Commercial
real estate in Southern California has always reflected the ebbs and flows of
business confidence.
Today,
across industrial buildings , office suites, and everything in between, we are
in the middle of what I call “The Great Space Recalibration.” Companies are
rethinking how much space they need, what kind of space they want, and how to
make their real estate align with a changed economic landscape.
Industrial:
From Expansion to Efficiency. For the past decade, industrial tenants in the Inland Empire
and Orange County raced to secure more square footage. E-commerce boomed,
imports through the ports surged, and vacancy rates fell to record lows. But
the story has shifted.
Instead
of expanding, many manufacturers and distributors are now optimizing.
Automation, robotics, and better inventory management allow them to do more
with less. A tenant that once needed 200,000 square feet may be comfortable in
150,000 if it’s more efficient space. Landlords, who grew accustomed to quick
leases and rising rents, are now negotiating harder and offering concessions
that were unthinkable just two years ago.
Office:
The Hybrid Question.
The office market has undergone an even more dramatic recalibration. Remote and
hybrid work are here to stay, and companies continue to evaluate their
footprints. In Orange County, for example, tenants are renewing—but often for
less space. A law firm that once leased three full floors may decide two is
sufficient, with one floor redesigned into collaborative areas and hot-desking
stations.
This
trend isn’t simply about cost savings. It reflects a cultural shift: offices
are no longer just places to house employees, but tools to attract talent and
foster collaboration. The most in-demand spaces are those that are flexible,
amenity-rich, and located in environments employees actually want to come to.
Retail:
Leaner but Smarter. Retail
has been recalibrating for years. E-commerce forced many stores to shrink their
footprints and focus on experiential elements that can’t be replicated online.
The winners are not necessarily the ones with the largest boxes but the ones
who integrate online and in-person sales seamlessly. Think of a
5,000-square-foot store doubling as a distribution hub, pickup center, and
brand experience all at once.
Why
This Matters. The
Great Space Recalibration has implications for everyone involved in commercial
real estate:
•
Occupants must carefully assess their true needs. More space is not always
better if it is underutilized or expensive to operate.
•
Owners must adapt to slower leasing cycles, more tenant scrutiny, and a greater
demand for flexibility.
•
Investors must look beyond raw square footage and ask: how usable, adaptable,
and future-proof is this space?
Looking
Ahead. If
the past decade was defined by expansion, the next may be defined by
efficiency. Companies are not retreating from real estate—they are
right-sizing. They are using space as a strategic tool rather than just an
overhead expense.
In
Southern California, where land is scarce, costs are high, and innovation is
constant, this recalibration may ultimately lead to a healthier balance.
Tenants will get the space they truly need. Owners will invest in making
buildings more flexible, sustainable, and tech-enabled. And communities will
benefit from properties that serve the market more intelligently.
The
Great Space Recalibration is not a crisis. It’s an adjustment. And like all
adjustments in real estate, it will reward those who recognize the shift early
and adapt accordingly.
Every August, more than a million
people descend on Des Moines, Iowa, for one of the most iconic celebrations of
agriculture, tradition, and Americana: the Iowa State Fair.
You’ll find butter cows.
Deep-fried Snickers. Prize-winning pigs. And yes - this year, you’ll find us
there too.
You may be wondering, we have a
fair in Orange County, why Iowa? Well, we’re trying to see all fifty states.
What better way to visit Iowa, than the state fair we reasoned.
Now, I’ll admit - on the
surface, the Iowa State Fair has very little to do with commercial real estate.
But after years in this business, I’ve learned that the best lessons don’t
always come from lease negotiations or cap rate spreadsheets. Sometimes, they
come from places you least expect - like from livestock barns and lemonade
stands.
As I ponder our attendance, I
anticipate five surprisingly relevant lessons the Iowa State Fair has to offer
CRE professionals, property owners, and business leaders alike:
Visibility Is Power. At the fair, everyone shows up. Presidential candidates. Local
farmers. Funnel cake vendors. It’s a stage - and the people who stand out are
the ones who lean into the spotlight.
The same applies to commercial
real estate. If you want the business, you have to be visible. Post on
LinkedIn. Return your calls. Walk the industrial park. Knock on the neighbor’s
door. You never know which conversation leads to your next transaction.
Show up often enough, and
eventually you’re the broker they think of first.
Specialization Wins Blue
Ribbons. The fair isn’t about
generalists. It’s about champions - best in breed, best in show, best in pie
crust.
