Over the past three to four months one big question continues to present itself: “what is the value of my property now and in the future?” One definition for value is “the importance, worth, or usefulness of something.” When considering real estate, usefulness is good to know, but people really want the specific monetary amount the property is worth. Well, in most stabilized markets, present value or worth is generally determined by looking at the recent sales comps, adjusting for the unique features present or absent at your property, discounting cash flows, and then allowing offers to materialize which validate (or invalidate) the seller’s price expectations. However, the reason so many people are asking lately is because we are in anything but a ‘stabilized market.’
Recent events across the globe and in the United States have sent many property owners and managers scrambling.......
As we continue to consider the impacts of the COVID-19 pandemic and subsequent economic shutdown, let’s turn our attention to the area of heavily improved industrial buildings, those with greater than 5% to 10% office build out. Many companies presently doing a property search and comparative analysis with their Broker/Agent have now realized that while their warehouse requirement has remained, the office size portion of the requirement has diminished. Companies are finding office employees can do much of their work from home. This holds true for office employees in warehouse buildings as well as high rise office towers.
So, what can a company that is looking for space do when an available building provides essentially everything that company needs in a facility but has too much office? Conversely, what can a landlord do when a tenant will not offer or move forward on their property because the tenant does not want to pay for extra office they will not use.? Answer: (i) Have the Landlord remove the unneeded office space if that does not reduce the total building square footage, or (ii) Discount, or back out, the unneeded office space from total rent calculation (see below example).
I hope this note finds you well, healthy and safe with your family. I understand these are hard times and my sympathies are with those who have been adversely affected by this Corona Virus and subsequent economic fall-out. I hope you and your loved ones are safe and sound.
On the real estate “big picture,” industrial property is still well positioned compared to other asset classes. The demand for higher stockpiles of essential goods and medical equipment coupled with the probability of a manufacturing renaissance bringing production of those goods to USA manufacturers further helps the long-term outlook for industrial property. This will help protect the higher values industrial property has achieved over the last several years.
With the rapid changes the world has seen in the past few weeks, businesses are scrambling to adjust as we go through the uncertainty which accompanies what is being called ‘a global pandemic.’ While we hope the current health scare runs its course quickly, the lasting effects on businesses will be felt for at least the balance of the year. While the long-term impact remains uncertain, in the short run businesses are already asking the questions associated with covering their overhead for the next 30-60 days: where will that money come from? One potential source of additional income may be.........
After working with many investors, the conclusion is generally “no.” While the Cap Rate, is an important barometer when evaluating options, there are other significant factors that investors must look at when making selections.
Let’s look at several here:
2. Building Characteristics/Features
3. Credit worthiness & history of the tenant
4. Cost Basis and Market Rent
5. Upside Potential or Value-Add
READ THE BREAKDOWN OF EACH BELOW
Does it make sense to look at Industrial or Multi-Family Apartment property? Over the years you have built up equity in one property you own or cash on the side to now invest in real estate, or more real estate. You have been told real estate is a great investment, you’ve possibly experienced it, and the idea of building or adding to your portfolio has been attractive ever since you played Monopoly.
Now it is time to deploy that cash or equity you’ve built up. So, what do you look at for investments? As this decision draws near and the excitement builds, one thing continues to get your attention:
Christopher J. Destino of Lee & Associates Commercial Real Estate Services recently represented Royal Plaza Textiles in the acquisition of this high quality modern industrial facility. The buyer is planning to relocate from La Mirada to Corona to continue their textile and linens distribution business. After two plus years of searching and negotiating, the family, with the help of Christopher and his team, found and secured this opportunity to purchase the 80,000 SF concrete tilt-up building in an Off-Market transaction. The property features 26' clear, 16 dock doors, and approximately 6,000 sf of recently renovated office area.
Buzz on the Street
Whether a large portfolio or individual property sale, industrial buildings in Southern California continue to trade at high price levels. Furthermore, opportunistic owners or sellers continue to push values for properties they will sell if they can “get their number.” But the buzz on the street from Buyers (and Tenants) resembles a more cautious optimism. While still optimistic about future growth both in their business and in long-term property values, Buyers and Tenants are seeing some flattening in the price appreciation curve and are less willing to aggressively chase deals by repeatedly increasing their offering price. Quality industrial property in convenient locations still receives strong interest from the market, but there may not be three (3) or four (4) serious qualified buyers at the table, as we have experienced over the past few years, especially on offerings pushing the upper limits on price.
Christopher J. Destino, SIOR, a Principal at Lee & Associates, is an engaging, responsive professional who enjoys working closely with his clients and helping them succeed.