Friday, December 29, 2023

2023 Recap

Happy new year, dear readers. I trust your 2023 was productive and I wish you great success for 2024. As you read this on New Year’s Eve 2023 - let’s review what I predicted in January 2023 and see how I did getting my Nostradamus on. 
In January of this year, I wrote:
Industrial real estate. Third party logistics providers will give back space. If you’re unfamiliar with the term - 3PL or third party logistics provider - allow me to explain. Simply, a 3PL is an outsourced warehousing service. Say you’re a company that needs to get your product distributed to Walmart but don’t have the space or inclination to do so yourself. Enter the 3PL who will charge you - by the pallet - to receive, store, re-package, and ship your goods for you. For the past three years - to keep up with the demand of online shopping - 3PLs thrived and leased hundreds of thousands of square feet of logistics boxes. With the “de-inventorying” currently occurring, these providers need fewer square feet. But there’s an issue as many signed term leases which still have time to go. Therefore look for much of this excess to enter the market as sublease space. July 2023 update. We’ve seen a fair amount of give back as Amazon started the whittling process in late 2022. The push for space seems to be a lot less rabid than it was in 2021 and 2022. I frankly thought we would see more space returning to the market from third-party logistics providers. Although we’ve seen a bit of this it’s not happened on a wholesale basis the way I anticipated. So this one falls into the category of let’s wait and see what happens for the balance of the year. December 2023 update. The give back continues! I recently pulled a list of spaces 275,000-425,000 in the Inland Empire. Of the 34 available, one third were subleases - companies trying to shed space. Nailed it!
Recession? I vote no. How’s that for contrarian thinking! Here’s how I read the tea leaves. The Fed came out with guns blazing last year with three .75% and one .5% rate bumps. As we’ve discussed, this increase affects the rate in which banks borrow. The theory is more expensive money will cool a white hot economy as businesses will re-think borrowing for expansion. If you look at Gross Domestic Product or GDP for the third quarter of 2022 - it actually increased over Q2. By the time you read this, we’ll have a glimpse as to how the fourth quarter fared. Now couple that with core inflation which has declined for several months. Finally, retailers are shedding inventory as mentioned above. In fact this is deflationary as things are on sale. Now some might counter by opining - we’ve not felt the full impact of the Fed rate increases, folks are spending that idle cash left over from the pandemic, and massive layoffs await. We’ll see. I choose to believe in the resiliency in the US economy. Plus. Did you visit a mall, restaurant, or attempt to book a flight during the holidays? Bedlam! July 2023 update. I nailed this prediction as our economy has not fallen into recession. Some would say the full impact of the federal reserve’s rate increases have not been felt throughout. I still believe in the resiliency of the United States economy, our ability to innovate, and the seemingly unstoppable consumer. We will see what the next six months holds, but I for one believe that we have “stuck the landing” and will avoid a recession. December 2023 update. We will finish 2023 recession free. Quite miraculous considering what many were saying last year at this time. No one predicted the Hamas attacks on Israel or ten year treasuries topping 5% - briefly in November. Unrest still rages in the Middle East but interest rates have settled in the 4% range. 9 of ten believe we will avoid recession in 2024. I for one hope they’re correct. Nailed it!
Return to the office. Much has been written on this subject. We’re starting the third year since all of us were forced to return to our spare bedrooms. Remember that fateful day in March of 2020? Like yesterday! Fortunately, our team had spent the previous few months figuring out how to duplicate our desktop mobily. Did we have insider scoop? No. We just wanted the flexibility to do stuff in a client’s lobby, our dining room, or the front seat of our car without losing productivity. We were lucky. When the order came - we simply unplugged, drove twenty minutes home and plugged back in. Many were not so lucky and found themselves grappling with how to remain viable. Others simply ordered a bunch online and ate alot. I heard this from a friend. 😎I predict workforces will return to the office this year. Sure, a hybrid model will be employed where - as an example - Tuesday-Thursday will be office days and Mondays and Fridays will be optional work from home. July 2023 update. I read with great interest Jeff Collins and Jonathan Lansner‘s columns that appeared in the Orange County Register yesterday. Vacancy throughout office space has doubled since the pandemic in 2020. The new normal is a hybrid workspace with the exception of a few industries. As an example the wealth advisory businesses are back to the office full-time whereas flexible industries such as real estate, healthcare, insurance, are still working remotely. I would count this prediction as a miss thus far but we’ll see what the next six months bring. December 2023 update. Certain industries such as wealth management are back. Other typically office bound crafts - attorneys, real estate professionals and CPAs are not. Nailed it!
Retail. A continuation of the experiences that brought us back to brick and mortar stores in 2022 will continue. As examples. On a recent visit to Main Place, we were serenaded by era dressed carolers, and our grandsons thrust into a cube of stuffed animals as human claw machines. I’ve never seen the place so packed! My wife and I commented - what recession? Sans these experiences, however, I’m afraid the on-line shopping is easier. What’s avoided are out-of-stocks, surly clerks, crowds, and no parking. Speaking of Main Place. Our favorite parking spaces are now consumed with a multi family building which is under construction. Providing your own customer base and foot traffic - once the units are fully occupied - is always a great idea. But how cities choose to eliminate tax basis while at the same time increasing police and fire service remains the tug-of-war. July 2023 update. Brick and mortar retail continues to it astonish me. I recently purchased some items online and chose to return them at the store versus dealing with reboxing and shipping them through UPS. I was greeted with lines in the return lanes that would rival 405 traffic on a busy weekend. One of these was a lower end big box retailer and the other was a higher end specialty seller. Expected would be the lower end store to be busy but I was surprised to see the higher end specialty retailer just as busy. People are traveling! I recently heard a report that the July 4 weekend was the busiest in Los Angeles international airport’s history. It appears the pent-up demand for wander lusters is quickly unfolding. December 2023 update. If you visited a mall or power center during this extended shopping season - you were met with a crush normally reserved for the intersection of the five, 57, and 22. Gridlock indeed. Our economy seems to be settled in to a nice combination of on-line and in person shopping. Nailed it!
For those keeping score - a perfect 4 of 4 for this columnist. Next week, I’ll proffer my predictions for commercial real estate in 2024. You won’t want to miss that episode. Until then, be safe my friends. 
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 15, 2023

