Categoria: commercial real estate

I delivered a presentation to a sales team of material-handling specialists last week. Why you may wonder?

Two reasons. First, I’ve transacted 19 deals all over the Western United States with the president of this organization since 2009, so we’ve grown together. This was one way of giving back to a group that’s been very kind to me.

Secondly, we work closely with their sales team in assisting them to execute deals. The better they understand our world, the better we both benefit.

Some of you reading this column are commercial real estate practitioners. Others of you own or lease commercial real estate and pick up tidbits along the way. Still, others may be considering the field as a career or a way to supplement their income. Regardless, of your vantage point, I believe you’ll find value in today’s topic.

Let’s center the column on three of the four topics discussed: CRE brokers and how we’re defined, paid and why you should care.

What are CRE brokers? Simply, commercial real estate brokers assist owners and occupants of commercial real estate in finding buyers or tenants for vacant buildings.

Commercial real estate companies are generally local, regional, national or global, determined by the reach of their brokerage. These firms service a certain geography through their network of agents.

Additionally, most firms find their agents on either or both sides of the transaction – representing the owner and/or the occupant. “Dual representation” describes an agent on both sides of the deal and is a much larger subject I’ll reserve for another day. However, there are companies that specialize in tenant or buyer reps. As a service provider seeking relationships with us, all of these elements are important to understand.

So, how are we paid? Full commission, no salaries or bonuses and only when we transact.

Yes, we can spend days, weeks, months or years on initiatives that never pay us. Unlike those with salaries or hourly service providers such as CPAs or attorneys, our profession “eats what it grows,” or so they say.

And what about the deal, you may be wondering.

We enter through the C suite, in many cases, dealing with the president, CEO, CFO or the COO. This gives commercial real estate practitioners a view from the top, as opposed to some service providers who must begin with a warehouse manager or a purchasing agent.

Because we start in the C-Suite, our engagement is recommended by the boss, and in most instances, we don’t have to compete.

We are the arbiters of change. Generally, the involvement of a commercial real estate broker is preceded by some sort of transition. Whether it’s a death, a divorce, a massive debt that must be repaid, some distress, a dissolution of a partnership or a disposition of the company, our job is to assist a company in navigating these transitions.

We are upstream from most relocation decisions.

By this I mean, we must network with trusted advisers, so that we are in the best position once a transition occurs.

Business attorneys, CPAs, commercial, insurance, brokers, investment, bankers, business, bankers and wealth advisors are all included. They often will see a transaction before we do. But, we are in front of all those that must rely on a transaction to occur such as contractors, escrow, agents, architects and the like.

Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com.

Occasionally, I’m asked how I get column inspiration. For me, it’s a combination of reporting on macro trends in our industrial real estate market, advice I give my clients, issues that have arisen in transactions and happenings with the business owners I counsel.

Sometimes, a column idea falls from the sky — which happened today.

Allow me to set the stage. I received an email from a client who recently relocated his business to a smaller, leased location. The previous business address is owned. When my client vacated his premises, he leased it to a neighbor. His plans, in the near term, are to move to a bordering state.

Continuing to manufacture from real estate in California would create an undue tax burden on the income received vs. selling the California asset and redeploying the proceeds into a leased building in a tax-friendlier state. Thus, his motivation to sell.

My client asked what considerations should be given for the framework of the lease agreement, allowing for marketability and security.

Below is the advice I offered.

The lease should reflect a market lease rate or as close as he can get. Value is a return on this rent. Consider swapping a couple of months free to get a higher rent figure.

Build in sufficient annual rent increases. Most leases are written with 4% annual bumps these days.

All “purchase rights” options such as rights of first refusal and rights of first offer should be eliminated.

Make sure the tenant is responsible for all property tax increases when the property is reassessed after a sale.

The AIR Single Tenant Net Lease is widely used to document the deal. It’s common and most investors are familiar.

Most investors want relatively new roofs and HVAC units. Under a NNN lease, your tenant is responsible for maintenance and repair of these items but replacement is the owner’s responsibility, which can then be billed to the tenant monthly over 12 years. So, consider replacing these before any sale.

These days a five-year lease is a minimum. Seven to 10 years is much better, especially if you have the 4% rent increase kickers.

Finally, credit of the tenant is huge. You’ll want to have two years of profit and losses, balance sheets and corporate tax returns on hand. I’d also see if the principals would personally guarantee the lease to add a layer of security.

Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com.

The new rage is ChatGPT, a free research project by OpenAI.com.

Microsoft is making a huge investment in the technology.

Are you unfamiliar? Ask a question or make a request and the app spits out a string of text that some (ahem) would consider column-worthy. What is in fact column-worthy is the potential impact machine learning can have on our industry and the ways in which agents will use it.

Let’s face it, for content creators, this can be a game changer. As an example, I asked ChatGPT to write five tweets on the state of the industrial market in Orange County. Fifteen seconds later – here’s what I got:

1. Orange County’s industrial market sees strong demand with low vacancy rates and rising rental prices. #industrialrealestate #OrangeCounty

2. E-commerce growth drives demand for industrial space in Orange County, leading to new developments and expansions. #ecommerce #OrangeCounty

3. Orange County’s transportation infrastructure, skilled workforce, and proximity to LA make it a prime location for industrial companies. #OrangeCounty

4. Orange County’s industrial market continues to attract investors and companies looking for a strategic West Coast presence. #investment #OrangeCounty

5. Orange County’s industrial sector sees a surge in creative office conversions, appealing to tech and creative companies. #creativeofficespace #OrangeCounty

Next, I asked Chat to opine on the effect of Assembly Bill 2011 on housing. The resulting stream looked like this:

“AB 2011 is a California state bill (Assembly Bill 2011) that went into effect on January 1, 2022 and aims to increase housing affordability by providing funding for affordable housing projects through the creation of a new tax credit program. The bill’s impact on housing is to increase the availability of affordable housing units by providing incentives for developers to build and preserve affordable housing. This is expected to address the state’s housing affordability crisis and help low- and moderate-income families access safe and affordable housing.”

Finally, my column on Proposition ULA and the changes in transfer taxes created quite a stir among my readers. I asked Chat to have a go:

“I’m sorry, but I don’t have information about a specific “Proposition ULA.” It’s possible that you may have misspelled the name or that it refers to a local or regional initiative that is not well-known. To obtain more accurate information, I recommend checking local news sources, government websites, or consulting with a local expert or professional.”

Based on this – I might still have a role as a contributing columnist.

My immediate reaction to all of this was attribution, plagiarism, commercial use of the data and so on. I’ll leave this to those much smarter than I. But it’s pretty cool and gives a glimpse into the future of content creation.