I am penning this column from the bridge of a fishing
charter. Our oldest grandson is beside me, wide eyed, focused, and convinced
that fishing is the highest and best use of any waking moment. I am not
entirely sure where his passion for the sport began, but I can say this with
certainty: when I was his age, I loved to fish as well.
The difference is simple. I grew up roughly a thousand miles
from the closest ocean. My angling adventures were confined to small freshwater
creeks and quiet Midwestern lakes. The biggest variable was usually the
weather, not whether a twelve pound yellowtail might decide to make your
morning interesting.
You may be wondering what any of this has to do with
commercial real estate. Indulge me for a moment while I draw a few parallels.
Fishing, at its core, is an exercise in patience. You
prepare your gear, choose your bait, study the water, and position yourself
where the fish are most likely to be. After that, you wait. Brokerage works the
same way. We research the market, gather the right tools, identify promising
targets, and then we work the phones and email lines with steady persistence.
Sometimes the activity is nonstop. Other times the sea goes quiet and nothing
seems to bite. Successful fishermen and successful brokers share the same
understanding. You cannot force a fish to take the hook and you cannot rush a
deal that is not ready to happen.
Another similarity is the importance of reading the
conditions. Fishermen pay attention to tides, currents, water temperature, and
the behavior of the birds above the surface. Brokers pay attention to interest
rates, construction costs, vacancy levels, and tenant demand. Both professions
require situational awareness because the environment affects the outcome more
than most people realize. A fisherman who ignores the tide will come home empty
handed. A broker who ignores the market will do the same.
There is also the matter of preparation. On a fishing trip
you tie knots, organize tackle, check fuel, pack food, and make sure you have
everything from sunscreen to a functional radio. In brokerage the preparation
involves research, financial analysis, property tours, marketing materials, and
countless conversations in advance of any signed agreement. When the moment
finally comes and a fish hits or a client is ready to move forward, preparation
determines who lands the opportunity and who watches it swim away.
Finally, there is the thrill of the catch. Whether a fish is
on the line or a deal is in play, you feel the same surge of energy. Your focus
sharpens. Your movements become precise. The stakes rise, but so does the
satisfaction of knowing that your patience and preparation are paying off. The
best brokers and the best fishermen know that the reward is not only in the
result. It is also in the process of showing up, putting in the work, and
staying ready.
As my grandson reels in yet another bonito, I am reminded
that fishing, like commercial real estate, is never about guaranteed outcomes.
It is about persistence, awareness, and a willingness to cast again even when
the last few attempts came up empty. The ocean does not owe you a bite and the
market does not owe you a deal. But if you prepare well, put yourself in the
right waters, and keep your line in play, good things will happen.
That is as true out here on the Pacific as it is back at my
desk in Southern California.
December.
The last month of 2025. Soon, families across Southern California will be lighting
candles, trimming trees, gathering for Hanukah, Christmas and Kwanzaa, and
counting down the seconds to a brand-new year. It’s a festive season - one that
always seems to arrive earlier and earlier, but I digress.
December
also brings something else: perspective. A reminder that 2026 will be here
before you know it, and with it a new set of opportunities and challenges for
commercial real estate owners and occupants.
While
many industries begin to slow down as the holidays approach, December is one of
the most consequential months of the year for anyone who owns, leases, manages,
or invests in commercial property. The final weeks of the year serve three
essential functions:
Planning
for the Year Ahead.
This
is the time when landlords evaluate rent rolls, upcoming renewals, debt
maturities, and operating expenses - and make strategic decisions for the
coming year. Occupants, meanwhile, revisit headcount projections, space needs,
and whether their current footprint still aligns with how they operate in a
post-pandemic hybrid world. In short, December is when next year’s real estate
strategy is set into motion.
A
Meaningful Recap of 2025.
Every
year tells a story, and 2025 was no exception. For owners, rising construction
costs, fluctuating interest rates, and evolving tenant expectations shaped the
narrative. For occupants, efficiencies, supply-chain recalibrations, and
shifting labor patterns influenced real estate decisions. A December recap
helps frame what worked, what didn’t, and what trends are likely to carry into
2026.
Preparing
for Critical Deadlines.
From
tax planning to lease notice periods to budgeting cycles, December is full of
dates that matter. Missing one can mean financial consequences - or missed
opportunities - well into the new year. Many companies don’t realize that
decisions made (or delayed) in December often determine whether next year’s
real estate costs rise gently, or spike dramatically.
As
we turn the page on 2025, December offers a rare moment to pause between what
was and what will be. Whether you own commercial real estate or occupy it, the
decisions you make in these final weeks set the tone for the year ahead. Take
the time to assess, adjust, and anticipate. With thoughtful planning and a
clear-eyed view of the market, 2026 can be a year of opportunity rather than
uncertainty. Until then, may this holiday season bring you peace, perspective,
and a prosperous start to the new year.
The Background:
I provide location advice to owners and occupants of industrial real estate in Southern California. Frequently, this advice results in a company buying a building to occupy. With prices at historic lows and cheap financing, this in many cases can result in a "rental" rate cheaper than a market rental rate. The "rental rate" I am referencing is the debt service achieved when applying the purchase price financed at today's low interest rates. When an ownership structure involves the owners of the business that will occupy the real estate...a terrific union is formed. The "company" pays the rent (debt service), and the owners benefit from the appreciation, depreciation, and stability of facility costs. What happens if the owner decides to sell the company (tenant)? Should the real estate be retained?
The Misconception:
When the owner of the company and the occupant of the real estate are identical...but defined by entity...the owner of the real estate controls the decisions of the tenant...length of lease, annual increases in rent, tenant improvements considered, etc. When an owner of a company decides to sell the company (tenant) and retain ownership of the real estate some misconceptions occur.
The new tenant will run the business the same as the original owner
The new tenant will decide to stay in the real estate for many years
The new tenant will pay rent in a timely manner
The new tenant will care for the real estate the same way as the original "tenant"
While owning real estate and the company that occupies the real estate may prove to be a sound financial decision, owning real estate while not owning the company may not be as sound. As an example, I encountered a closely held company that purchased a 50,000 square foot building for their use. The company occupied the building for eight years until the owners decided to sell the company. The owners retained the real estate and signed a five year "leaseback" with the new owners of the company. The owners of the real estate enjoyed a nice cash flow for five years. At the end of the five years, however, the company decided to vacate the building and relocate to a facilty in another state. The owner of the real estate was now forced to compete with other owners of 50,000 square foot buildings...in many cases better capitalized...to secure a new tenant. The owner could not secure a tenant and the owner was forced to sell the building in an undesirable dip in the real estate cycle.
The Solution:
We advise many owners in this situation to sell the building as a leased investment upon the execution of the new lease to an owner whose core assets fit the criteria. We then suggest reinvesting the proceeds through a tax deferred exchange into an asset class with less risk...IE a multi tenant project OR simply paying the tax on the proceeds and investing in a non-real estate asset.