Home for the Holidays - Navigating Real Estate in Family Business Traditions

Family owned and operated manufacturing and logistics providers - and the ways in which their commercial real estate is managed - provide the cornerstone of my brokerage practice. Growing up in a family owned and operated manufacturing business helped provide keen insight into the challenges faced by these local employers and key components of our local communities. I recall numerous Christmas gatherings with our company’s employees and the special meaning of this time of year. 
The holiday season is a time of family, traditions, and gathering around a warm and welcoming home. Much like the heart of the holiday season, family-owned manufacturing businesses often have a central hub - their commercial real estate. In this column, we'll explore the unique challenges and blessings that come with harmonizing real estate and the traditions of family businesses.
Tradition and Succession Planning. Picture a family-owned manufacturing business as the treasured holiday feast, and the real estate as the time-honored recipes that have been passed down through generations. Planning for succession in such an environment can be as intricate as the preparation of a family recipe. It's about ensuring the family tradition continues to thrive while also preserving the home in which it all began.
Decking the Halls with Financial Considerations. The holiday season is often marked by financial decisions - gifts to buy, decorations to adorn, and feasts to prepare. Similarly, real estate assets within family businesses bring their own financial considerations. Property values and rental income are like the ornaments and lights that decorate the family tree, enhancing its beauty. However, just as the holiday season comes with its expenses, so do real estate assets with maintenance and operational costs. Balancing these financial aspects is critical for a harmonious holiday season.
Gifts and Legacies - Tax and Legal Implications. Gift-giving is a central theme of the holidays, but when it comes to real estate within family businesses, it's essential to navigate the legal and tax implications carefully. Just as Santa knows his route, families must be guided by knowledgeable legal and financial advisors to minimize tax burdens and protect their legacies.
Diversifying the Feast - Expanding Traditions. During the holidays, it's common to try new recipes and incorporate diverse flavors into your traditions. In the world of family-owned manufacturing businesses, real estate can be the secret ingredient to diversification and growth. Ownership of the buildings from which your company operates can be a magical way to increase generational wealth. These strategies can bring new flavors to your business traditions and ensure a bountiful holiday season.
Family Harmony - A Must-Have Decoration. The holiday season is a time for unity and togetherness, but it can also bring forth differing opinions and tensions within families. Managing real estate assets within a family business can require the skill akin to Santa’s elves. The family, much like the ornaments on a tree, should work together to create a harmonious atmosphere.
Holiday Recipes - Learning from the Masters. As with any holiday feast, it's often helpful to learn from the masters. Let's explore a couple of real-life examples. The Smith family, seasoned in the manufacturing business, wisely chose to own their real estate. As the value of the enterprise grew, so did the worth of the real estate. Additionally, in tough times, rent paid by the operation could be subsidized by the ownership of the building. It is common these days for the value of the real estate to far eclipse that of the occupying business. Merry Christmas indeed! On the other hand, the Johnsons decided to lease the facilities from which their enterprise operated. They avoided the heavy down payment needed to own their real estate. However, leases have maturity dates and rents over time have risen. No additional equity is built, and the operation must constantly face an evolving rental market. This can be great when rents are depressed, but troublesome in a time like today, when rents have escalated to an historically high-level.
Blending real estate assets with family-owned manufacturing businesses during the holidays is similar to preparing a cherished family recipe - a delicate balance of tradition, innovation, and unity. You can create a holiday season that's not only joyful but also filled with the promise of enduring traditions and lasting legacies.
So, as you gather around the family table during this festive season, remember that your real estate assets can be the foundation of your traditions, and the family business is the holiday feast that brings you all together. 
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 8, 2023

The True Measure Of A Lease Comp

Tracking the market is a task that consumes some of our time as commercial real estate professionals. A fancy way of saying “what’s happening” in our commercial real estate world - we look at things such as comparable lease transactions, comparable sale transactions, number of new availabilities, and the number of months needed to complete a lease or sale once the property enters as an availability. 
By analyzing these metrics, we’re able to gauge the health of our business. New avails and time on the market are easy enough. The measures more difficult are the comparable sales and leases as you must factor in some equalizer. By this - and using housing as an example - you wouldn’t compare the price a 10,000 square foot beach front property to an inland condo without some means to level the comparison. Price per square foot helps along with age of construction and amenities. We’re then able to suggest a status of comparable, inferior or superior. If we get quite granular, we can suggest a percentage by which a comp is superior or inferior and add or subtract this from the sale price. 
Lease comps are trickier. Leases - different from sales comps are not a matter of public record. In other words, we can’t go to the county recorder to see where a deal traded. We must rely upon relationships with fellow brokers, who will share the points of a lease with us. 
Important to consider:
The starting rate. Defined as the lease amount the tenant pays upon commencement of the lease.
Operating expenses. In certain leases, an amount - in excess of base rent - is billed to the tenant. Operating expenses include costs such as property taxes, building insurance and maintenance. 
Annual increases. These are bumps in the lease rate that occur annually, or at some other throughout the term. Most leases these days are written with fixed annual increases versus the change that occurs in the consumer price index which we frequently saw in the 1980s.
Term. Number of months that the tenant commits to pay rent. 
And concessions such as:
Refurbishment. Generally referred to as rent, ready items, such as paint, carpet, and general cleanup. Not typically included in refurbishment, would be tenant specific improvements, which are referred to as tenant improvements.
Free rent. This period is and the tenant gets to occupy the building free of base rent.
Beneficial occupancy. Any occupancy granted prior to the commencement of the term is referred to his beneficial occupancy, and sometimes may be called early possession.
Improvements made to the building specifically for the tenant. As mentioned above in the refurbishment section, tenant improvements would be outside the scope of the normal cleanup. This could include things such as adding offices, or upgrading the power panel.
If a fellow broker is willing to share all the points above, we can then do some math and compute what’s known as the effective rate. Simply stated, the effective rate considers rent - including increases - over the term minus the concessions. The actual computation is a bit more complex. But you get the idea. 
Now, armed with the effective rate of each lease, we can assign the same - inferior, superior, or comparable tag used for sales comps - based upon amenities. As an example, a brand new class A offering should be superior to a thirty year old counterpart. How superior you may wonder? In certain cases, the 30 year old address may be functionally obsolete to modern occupants and may need to appeal to a smaller pool of tenants who don’t need class A amenities. 