In commercial real estate, the
same holds true. If you’re trying to represent office tenants, retail
developers, and industrial buildings owners all at once, you’ll get lost in the
crowd. But if you’re the go-to broker for aerospace facilities or cold storage
occupants? Now you’re speaking the judge’s language.
Specialists don’t just compete -
they win.
Know Your Audience - and Entertain
Them. The Iowa State Fair majors in
audience engagement. Every booth, every announcer, every exhibitor is tuned
into one question: “How do I draw them in?”
In our business, whether you’re giving
a tour or sending a proposal, you need to ask the same thing. Are you
connecting with your audience? Are you using stories, analogies, visuals — or
just burying them in data?
The best brokers aren’t just
experts. They’re entertainers, educators, and translators.
Process Beats Flash. Behind the corn dogs and concerts is a finely tuned operation. The
fair doesn’t happen by accident - it’s a system of logistics, preparation, and
process.
The same is true of great
brokerage. A successful transaction isn’t the result of charisma alone. It
comes from structured follow-up, solid documentation, strategic planning, and
diligent execution.
Flash may get attention. Process
gets results.
Success Is Grown, Not Grabbed. At the fair, everything takes time. Blue ribbon hogs aren’t raised in
a week. The best corn isn’t grown overnight. These results are the end of a
long, consistent season of effort.
Likewise, in commercial real
estate, the big wins come from relationships planted and nurtured over time —
referrals, repeat clients, neighbors who saw the sign and remembered your name.
If you’re in it for the long
haul, you’ll build something worth exhibiting.
Final Thoughts From Des Moines.
So yes — I’m heading to the
Iowa State Fair this week. I’ll enjoy the food, the spectacle, and hopefully
the butter cow. But I’ll also be paying attention — because success leaves
clues, whether you’re watching a 4H goat show or leading a facility tour in
Anaheim.
If you’re in commercial real
estate - or any people-driven business - maybe the fair has something to teach
you, too.
And if not… well, there are
always the corndogs.
For
years, I’ve helped business owners wrestle with one of the biggest decisions
they’ll ever face about their real estate: Should we buy our building or lease
it?
At
first glance, ownership might seem like the obvious winner—build equity,
control your destiny, no landlord breathing down your neck. But like most
things in commercial real estate, the decision isn’t black and white.
What
many people don’t see right away are the hidden costs—financial, operational,
and emotional—that come with each option. Here’s what I’ve learned over the
past four decades.
Opportunity Cost: Where Is Your Capital Working Hardest?
Buying
a building—even through an SBA loan with just 10% down—still requires capital
that could be deployed elsewhere. That down payment, along with closing costs,
reserves, and possible improvements, can total hundreds of thousands of dollars
even on a modest acquisition.
Takeaway:
The money you tie up in real estate could be your most expensive investment if
it limits your flexibility elsewhere.
Monthly Cost: Lease vs. Mortgage Isn’t Apples to Apples
Many
business owners compare lease rates to monthly mortgage payments and assume
that ownership is the better deal—especially if mortgage payments appear lower
than quoted lease rates. But that comparison misses critical details.
In
today’s market—where interest rates remain elevated and property values are
still adjusting—the cost of ownership is often more expensive than leasing. And
the difference is even more pronounced when you factor in all the additional
expenses:
• Debt service (principal and interest)
• Property taxes
• Insurance
• Repairs, maintenance, and capital reserves
(think roof, HVAC, plumbing, parking lots)
Even
with SBA financing—which only requires 10% down—these costs add up quickly and
can exceed comparable lease obligations.
And
let’s not forget: most industrial leases today are structured as triple net
(NNN) leases, meaning tenants pay base rent plus property taxes, insurance, and
maintenance.
So if
you’re comparing a lease rate to ownership, you must also account for the fact
that those same costs will be your responsibility as an owner—on top of
your mortgage.
Finally,
SBA loans often come with variable interest rates after a fixed period,
introducing future financial risk. And rising insurance premiums and
unpredictable tax assessments only add more volatility.
Lease Flexibility Can Be Strategic
Leasing
doesn’t mean “wasting money”—it means buying flexibility. If your company is
growing, shrinking, or evolving, locking yourself into ownership may actually
become a constraint.
Leases
allow you to pivot: to sublease, renew, relocate, or negotiate tenant
improvements. And in many cases, those improvements are paid for by the
landlord, not out of your own pocket.
Takeaway:
In a rapidly changing market, the ability to adapt might be worth more than a
locked-in mortgage rate.
Asset Appreciation Is Not Guaranteed
Many
people view real estate ownership as a no-brainer because of “appreciation.”
