3 Considerations for Making a Real Estate Decision

Making a real estate decision can be an exciting time, especially in today’s market.  For Buyers/Tenants, there are opportunities that a new facility provides, such as a better location, improved amenities, or utilizing a more efficient layout.  Selling or renting an owned property can dramatically improve your cash flow situation.  In today’s market there are other factors that must also be taken into consideration when deciding on renting, buying, or selling.  Let’s briefly look at three (3) considerations when evaluating your decision.
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1. Why
2. Where
3. What

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​First, why are you making a change? 
Urgency, necessity, or opportunity….   How does this affect you? 

1. At the outset, knowing the Urgency of your decision will help set your pricing expectations.  In general, the more urgent party is the one more likely to pay more if renting or buying, or accept less if selling or leasing.
2. Closely tied to urgency is Necessity.  Is making this decision being imposed upon you for some reason, either in the immediate or not too distant future?  If so, make sure to work with a real estate advisor that understands your situation but who is also careful not to disclose too much information to the other party so that you can maintain your leverage in the negotiation. 
3. After urgency and necessity are considered, there is Opportunity.  For Buyers, interest rates are still at historic lows, although rising, and lower interest rates equates to lower cost of capital, allowing you to maximize your leverage and buying power.  For Sellers, as prices have significantly rebounded from market lows, now you can realize that appreciation (consult your accountant).  Furthermore, if you want to sell and realize the gains but do not want to physically move from your existing facility, consider selling and renting back the same property in a sale “lease-back” mechanism.

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Secondly, where are we in the Market Cycle?
Despite an overall long-term trend upward, real estate markets generally reach peaks and valleys approximately every 7-9 years.  By many economists’ perspective, we have been trending up since around late 2009 or early 2010.  In either estimation, we are certainly near a peak, but deals must still be done.
Therefore, how does the current Market Cycle affect your deal?

1. If looking at selling or leasing your property in the next 12-18 months, now is the time to do that.  Consider how a 10-15+ % correction (reduction) would affect the value of your property. 
2. If looking to purchase a property, make sure to have a long-term outlook, not a quick “flip” strategy.
3. If looking to rent (tenants), consider negotiating some flexibility.  For example, a shorter term lease with options to expand, extend or purchase.

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​Thirdly, what is the Availability and Choice?
Presently, in the industrial real estate market in southern California, availability and vacancy are very low (less than 1.5%), and new construction of large buildings is underway, but overall choices are few.   Recognizing the availability and options will help you to choose your next steps wisely.  So how does this affect you?

1. For starters, buyers and tenants need to consider a wider geographic area to find more suitable alternatives, or be willing to wait.  
2. Secondly, renting, rather than buying, can generally provide more flexibility and options for business owners looking into the future.
3. Thirdly, renegotiating and extending your tenancy (lease) at an existing location is an option that will enable you to postpone your decision until more choices become available or market conditions soften.

 
Contact  Christopher J. Destino  of the Destino Industrial Team to help evaluate your scenario and chart a course to accomplish your goals.