Friday, December 1, 2023

Season of Giving

We are now in the season of giving. Having survived Black Friday and Cyber Monday, we now turn our thoughts and plans toward the epitome of fall holidays, Christmas, Hanukkah and Qanza. Time with family and friends during this holiday season is at a premium. Our December calendar is almost full - with parties, luncheons and gatherings. But, today, I am writing for three reasons - therapy, education, and as a personal reminder. 
As commercial real estate practitioners, we only have two things to sell - our information and our time. Levels of our information are available as a commodity, for the world to see, and we only have 168 hours per week - that's it! Now, we can layer our expertise on top of the basic data levels - but we cannot create anymore time. I realize that is trite but stay with me, here. Avoiding commercial real estate time wasters is tantamount to locking your house at night - if you don't do it, you might get robbed!
I mentioned in the preamble my three reasons, so here goes!
Therapy. Without a doubt, I have encountered (and unfortunately been engaged by) more time wasters this year than I can remember in my career that spans four decades! And I pride myself on my qualification skills. Some were requirements unable to be filled, which resulted in lease renewals. Some were loooong drawn out request for proposal processes or market surveys or tours or owner education or…All had the same result - no revenue! Time invested with no return - the death knell of any commissioned sales person! Now before you go all sappy and feel sorry for me, please don't. I am the most blessed man on earth for myriad reasons that I'll save for another column - but maybe you can learn from my mistakes this year.
EducationOK, some of this is brokerage 101. But I'm going to spin it for you.
·        Work with control I know, basic, right? But how many of you make this mistake? I tell the young guys in here, "working without control is like drinking and driving" You might get away with it but when you get caught - and you will - the consequences are severe.
·        Qualify, Qualify, and keep Qualifying. Qualifying is ongoing. Remember to qualify "throughout the process", not just at the front end of the transaction.
·        Think "anti move". Let's face it, moving sucks! It's disruptive, time consuming, counter productive, inefficient, and expensive. It’s like a knee replacement - painful but necessary sometimes. Be VERY candid with your occupants about the downside of moving locations. When things get tough in the transaction - and they will, you can relay your discussion and remind your clients why moving makes sense.
·        Make the client "convince" you. How many of us have fallen for "we want to buy a building"? I always ask my clients "why would you want to do that?" The answer is illuminating!
·        Beware of the corporate "local guy". Ok, these can be your biggest advocate or CHAMPION time wasters. Is the local guy willing to give you complete access to the "real decision maker" or are you trying to fulfill his dream location that has NO CHANCE of materializing or passing corporate scrutiny?
·        Beware of lengthy processes. Decisions on who to hire are rarely the result of the fattest proposal binder, the best power point or the most complete response to an RFP. They generally boil down to a "relationship" - what a concept.
·        At some point, they gotta give backMy Mom taught me  a relationship must be a fifty-fifty proposition. Why should this differ in a real estate deal? Examine how much YOU are giving and how much the client is giving in return. This can be as simple as timely returned phone calls, emails, texts, etc. or as complicated as deciding on a strategic direction.
·        Out of State - out of mind. Anyone out there ever dealt with an out-of state company that is tremendously responsive when you are face-to-face but once the plane leaves the tarmac, so does the responsiveness?  Candidly, I've still not figured this one out!
Personal reminder. TRUST YOUR GUT! If it walks like a duck, quacks like a duck, has feathers, flies south for the winter (and you are not in Eugene, Oregon) - chances are they are a commercial real estate time waster! 
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, November 24, 2023

Finding the Right Commercial Real Estate Professional for You

Owning commercial property often means facing vacancies at some point. When that happens, consider the opportunity to rescue the occupancy. Take, for example, one of our long-term clients who recently renewed their lease with our guidance. We took an unconventional approach by advising them not to exercise their option to renew. Why, you ask? Because we believed we could secure a better deal from the owner outside the confines of the standard lease terms. Our hunch paid off; our client renewed at a remarkable 8% below the lowest market rate. The owner also avoided the costs associated with vacancy, potential refurbishment, tenant improvements, and increased brokerage fees. It was a win-win for everyone involved.
But let's face it, not every vacancy can be saved. When you can't salvage the occupancy, you'll likely need to engage a commercial real estate professional to find a tenant or buyer who can represent your interests in the market. The question is, how do you find the absolute best professional for the job?
Here's a simple guide to help you find the perfect match:

