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