Friday, May 26, 2023

Five most frequently asked questions

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Next month I celebrate 39 years brokering commercial real estate in Southern California. My office of Lee & Associates celebrated 40 years this month. That’s right! All if my days have been spent at the same shop - a rarity. Logging weekly my thoughts and experiences started with the Location Advice Blog in 2010. And the Southern California News Group started publishing my writings in February 2015. Yep. Over eight years and 400 plus columns.
 
What follows are the five most frequently asked questions of me as a commercial real estate practitioner. Plus, I will throw in a bonus one! Stay tuned.
 
Question number five: Can I make changes to the space and if so, who pays for it? Generally and it depends.
 
Changes to a location - additional office, power upgrade, sprinkler retrofit, paint and carpet, moving walls, installing racks, distributing power, etc. can generally be accomplished subject to ownership approval and governmental approval with the proper permitting and code construction.
 
Changes to the square footage (IE: adding a structural mezzanine), changes to the common area, fencing required parking spaces, creating windows in bearing walls - not so easy.
 
Changes are typically paid for in one of three ways: the owner pays for all of the cost and concedes the cost (rare), the occupant pays for all of the cost (even rarer), or some combination of the two. This compromise could be an owner paying for the refurbishment of the space such as paint, carpet, and cleanup and conceding the cost and paying for the cost of a sprinkler retrofit and amortizing the cost over the term of the lease.
 
The "acid test" of who pays depends upon the owner's ability to pay, the owner's motivation, the general or specific nature of the improvements (think future marketability) and the market (is the competition delivering space to the market completely refurbished). Sometimes an owner will be willing to compensate a tenant in the form of free or half rent to offset the cost of changes.
 
Question number four: How do you get paid? The owner of the property pays us.
 
A common misconception is the fee adds to the purchase price or lease rate. The reality is an engaged agent can achieve a much higher purchase price than the typical owner because of market knowledge and experience. On the occupant side, an experienced agent can negotiate a better lease rate and concession package because of our knowledge of comparables, availabilities, and motivation. The net result is a better deal for both parties.
 
Question number three: How long have you done this? Since 1984.
 
 Real estate content (comps, avails, absorption, current pricing) is the same but the method of delivery is different. Who would have foreseen in 1984 that I would be doing this when I turned 66- prior to fax machines and the world wide web! Or, that we could survey inventory of available buildings - in our car - or at the beach - and send a list with images to our clients with the click of a button. Or, that we could send a video - in real time - of the property - unbelievable!
 
Question number two: How much is my building worth? That depends on a number of factors.
 
We consider the market - up trending or down trending, comparables and availabilities. If the market is up trending, chances are your building is worth more than the comps suggest. If the market is down trending, you might be best served to price lower than the recent comps and preempt a long marketing cycle. Marketing time plays a role. How long can you afford to market the building? A fire sale motivation will cause the building to be worth less. Does the building have special amenities - excess or surplus land, upgraded power, fenced yard, freezer/cooler space, special AQMD permits, etc. For the right buyer or tenant, these amenities can add to the price.
 
Question number one: How is the market? Weird.
 
I’ve written as nauseam lately about our markets. Suffice to say a lot has changed since our normal up-trending 2019 commercial real estate market. Global strife, a pandemic, decades high inflation, recessionary fears, interest rate hikes, and bank failures have all added an air of uncertainty to the ways owners and occupants of commercial real estate view the world.
 
Bonus question: How do you come up with your content week after week? Different ways.
 
Typically, I gain inspiration from the economy, deals I’m transacting and client interactions. Oh. And my occasional neighbor insight. Thanks Rudy.
 
Did I leave any out? Please comment below with your question and I will promptly respond. 

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.
 
 

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