Define Your Reality

  • Is your property vacant or occupied, and if occupied, will it become vacant during marketing?
  • Are significant improvements needed, like office refurbishments, equipment removal, or major repairs?
  • Are you a seller or a landlord? What's the debt against the property?
  • How long can you afford to keep the building vacant?
  • If you're the occupant, where will you relocate, and what's your showing protocol?
Seek Specialty
  • Successful commercial real estate professionals often specialize in a particular location or building category.
  • Consider the type of property you have - office, industrial, or retail, and its sub-category.
  • For example, if you have a manufacturing building in Anaheim, California, look for a specialist in selling or leasing manufacturing buildings within a specific radius.
Comparable Inventory
  • Ask specialists for a list of comparable transactions they've completed and currently available properties.
  • However, remember that competence matters as much as quantity. Ensure the specialist is a reliable representative for your property.
Evaluate Competition
  • Assess the competition in the market. A knowledgeable specialist should provide insights into available competing properties.
  • Request a tour to understand how your property compares and to gauge the specialist's market expertise.
Cooperating Brokers
  • Check with the specialist's main competitors for their take on the specialist's reputation and competence.
  • Keep in mind that their competitors might have potential tenants or buyers for your property.
  • Look for a specialist who can offer unique marketing strategies tailored to your property.
  • Beyond the standard tactics, seek someone who thinks creatively and can make your property stand out.
Remember, lost revenue from vacancies cannot be recovered. Choosing the right commercial real estate professional can significantly impact your property's leasing or selling timeline, minimizing the loss. Make an informed decision to safeguard your investment.
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, November 17, 2023

Happy Thanksgiving!

"Giving Thanks for a Bountiful Year in Commercial Real Estate"
To all my readers, Happy Thanksgiving! As we gather to celebrate this cherished holiday, I can't help but reflect on the many reasons we have in the world of commercial real estate to be grateful for in 2023. The fall season has always held a special place in my heart, with its crisp air and vibrant foliage. It's a season that culminates in Thanksgiving, a day dedicated to indulging in the company of loved ones, feasting on delicious food, and, of course, watching some football. Wherever you are, I extend my heartfelt best wishes for a wonderful Thanksgiving day filled with joy, gratitude, and togetherness.
As we approach the end of 2023, with only six more weeks until we bid farewell to the year and sing "Auld Lang Syne," let's take a moment to count our blessings in the commercial real estate industry.
Booming Market. Demand for Class-A industrial has been a bit tepid as we’ve delivered a slug of new inventory and the market adjusts to higher rents. However, within the last two weeks we’ve seen two large deals transact - one in Fullerton and the other in Brea. I still believe we have some softening ahead, but the green shoots of tenant demand appear to be growing. 
Technological Advancements. Artificial intelligence, also known as AI has significantly changed the ways content creation happens. You know those flowery descriptions of your dream home that appear on websites or brochures? Chances are - those were written by bots. Commercial agents generally lag our residential counterparts by years. However, targeted marketing campaigns, with letters, emails, texts, and collateral will all go twin some generative content soon. Quick responses on listing inquiries will follow. Clauses for letters of intent or contracts could be next. 
Sustainable Practices. Sustainability has taken center stage, and it's heartening to see the industry's commitment to green building practices and environmentally conscious development. It's not just about reducing carbon footprints; it's about creating healthier, more sustainable communities.
Adaptability. Commercial real estate professionals have shown incredible adaptability and resilience in navigating the last three years. Industrial in hyper mode throughout 2021 and early 22, the office market cratering and then coming back to life in a different form as hybrid work became a thing, and finally retail that placed a premium on experience. The ability to pivot and embrace new ways of doing business has been instrumental in overcoming challenges.
This Thanksgiving, while we remember our blessings, we do have some signs of uncertainty for the year to come - decades high interest rates, global uncertainty, wars in Ukraine and Israel, an upcoming presidential election, and a potential recession. 
As you gather around the Thanksgiving table, whether with colleagues, friends, or family, take a moment to reflect on the collective blessings of the commercial real estate industry in 2023. Let's express our gratitude for the opportunities we've had and our determination to overcome challenges in the coming year.
So, as the aroma of a Thanksgiving feast fills the air and the excitement of a football game captivates our attention, let's give thanks for the thriving commercial real estate industry and the promising future it holds. 
Happy Thanksgiving! 
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, November 10, 2023

