Random Commercial Real Estate Advice
This post originally appeared on tBL member Allen C. Buchanan’s blog Location Advice
If you’re reading this, chances are you have some stake in commercial real estate. Otherwise, you’d be focused upon Mark Wicker’s review of the Laker’s roster.
What’s unclear is the vantage point from which your interest lies. As an example – our neighbor – Sam (name changed to protect the innocent) – is a retired project manager from a large SoCal general contractor. Expected in our driveway is an instant critique of Sunday’s topic – either Pulitzer worthy or what were you thinking?
I’ve received notes from many fellow brokers with whom I compete.
Still, others own or occupy commercial real estate with their companies.
Finally, there are readers who cash a check each month from the rent said occupants – tenants – pay them.
So this column is for you! All of you – by category of reader.
Sam. Your insights are amazing. Thank you! It means the world to me that you take the time each week to read my missives and instantly deliver an unvarnished review. I wish I possessed your encyclopedic knowledge of construction – and could frame it – no pun intended- in a way our readers would enjoy. I’ll keep trying.
Fellow brokers. The biggest opportunity for new business is with inactive clients. Notice I didn’t call them “past or former” clients. They are inactive because they aren’t currently transacting. But, are you certain? How long since you grabbed coffee or lunch with them. Make it a point this week to call all of them. You’ll be amazed at how much new business will surface.
Owners and Occupants. Chances are these past few years have been your company’s best ever. Good for you! Provided are paychecks for a multitude of Orange County workers. You are the lifeblood of our local economy. If you own and you’ve not taken a moment to value your commercial real estate – please do so. You’ll be astounded. If you lease, please review how much time remains on your contract. That smacking sound you hear is your landlord licking his chops – waiting to double your rent come renewal time. No lease you say? Hmmm. You’re vulnerable. Rent can be jacked. Your building can be sold. All manner of havoc can be created for your tenancy.
Investors. You had it rough from 2009-2012! Vacancy was rampant, tenants were scarce and you made any deal to survive. Now – the proverbial worm has turned. Rents have spiked, values have peaked and you’re approaching a lease expiration with your tenant. Your time – right? Just keep in mind. If you hit your tenant too hard – he may relocate. Cool, you say. I’ll just lease the building at the increased market rent – no problem. Yes, but – re-leasing your building is not free. Downtime, refurbishment, tenant improvements, abated rent, broker’s fees – all diminish the new rate you achieve. Please do this simple exercise. Assume a market rent and term you’ll strike. Total that amount. Then compute the cost to originate the new deal – using the categories above. Subtract cost from total and voila! What remains is the net amount you’ll receive – if your assumptions hold true. Now, compare the net amount with what your existing tenant is willing to pay you to renew. Hmmm. Maybe keeping him is a good idea after all.