But just like with any asset class, there are cycles. Industrial property in
Southern California may have doubled in value over the past decade—but not all
markets or building types are created equal.
If your
business is relying on future appreciation to justify the purchase, you’re
speculating, not just investing.
Takeaway:
A good business decision should pencil out even if the
building never appreciates.
Final Thoughts: The Right Answer Depends on the Right Questions
I’m not
here to argue for or against ownership. I’ve advised clients to buy when it
made sense—and advised others to lease when that fit. But too often, the
decision is made emotionally or simplistically: “I hate my landlord” or “I want
to build equity.” That’s not enough.
What’s
your growth trajectory? How much capital do you need to keep liquid? How long
will this facility serve your needs? What are your exit plans?
Owning
vs. leasing isn’t just a real estate decision—it’s a business strategy. One
that deserves more than a gut feeling.
After over four
decades in commercial real estate brokerage and ten years writing this column,
I thought I knew how to tell a story. Then I decided to write a book.
And I’m pleased to
say it’s published and available on Amazon in paperback or Kindle.
What started as a
compilation of anecdotes turned into a deep dive into the systems, habits, and
turning points that shaped my career. I titled the book The SEQUENCE – A
Personal Journey and Proven Framework for Commercial Real Estate Brokerage
Success,
and along the way, I learned a lot more than I expected. About writing. About
business. And about myself.
Here are ten lessons
from the journey:
1.
Writing a book is different than writing a column. A column is a
sprint. A book is a marathon. In a column, you land your point quickly. A book
requires structure, pacing, and a deeper connection with your reader.
2.
Structure matters more than you think. You can’t just throw stories on a
page and hope they stick. My book follows a framework I call SEQUENCE—a
step-by-step system I’ve used to manage deals. That structure kept me on track
and helped readers follow along.
3.
Your voice gets clearer the longer you write. At first, I tried to sound like an
“author.” Eventually, I realized my own voice—the same one I use in this
column—is what people want.
4.
The best stories are the real ones. Readers remember the deal that almost
fell apart, the client who became a friend, or the early mistake that became a
turning point. Vulnerability beats polish every time.
5.
Time is the biggest hurdle.
Writing a book while
managing a full-time career isn’t easy. But I treated it like a client
appointment: scheduled, protected, and consistent.
6.
Good editing is worth its weight in gold. My first draft was… fine. My final
draft? Clearer, tighter, and much more readable—thanks to a professional edit
and some tough love from early readers.
7.
Legacy is a powerful motivator.
I wrote the book to
help other brokers, yes—but I also wrote it for my grandkids. Every chapter is
addressed to them. That perspective changed everything.
8.
Publishing is easier—and harder—than ever. Technology makes it simple to
self-publish. But standing out? That’s another story. Writing the book is just
the beginning of sharing it.
9.
Your network matters more than your launch plan. Colleagues,
clients, friends, and family became my first readers, reviewers, and
cheerleaders. A strong community beats clever marketing.
10.
We all have a book in us. Whether it’s business lessons, life
stories, or personal insight—everyone has something worth writing down. If
you’ve been thinking about it, start. Even a page a day adds up.
Writing a book
forced me to slow down and reflect. It reminded me why I love what I do—and how
much I still want to share.
If you’re on a
similar journey, I’m cheering you on. It’s hard. It’s worth it. And you’ll
learn more than you ever imagined.
Leverage is one of those concepts
we throw around a lot in commercial real estate. It sounds sophisticated—like
something whispered in back rooms by finance guys wearing French cuffs. But
really, it’s simple: leverage means using someone else’s money to buy something
you couldn’t afford on your own.
That “someone else” is usually a
lender, and the “something” is typically real estate. Whether you’re buying an
industrial building, an office condo, or a strip center, leverage is the reason
you don’t need a million bucks in the bank to make it happen.
Let’s walk through it—and then
I’ll explain why it’s both powerful and dangerous.
How
Leverage Works
Say you find a building you want
to buy. It’s priced at $2 million. You could write a check—if you happen to
have a spare $2 million lying around. But most investors don’t.
So you approach a lender. The
lender agrees to loan you 65% of the purchase price, or $1,300,000. That means
you need to bring $700,000 to the table. With that $700,000, you now control a
$2,000,000 asset. That’s leverage.
Why is this useful? Because you
get all the benefits of owning the building—rental income, appreciation, tax
advantages—without tying up your full net worth in a single deal. But, you’ve
borrowed $1,300,000 which must be repaid.