Family Business

As I've shared in previous columns, much of my time is dedicated to counseling family businesses, those closely held manufacturers and logistics providers that form the backbone of our local economies. Often, my involvement is sparked by pivotal moments, such as a succession plan or the acquisition of a competitor. On the flip side, I've witnessed family-owned companies being acquired by private equity groups on buying sprees, seeking to acquire, fix, and flip. In nearly every scenario, a common thread emerges – a commercial real estate requirement, most frequently the need to dispose of excess facilities.
Recently, I had the privilege of gaining insights from a family-owned and operated manufacturing company right here in Orange County. While no major transition is currently underway at Hydraflow, I believed that sitting down with a family deeply entrenched in our local business landscape would offer valuable perspectives. Thanks to Pat Soldano of Family Enterprise USA, an advocacy group championing family businesses, I had the opportunity to connect with the leadership team at Hydraflow - Cindy Ayloush, CEO and daughter of the founder and her children, Sasha and Ramsey. 
Perched atop a hill in Fullerton, Hydraflow occupies a 174,000-square-foot facility on what was once part of the vast Hughes Aerospace campus. Designed by Ware Malcolm, another stalwart in our county's business community, and constructed by Snyder Langston in the early 2000s, this facility is a testament to Hydraflow's commitment to growth and innovation. Having toured countless manufacturing plants, I was struck by the impeccable cleanliness and efficiency of the layout. However, what truly stood out was the palpable sense of family permeating the atmosphere, evident not only in their operations but also in the abundance of company swag proudly worn by the staff. Tragically, Cindy’s dad and founder of Hydraflow, Leonard Edward (Len) Ullrich passed away shortly after the move, on February 7, 2003. He had faithfully shepherded the company through five decades, weathering various challenges and multiple relocations across East Los Angeles County. I’m certain, Len - founder of the company, father to Cindy and her late brother Dennis, and grandfather to Sasha and Ramsey would be blushing with pride if he could witness his legacy.
Leonard Edward Ullrich laid the foundation for Hydraflow's journey in 1961 when it was a mere two-employee operation working out of a converted two-car garage in Maywood, California. Back then, it bore the name Hydraflow Supply and began as an industrial hose distributor. Len's vision extended beyond mere distribution, as he aspired to become a designer and manufacturer. With prudent foresight, he chose to slowly nurture his customer base while maintaining the distributorship.
The pivotal shift towards design and manufacturing took place in 1968, and in 1970, Hydraflow expanded to a larger facility in the City of Commerce. Over the years, their business extended its reach into both military and commercial aircraft sectors. The 1970s marked a significant turning point, with Hydraflow finding its niche in low-pressure fluid transfer products. Through the 80s and 90s, the company continued its steady growth trajectory.
According to Cindy, from its inception, Hydraflow has been grounded in the values that Len held dear - customer service, hard work, frugality, family, and ethics. These Midwestern values formed the bedrock of the company's culture and have continued to guide its growth. Today, with over 250 employees, Hydraflow is renowned for its expertise in designing and fabricating low-pressure fluid transfer components tailored for aerospace and high-technology applications.
But as with any long-standing family business, Hydraflow faces its share of challenges. Material shortages, compliance and regulatory complexities, finding and maintaining quality employees, and generational pass-throughs are just a few of the hurdles they navigate.
These challenges reflect the evolving landscape that family-owned businesses navigate. However, Hydraflow's ability to address and adapt to these challenges showcases their resilience and adaptability. They remain dedicated to preserving their family legacy while thriving in a competitive business environment.
Hydraflow's journey is a testament to the enduring spirit of family-owned businesses. Their story reflects the values and vision of their founder, the dedication of their leadership, and the commitment to serving their customers and community. As we celebrate the success of companies like Hydraflow, we are reminded of the strength and innovation that family-owned businesses bring to our local economies.

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, October 27, 2023

Scariest Things

With Halloween a mere two days away and trunk or treats primed for onslaught by excited youth - I thought it fitting to recant some of the scariest things I’ve witnessed in commercial real estate transactions. This is my 39th Halloween as a real estate broker. I've witnessed PLENTY of scary things, which should qualify me as some sort of an expert. We will go with that anyway.
So, here goes, in no particular order:
The building inspection that you relied upon misses something. We sold a building a few years ago. During the due diligence period, our buyer left the country and asked my partner and me to engage a building inspector in his absence - which we did. The inspection proposal was addressed to us and the inspection commenced, a report was generated and based upon the findings (there were no issues identified), the buyer closed the sale deal upon his return. About a month after he closed escrow, we received a call from his attorney. The building inspector had overlooked the fact that the building had NO AIR CONDITIONING! Fortunately the building inspector made good and paid for the air-conditioning to be replaced.
Your lender suddenly changes the rules. Recently, we entered escrow on a building (I represented the buyer). We had negotiated a sixty day loan contingency with the seller (at the bank's request). As we approached our loan approval deadline, the bank decided that they wouldn't close until the buyer received BUILDING PERMITS for the buyer's tenant improvements - which meant at least a 120 day approval delay. Fortunately, the seller cooperated and granted us an extension. The deal closed (albeit several months after the original closing date).
The building you are buying appraises for less than the contract price.This happened with EVERY deal between 2009-2011 that I was involved in (or so it seemed!). We solved this in one of three ways; price reduction, increase in down payment, or a combination of the two. What I learned during these trying times was that setting the proper expectations was critically important. I was careful to point out to all concerned that our agreed upon price was SUBJECT TO appraisal - and if the building didn't appraise, we would have to discuss a solution.
You cannot possibly achieve city permitting for your use by your projected move in. We are seeing this issue a lot these days as it appears that ALL governmental agencies must grant your occupancy's approval. My best counsel is to ANTICIPATE the hurdles that your use will encounter and structure the transaction accordingly. As an example, if you know your use will require a high pile storage permit, communicate this to the owner of the building early and be prepared to discuss the steps needed to get your permit - which will make your request credible.
We experience September 2008 again. I will NEVER forget the day the music stopped - banks stopped lending, buyers couldn't buy and sellers couldn't sell because, overnight their buildings were worth half of the value before.
You discover a MAJOR un disclosed issue - structural, environmental, financial. If you discover the issue during due diligence, you generally have the ability to cancel the transaction without penalty. Once your contingencies are waived, you can generally cancel with penalty. If you discover the major issue after you become the owner or tenant, you should consult a good real estate attorney as warranty rules and recourse against an owner vary by state. 
You realize that you have the right building - but the wrong broker. I currently represent an owner who had a falling out with his previous broker. You, as the occupant or owner, can choose who you want to represent you - period. If you discover that you are obligated to PAY your previous broker (you signed a lease and he repped you and you want to renew) you can still choose other representation - although it might cost you a bit more.
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, October 20, 2023

Sprouts Farmers Market’s State-of-the-Art Distribution Center in Fullerton, California

