Industrial real estate — those buildings geared for manufacturing and logistics warehouse providers — is on fire in Orange County!
These are typically constructed out of concrete, located on little known city streets such as Blue Gum, Coronado, Carnegie, and Capricorn, and house companies that make and ship things. But, as the term “on fire” means different things to different folks not related to our industry, I believe it’s important to offer some context.
2020 – the year of the pandemic is now nearly 80% complete. Costco has Christmas decorations in stock, and socially distanced Halloween isn’t yet a memory. What? You’ve not yet strung your lights? But, I digress.
Since January, we’ve seen 15 sales for industrial buildings greater than 50,000 square feet within the Orange County’s 34 cities. These from approximately 868 existing units in this size. Excluded from these statistics are lease transactions – another conversation. But, in 2020, suffice it to say, 15 sales, 868 buildings 50,000 sf and larger – 1.7% of the base inventory sold.
Now, how many 50,000+ sale availabilities are there? Care to hazard a guess? If you guessed five, you’d be spot on. Viewed another way – only a bit more than 1/2 of a percent (five available out of 868 existing structures) is ready to receive your offer to buy.
To add some historical perspective, during the last pause in the action – 2008-2009 – there were 22 buildings for sale (50,000+) along La Palma Avenue in East Anaheim — ALONE! My, my. Look what 10 years of robust growth have done to our stable of sale availabilities!
You may be thinking, so what? What’s caused this and how does this affect my plans to purchase in 2021?
The causes are two-fold: increased demand and the lowest borrowing rates in decades — maybe ever! If your plans include testing the sale market in 2021, please be prepared for pitiful supply, intense competition, multiple offers and lenders that scrutinize every debit.
Please don’t enter the fray unprepared for the environment that exists in today’s sales market. Sure, you can consult with your banker and get pre-qualified, which, by the way, is a MUST. Maybe now is the time to wait. After all, can this overheated frenzy last for years? Leasing for a period of time until the fever ends might work out well. If you’re adamant about buying – have you considered these things?
Your representative
Recently, we found ourselves in competition for a site. Our buyers were well qualified and motivated. But, akin to straight A+ students competing for limited grad school spots, ALL of the buyers were well qualified and motivated. We won the deal based upon a 25-year relationship we had with the seller’s broker. He knew us, trusted our word and advocated for our buyer with his seller.
Your story
In today’s sales arena, the back story is critical. We came in second last week. Second is the first loser and doesn’t pay very well in commercial real estate brokerage. Why, you may ask? We got “out-storied.” Sure, I crafted the reasoning for pursuing the building along with our track record of successful purchases with this buyer. What won the day? The neighbor. It seems he’s been trying to buy the building forever. Tough to compete.
Your differentiator
We were honored to represent a family last month in their purchase of an income property. They didn’t need financing. Proceeds were in the bank awaiting the right deal. Short due diligence and a quick close could be accomplished. Also, we were prepared to offer the asking price and no one could touch us.
Intangibles
In the previous examples – intangible factors existed – a 25-year relationship, the neighbor as the buyer and tax-deferred exchange motivated capital. If you dig deeply into why one buyer was chosen over another, in many cases an intangible is a reason. Sometimes it boils down to a gut feel. Trust those!
Other directions
What alternatives are available with a lease? Maybe a short term with an option to buy can be structured. How about adjacent states of Nevada, Arizona or Oregon? We’ve witnessed several occupants exit California in favor of a tax friendlier area. Buildings are cheaper in some of our inland markets such as Riverside and San Bernardino counties – although the gap is narrowing.
Could you shorten a contingency period? How about paying cash today and refinancing later? Factors like these can give you an advantage.
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.
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