The
Power of Cash-on-Cash Return
Now here’s where leverage starts
to flex its muscles: cash-on-cash return.
Cash-on-cash is a fancy way of
asking, “What am I earning on the actual money I invested?”
If that $2 million building
brings in $100,000 in income after expenses and debt payments, and you only put
in $700,000 to acquire it, you’re earning roughly 14% annually on your cash.
(That’s $100,000 /$700,000.) Not bad.
But if you bought the building
all-cash and still brought in $100,000 a year, your return would only be 5%.
See the difference? ($100,000 / $2,000,000.
That’s why experienced investors
love leverage. It makes the return on yourmoney better because you’re using someone else’s money to own more.
What
Happens When the Math Goes Backwards?
There’s a flip side to this, and
it’s become more common lately: negative leverage.
Negative leverage happens when
the cost of borrowing exceeds the return you’re getting on the
property—specifically, when your interest rate is higher than the property’s
capitalization (cap)rate. Imagine paying 7% interest on a loan to buy a
building that only returns 5.5% annually. That’s a losing equation from day
one.
Unless you’re banking on major
rent growth, redevelopment, or some other value-creation, you’re effectively
paying to hold the asset. Your cash-on-cash return goes down, not up. And in
that scenario, leverage isn’t helping you—it’s hurting you.
We saw the opposite for years
when money was cheap. Investors could borrow at 3% and buy properties at 5%–6%
cap rates all day long. But today’s reality is different. Many deals that
penciled before don’t anymore—not because the buildings changed, but because
the cost of capital did.
The
Pitfalls of Leverage
Leverage works great when things
go well—when tenants pay rent, when rates stay low, and when property values
rise.
But if vacancy creeps in, or
interest rates rise, or your building needs unexpected repairs, that monthly
loan payment doesn’t go away. It still shows up—every month, like clockwork.
I’ve seen more than a few deals
that looked great on paper fall apart in practice because the borrower didn’t
leave enough breathing room. That extra margin of return? It can vanish quickly
when costs go up or income goes down.
And over-leverage can lead to
overconfidence. I’ve watched folks stretch into larger deals just because the
bank said “yes.” And when the market turned? That yes turned into a painful
lesson.
Using
Leverage Wisely
Leverage is neither good nor
bad—it’s neutral. It’s how you use it that matters.
Here are a few guiding principles
I share with clients:
• Be
conservative. Just because a lender will
loan you 80% of the purchase price doesn’t mean you should take it.
• Understand
your debt. Know your payments, your
interest rate, your amortization period, and what happens if rates change.
• Stress-test
your deal. If rents drop by 10%, can you
still pay the mortgage?
• Watch
for negative leverage. If you’re
borrowing at 7% to buy at a 5% return, you need a very clear reason for doing
so.
• Keep
reserves. Surprises happen. Don’t let one
roof repair or a missed rent payment jeopardize your investment.
Bottom line? Leverage can be your
best friend—or your worst enemy. Used with discipline, it can multiply your
wealth. Used carelessly, it can multiply your mistakes.
Choose wisely.
With the Big,
Beautiful Bill now signed into law—and with interest rates, tax incentives, and
construction dynamics shifting in real time—2025 is shaping up to be one of the
most pivotal years in recent memory for commercial real estate decision-makers.
Whether you own the
building, lease the space, or advise someone who does, here are seven smart
moves to make before the year ends:
Conduct
a Cost Segregation Study
Why?
The new law
reinstates 100% bonus depreciation on qualifying plant and equipment—but to
access that benefit, you need to know which assets qualify.
What to do:
If you’ve invested
in improvements or own industrial real estate, get a qualified cost segregation
firm involved. It could unlock hundreds of thousands in immediate tax
savings—legally.
Reevaluate
Lease vs. Own with Fresh Eyes
Why?
Interest rates are
still high—but so are lease rates. And with bonus depreciation back, the
ownership equation may now tilt in favor of buying for some occupants.
What to do:
Run side-by-side
comparisons again. Don’t assume yesterday’s numbers still apply. Small Business
Administration (SBA) financing, ownership clauses, and creative structures may
make buying feasible—even now.
Talk
to Your CPA About the New Law
Why?
Too many owners and
tenants assume their tax preparer will catch the benefits automatically. But
the OBBB changed the rules—and proactive planning is essential.
What to do:
Schedule a strategic
call with your CPA before year’s end. Ask specifically about:
• Bonus
depreciation eligibility
• Section
179 limits
• Impact
on capital improvement planning
• Energy-efficient
upgrade credits
Consider
Energy Improvements While They’re Incentivized
Why?