Recently, I was invited to the grand opening of the new Sprout’s distribution center. Because I wear two hats - commercial real estate broker and contributing columnist for Southern California News Group - this invitation had a special appeal to me. The transaction was a high profile one and the shiny new logistics building replaced an aging paper plant. You see, Sprouts Farmers Market, the well-known grocery store chain specializing in fresh and organic products, recently made a significant move, setting up its state-of-the-art distribution center in Fullerton, California. This move not only marks a new chapter for Sprouts but also promises to have a positive impact on the local community and the environment.
Before its relocation to Fullerton, Sprouts Farmers Market operated out of Colton, California in a facility leased by Lineage Logistics. But the company's new distribution center signifies a strategic shift. Sprouts is dedicated to delivering fresh produce to its customers, and this new facility strengthens that commitment. According to Joe Hurley, chief supply chain officer for the firm, the operation boasts state-of-the-art cold storage rooms cooled to an ambient temperature of 34°F and 55°F. Also, transportation-related emissions are reduced by saving an estimated 725,000 annual road miles from current delivery routes due to its proximity to stores.
To provide the community with an inside look at their impressive facility, Sprouts held an open house event. The event was attended by Fullerton's Mayor, Fred Jung, the leadership team of Sprouts, and many of the employees that work in the location everyday with the commitment of delivering their customers the freshest produce. Attendees had the opportunity to witness the significant capital investment that went into the building, as well as explore the ripening rooms for bananas and avocados, among other highlights. Perhaps the most heartwarming aspect of the event was the generous donation of $65,000 to Fullerton schools by the Sprouts Charitable Foundation. Commonwealth Elementary received $15,000, while Maple Elementary received a substantial $50,000 donation, with a particular focus on cafeteria composting.
At the helm of Sprouts Farmers Market is CEO Jack Sinclair, who took the reins in 2019. With a pleasant Scottish brogue and a pedigree including stints at Walmart and 99 Cent Stores, little did he know that his tenure would coincide with the COVID-19 pandemic, which presented unique challenges to the industry. Despite these challenges, Sinclair had a clear vision for the company. Sinclair's objectives included targeting Sprouts' customer base, described as “health enthusiasts and innovation seekers”. While the U.S. grocery industry is vast, with an estimated worth of $1.2 trillion, Sprouts has dedicated itself to focusing on a $200 billion slice of that business. To achieve this, Sinclair also aimed to enhance the supply chain, a goal that has been realized with distribution centers now in Aurora, Colorado, Orlando, Florida, and Fullerton, California. Additionally, he envisioned new stores with a smaller footprint and aims to grow the company's approximately 402 stores nationally by 10% per year, primarily in the Sun Belt region.
Sprouts' presence in Fullerton is not just about bricks and mortar; it's about creating opportunities and giving back to the community. The 337,000 square-foot logistics building, of which Sprouts occupies roughly 250,000 square feet, has added approximately 190 full time jobs to the community. But the impact extends beyond employment. Through the Sprouts Healthy Communities Foundation, the company is making substantial donations to local schools, supporting nutrition, education, composting, and even school gardens where students learn firsthand how produce is grown and delivered to stores.
Standout features of the Sprouts distribution center are myriad beginning with the presence of ripening rooms within the cold storage area. These rooms allow for the precise control of temperature and humidity, ensuring that avocados and bananas reach stores at the perfect level of ripeness. Aligned with Sprouts' commitment to environmental sustainability - the facility is designed for future solar panel implementation and LEED certification, emphasizing Sprouts' commitment to green building practices. In an effort to encourage environmental responsibility among its employees, the center provides 11 electric vehicle charging stations, with plans for future expansion. Additionally, an electric vehicle terminal truck assists with daily yard operations.
Sprouts Farmers Market's relocation to Fullerton, California, represents not only a strategic business move but also a commitment to its customers, employees, and the local community. With its dedication to fresh produce, environmental sustainability, and community engagement, Sprouts sets an example for businesses looking to make a positive impact on both a local and global scale. As we witness the fruits of their labor ripening in the heart of Southern California, it's clear that Sprouts Farmers Market is not just a grocery store but a genuine community partner.
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, October 13, 2023

