prediction is some of these owners will need to sell - especially if faced with a refinance bullet or a shortage of dollars necessary to refurbish the building into rent ready condition. Once again. Patience is key.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104.

Friday, December 2, 2022

A Conversation with Jeff Ball, CEO of the Orange County Business Council

Recently, I had the privilege of participating in a panel of Commercial Real Estate professionals at the Cal State Fullerton economic forecast luncheon held at the Disneyland hotel.

Moderating the panel was Jeffrey K. Ball, CEO of the Orange County Business Council and former CEO of Friendly Hills Bank.

Our conversation was followed by my invitation for Jeff to attend a group meeting of business professionals with whom I network. We meet monthly and discuss trends in our respective fields of commercial real estate, banking, law, human resources, information technology, accounting, peer to peer coaching, investment banking and fractional C-suite interaction.

You might wonder why the meetings? In my experience, my clients (owners of closely held manufacturing and logistics businesses) are touched by all these professions and yet we don’t compete, we complement. I’ve found great value in understanding their worlds.

But in this meeting, Jeff was our guest to describe his mission at the Orange County Business Council. If you’re unfamiliar with OCBC, here’s a brief overview I curated from its website:

“Orange County Business Council works to enhance Orange County’s economic development and prosperity to preserve a high quality of life. For more than 125 years, it has promoted economic development and served as the voice of business in America’s sixth-largest county. OCBC serves pro-business interests so that the region’s vibrant economy continues to expand, bringing the benefits of prosperity to every corner of the county.”

Jeff is quite engaging and passionate about his role. He described the tenets of the group: advocacy, research and networking events — of which the economic forecast was one.

With economic development serving as an overarching umbrella from which our county grows and prospers, we spent time discussing the retention of business within the county, attracting new companies and expanding existing firms here in Orange County.

Some of what Jeff chatted about includes showcasing Orange County during the upcoming Olympics by offering a tour package including beachfront hotel stays, amusement park and museum passes.

We also talked about how the 34 cities within our county can use the council and its available data as a repository for available manufacturing and warehousing space.

Finally, Jeff said he plans to place much emphasis on the council’s role in economic development through leadership, strategy and execution. 

All of this doesn't come without its share of challenges, he noted.

He shared how the county faces a housing shortage which causes affordability issues. In order to keep the best and brightest of our young people, he said, the council and the county will have to figure out how to add new housing while dealing with NIMBYism, CEQA, and the regulatory maze of getting new housing entitled and built.

OCBC and Jeff will help with these efforts by focusing on pro-business candidates. Advocacy in the areas of clean water, cutting edge technology, safe streets and highways are just a few ways Jeff said OCBC is taking charge.

Our business roundtable found Jeff to be knowledgeable, resourceful and well qualified to set the vision and execute the strategy of the OCBC.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104.