Solar, lighting,
heating and cooling upgrades, and even electric vehicle charging installations
are eligible for new federal tax credits. These incentives may phase out or
tighten in 2026.
What to do:
If you’ve been
postponing efficiency upgrades, now may be the ideal time. Look into financing
programs that pair well with the new federal credits.
Review
Your Long-Term Control Over the Property
Why?
Whether you’re an
occupant or investor, control is more important than ever in a volatile market.
Do you have extension options? Purchase rights? Favorable assignability terms?
What to do:
Pull out your lease
or operating agreement. Confirm whether you have:
• Renewal
rights with clear timelines
• Right
of First Refusal (ROFR) or First Offer (ROFO) clauses
• Protection
against unwanted sale or transfer
If not, now may be
the time to negotiate them in.
Prepare
for Estate or Ownership Transition
Why?
With billions of
dollars in commercial real estate wealth set to change hands this decade, 2025
is the right time to get ahead of who owns what and who
will inherit what.
What to do:
If you’re an aging
owner, review your trust, LLC structure, and succession plan. If you’re an heir
or partner, ask questions now—before you’re suddenly managing a building you
didn’t expect to own.
Line
Up a Deal Team Before the Rush
Why?
As more buyers,
sellers, and tenants look to capitalize on 2025’s tax environment, the demand
for lenders, inspectors, brokers, CPAs, and attorneys will intensify.
What to do:
Build your team now.
That includes your:
• Commercial
broker
• Real
estate attorney
• CPA
or tax strategist
• Cost
segregation firm
• Lender
or SBA contact
Deals that close
smoothly in December started planning in August.
Bottom
Line: Be the Active One
You don’t need to be
the biggest player in the market to win in 2025—you just need to be the one
who’s paying attention.
The best
opportunities this year will go to those who prepare early, ask the right
questions, and surround themselves with people who know where the landmines—and
the leverage points—are buried.
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.
I’ve
seen a lot of legislation in my decades as a commercial real estate broker—but
few come with a name as audacious as the “One Big Beautiful Bill.” It sounds
like something you’d hear shouted over the din of a campaign rally or stitched
onto a souvenir T-shirt. But behind the marketing glitz lies a bill that, if
passed, could reshape the commercial property business—particularly for those
of us who live and work in the golden state of California.
Let’s break it down.
At its core, the bill proposes a return to 100% bonus
depreciation. In plain English: property owners and developers would once again
be able to expense the entire cost of certain building improvements in the year
those costs are incurred. Think HVAC upgrades, lighting retrofits, or a
full-blown tenant improvement package. For owners sitting on aging assets or
brokers like me helping clients reposition their properties, this is a
game-changer. It’s fuel for reinvestment—and it arrives just when many buildings
need a refresh to stay competitive in a post-pandemic world.
But wait, there’s more. The bill also boosts the Qualified
Business Income (QBI) deduction for pass-through entities—including many real
estate partnerships—and raises the cap on the SALT deduction for individuals
earning less than $500,000. For Californians, who have long borne the brunt of
SALT limitations, that’s more than a footnote. It’s meaningful tax relief that
could free up capital for additional investment.
Of course, every rose has its thorn. And this one comes in
the form of Section 899—a “revenge tax” aimed at foreign investors from
countries with so-called discriminatory tax laws. The details are still fuzzy,
but the risk is clear: if foreign capital dries up, so too may some of the
momentum behind major commercial developments, especially in coastal markets.
And then there’s the rollback of green energy incentives.
As someone who’s witnessed the growing appetite for ESG (Environmental, Social,
Governance)-friendly buildings, this move feels like a step backward. Cutting
179D deductions and other sustainability carrots might please certain
constituencies, but it runs the risk of dulling progress just when tenants and
investors are demanding greener spaces.
As of this writing, the bill has passed the House and is
under active consideration in the Senate. With several provisions drawing
bipartisan attention—both supportive and critical—the coming days will
determine whether this sweeping legislation becomes law, gets trimmed down, or
stalls altogether. CRE stakeholders are watching closely.
So, is this bill truly beautiful? That depends on where you
stand. For investors, developers, and brokers who appreciate certainty, tax
relief, and pro-growth measures—it’s attractive. For those relying on foreign
capital or green incentives—it’s a mixed bag.
Like any piece of sweeping legislation, the devil is in the
details. But if you work in commercial real estate—or if you occupy a building,
own one, or hope to invest in one—this bill deserves your attention.
Because love it or hate it, “beautiful” bills don’t come
around every day.