How Sky High Mortgage Rates Slow Commercial Real Estate

Welcome to our glorious SoCal fall! As days shorten, leaves crunch underfoot, and temperatures cool - our commercial real estate market faces several headwinds. Hamas’ blatant attack upon Israel, the ouster of our House speaker, and the ten year bond yields at twenty year highs headline the obstacles. The first two - Israel being attacked and patticake in the House of Representatives create uncertainty. As I’ve said here many times - in the face of uncertainty, long term decisions are postponed or scrapped entirely until things level. But mortgage rates at highs not seen since the financial meltdown of last decade creates gridlock in the housing market. As residential transactions ebb, we feel it commercially. How you may be wondering? Allow me to expand a few scenarios. 
Turnover generates commerce. My mind is drawn to the pre-pandemic spate of deals in our small enclave of houses in East Orange. On our street, my wife and I have owned our address second longest. Kitty corner to us are original owners since 1984. Their multi-generational set up remains today - only with a new gen. But lately, several of our neighbors tapped out for assisted living or passed away - leading to four homes changing hands. Also, one rental converted into an ownership. In every instance a dramatic interior redo occurred followed by a freshening of the outside as well. So let’s break this down. First, a transaction happened. In the process, real estate agents were deployed for the buyer and seller. Staging, signage, glossy brochures, and touch up repairs preceded the sale. Maybe a lawyer or two got a look at the contract. Then escrow officers, title representatives, and lenders were engaged. Home inspectors, termite companies, and moving vans were hired. Insurance for the new digs was a closing component. And let’s not forget the bump in property taxes which funds our county government. Once the deed records and title transfers - an army of contractors descends upon the early 1980’s structure. Paint, flooring, kitchen upgrades, bathroom remodeling, wall removal, additional square footage built, etc. occur in earnest. The old furniture surely can’t be set inside this pristine interior. So a trip to Living Spaces, Daniels, or Mathis Brothers follows. Now an elderly couple - with limited consumption - is replaced by a family of four or five. Groceries, gasoline, dry cleaning, sports equipment, school clothes, orthodontics, urgent care, pets and pet supplies, and Amazon home deliveries are all fueled by the new residents. Commercial real estate activity is bolstered by the sale of houses! Please take a moment to review the steps above. In every case - office, industrial and retail are enhanced. Officed are residential real estate agents, escrow and title plants, lawyers, physicians, and insurance brokers. Moving and storage, all facets of contacting and landscape companies ply their trades in industrial buildings. Finally, buying stuff. Yes! Retail storefronts or online portals. Absent the turnover in houses, these businesses are forced to downsize, close their doors, or look elsewhere for new work. 
Rate shock. The ten year treasuries eclipsed 4.8% last week for the first time since 2007! Great news for savers but lousy for those looking to buy a house, refinance a mortgage, expand a business, or purchase commercial real estate. Two years ago today, that same yield was 1.61%. Yes. Yields today are roughly three times where they were two years ago. Savers in 2021 - in order to get a reasonable return on their investments were forced to seek riskier assets such as stocks, commodities or real estate. Now, backed by the full faith and credit of the United States government, passive investors can make a nice risk free return on their money. Avoided are the gyrations of the stock market or the downside of real estate ownership - losing a tenant. However, this astronomic rise in rates makes borrowing more expensive. Therefore, affordability in house purchases becomes less so. If you’re among the unfortunate few who have maturing loan balances to refinance - brace yourselves. Finally, expanding a business becomes richer. Here’s what I mean. Banks price loans based upon their cost of funds and the strength of the collateral. As we just discussed, a saver can make 4.8% in treasuries so banks must raise certificate of deposit rates to attract new money into their bank. Expanding an enterprise into an uncertain economy could be viewed by some lenders as risky. Therefore, to hedge against default, the rates charged must compensate. And the circle continues. For those hoping to secure ownership in a location to house their operation - many will encounter a debt service too expensive compared to a rental. More will find leasing to be more affordable. 
This year, I’ve been quite bullish on our economy and the resilience of the consumer. When others predicted a slowdown, I took the contrarian position. Now, with student debt repayment ramping up after pandemic hibernation, home savings balances declining, the government money spigot ending, high interest rates ramping plus some new global unrest - I’m afraid a recession is inevitable. When, how deep and how long remain questionable. 
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, October 6, 2023

Random Thoughts

Occasionally it’s good to empty your inbox of meandering messages. Today, I purge my consciousness of random thoughts that take up too much bandwidth. So here goes. As someone famous once opined - they’re just opinions - but they’re all mine. 
Generational wealth. Lately I’ve encountered several instances of generational wealth created through commercial real estate ownership. A common thread runs throughout these families, and that is investment in commercial real estate decades ago when it was much cheaper than today. Generally, there was a workhorse such as a manufacturing company that created excess dollars that was poured into commercial real estate ownership. In some cases, this was raw land held for development in the future. But, it’s astounding how deep generational wealth runs.
The start of school. Every September, when the school buses crank up and young people leave for college, my thoughts drift toward the trades, and how important they are to our economy. In my generation, we were taught a college education was the ticket. Nowadays, carpenters, electricians, plumbers, and handyman who can repair air conditioners start at much higher salary levels than those with college educations. Pair the two - college and a skill - and you’re golden! Additionally, these trades provide a platform for young folks to start their own businesses. Please understand I’m not dissuading anyone from getting college educations - just that there are many other ways to make a great living in today’s economy.
A shopping experience like no other. Recently, I decided to replace my iPad. You see since the days of the pandemic lockdown my entire workload has been carried by two Apple devices - my iPad in my iPhone. That’s right! No PC in this man’s world. I recall the last time I purchased an iPad. It was a bit painful, as passwords had to be recollected, data had to be transferred, and inevitably it just didn’t work like the old machine. To combat this, I kept my old one around for a while. Now my work space looks a bit like a scene from Wall-E, where pieces of old devices are strewn about. However this shopping experience was different - as I simply placed my old iPad next to the new one and voila - data was transferred. The new machine was operational and looked identical to the old one. What an incredible shopping experience. On my way back to meet my wife, I encountered Warby Parker. For those unfamiliar with Warby Parker, it’s a bit like a chipotle only for eye glasses. You simply walk in with your prescription, check out the samples of your glasses, and they magically appear at your house six business days later. It’s difficult for me to imagine how old line optometrists and computer stores will have a future.
The details matter. Recently, I negotiated a lease on behalf of our client. This is commonplace, however, this lease negotiation took on a whole life of its own. In addition to making sure the lease reflected the business points, we were asked to opine on certain areas of the lease and their impact on future events. As I reminded our client many times, we are not attorneys and do not dispense legal advice. But, our client felt comfortable with our laymen’s interpretation of certain clauses in the lease. In situations like this, I feel particularly valuable, but at the same time vulnerable. I can’t recall being so invested. The deal is now done and our client has a shiny new home. Best of luck!
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, September 29, 2023

A Proper Opinion of Value

Often in our commercial real estate practice we’re asked for our opinion of the value of a commercial asset. These can be as loose as a “back of an envelope” guess to a full blown appraisal conducted by an MAI appraiser. If you’re unfamiliar, the MAI designation is for a certified appraiser and member of the Appraisal Institute who has met strict testing, standards and experience requirements. Minimum requirements include: Meeting the standards and ethics requirements, Completing an approved 4 year degree, Passing all Appraisal Institute required exams including a comprehensive examination, completing 4,500 hours of specialized work, completing a demonstration appraisal report, and finally submitting an application for review and approval. Generally, an MAI appraisal is required if financing is being originated or if one of the title holders has died - necessitating a “time of death” appraisal. The commercial real estate brokerage profession works arm-in- arm with appraisers. You see, we track key data which is included in an appraiser’s work - such as lease comps. Generally, in return for our cooperation, an appraiser will share her data with us. Sometimes we’ll even get specifics on the appraisal task - address, nature of the value assignment and results. But today, I’ll focus on the appraisal’s little sister - the Broker Opinion of Value and what elements it contains. by the way, these are excepts from a live opinion. The names were changed to protect the innocent. 
Scope of the Assignment: Something like this…We were engaged by a local property owner to provide a broker opinion of value. The real estate was purchased in 1997 for the purpose of housing their operating company. Now sought is an opinion of the value of the real estate for internal purposes. 
Property Description:
444 Boardwalk offers approximately 100,000 square feet of warehouse space suitable for manufacturing and distribution purposes. It features both ground-level and dock-high loading doors, providing flexibility for various types of operations. 24 foot minimum warehouse ceiling clearance is advantageous for storing and handling large inventory or equipment. With 1200 amps of power, the property can support a variety of industrial manufacturing uses. .33 over 3000 sf feet sprinkler system limits the stacking height of some commodities. Ample parking spaces - approximately 200 - for employees and visitors are provided. A fenced yard adds security, staging and storage options. A strategic location offers excellent access to Los Angeles and Orange counties. 
Specific amenities:
Outlined in this section will be the specific features - square footage, % of office, etc. 
Methodology: Here a description of the way in which you determined value is described. It could read like this - Our understanding of the Orange County California sub-market dates back to 1984 when we began our career at Lee & Associates. Our company, and specifically our team, has been very active in the industrial arena - leasing and selling buildings of all sizes to a variety of investors and owner occupants. We consider ourselves to be market experts in this asset class of commercial real estate. To properly estimate the value of 444 Boardwalk, we analyzed four specific segments of the market - comparable sales, comparable leases, available sales, and available leases. A comparison was drawn to buildings that closely approximate the amenities contained in 444 Boardwalk. We only included deals that afforded specific transaction points. Additionally, we considered the types of buyers that would be in the market to purchase 444 Boardwalk if it was available and potential tenants that would consider leasing 444 Boardwalk if it was available for lease. Finally, we examined general economic trends and their impact on industrial vaues. 
Review of COMPS and Availabilities: Ideal is an analysis of three-five of each. Many more and confusion is created. Four comparable sales and five sale availabilities were considered. Analyzed were four comparable lease transactions and three lease availabilities. Specific details on each are contained in the succeeding sections. 
Comparable sales. We surveyed 75,000-125,000 square feet in six cities. In order to get a proper number - four - we included sales dating back to July 2022 - because only one sale has occurred this year in the range and cities surveyed. Of the four considered, square footages ranged from a low of 76,232 to a high of 123,650. Pricing ranged from $295-$316 per square foot. However, the $316 COMP occurred  before the increased interest rates took effect and slowed sale volume. Two of the buildings were purchased by occupants and two by investors. 
Sale availabilities. A similar narrative to the one for comparable sales is detailed here. 
Comparable leases. A similar narrative to the one for comparable sales is detailed here. 
Lease availabilities. A similar narrative to the one for comparable sales is detailed here. 
Potential tenants or purchasers: 444 Boardwalk would appeal to a variety of logistics providers or light manufacturing companies. Logistics providers require dock high loading, adequate sprinkler calculation for high pile storage, and proper turn radius for 53 foot trailers. 444 Boardwalk lacks the cube and sprinkler calculation for most modern logistics providers. A light manufacturing operation would require heavy power, office space sufficient to support different department operations, and a fenced and secured yard area for storage of raw materials and staging. 444 Boardwalk contains all of these amenities. Therefore, 444 Boardwalk would have great appeal for a buyer looking to occupy the building with his manufacturing business or a tenant needing a location. Many private investors are in the market and looking for good quality industrial investments. Most are driven by a return on their invested capital. Returns are in the 5.5 to 6.5% range for all cash purchasers. If a private investor must acquire the property using financing, the capitalization rate would have to be greater than his cost of financing - 7.5-8%. Sale activity throughout Southern California has waned since the halcyon days of 2021 and 2022 when institutional buyers were active. Declining sales have led to fewer exchange motivated investors in the market. 
Market conditions: Discussed here would be the total square footage of the market and corresponding vacancy plus the footage of the specific size range - in this case 75,000-125,000 square feet. If this distinction isn’t drawn - an improper look at vacancy emerges. Well also sprinkle in some economic head or tail winds - interest rates, global factors such as war or pandemics, elections, and recession fears. 
Special circumstances: These vary. In our example - here were the considerations. Ownership of the real estate and the operating company - have owned and operated from this location since 1997. We have seen a tremendous upward elevation of rental rates and sales prices since that period of time. Ownership of the real estate has subsidized the rent the operating company pays for several years. Consequently, the rental rate paid is substantially below that of the market. Such a subsidy causes an inflated estimate of the EBIDA and an understatement of the value of a capitalized market rent. 
Conclusion and Estimate of Value: We believe the buyer who will value 444 Boardwalk the highest is an owner occupant followed by a private investor. We don’t believe the building would garner any interest from a developer seeking to demolish the building and seek a higher and better use. 
                            Occupant purchase - insert estimate
                            Occupant lease - insert estimate
                            Investor purchase - insert estimate
Finally, we include a disclaiming paragraph so that our opinion is not mis-used. You could word it this way. 
Disclaimer: This broker opinion of value is based upon sources from which we deem reliable. This is not an appraisal. Portions of this opinion could be used to form an appraisal. 
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