The city of Fullerton is found in the northern part of California’s Orange County. Some 135,161 people currently live there. The city was founded in 1887 as part of the Atchison, Topeka, and Santa Fe Railway. For a long time, it was a hot spot for agricultural produce and development, particularly for citrus crops like Valencia oranges. Furthermore, the economy of Fullerton is driven by manufacturing, transportation, and petroleum extraction. Since its founding, therefore, it has been a town of significant industry. Currently, however, it is also strongly driven by education, with Fullerton College and California State University, Fullerton, being located here. The 10 biggest employers in Fullerton are California State University, Fullerton, St. Jude Medical Center, Raytheon, the Fullerton School District, Fullerton College, Fullerton Joint Union High School District, Alcoa Fastening Systems, Albertsons, the City of Fullerton, and Kraft Foods.
Commercial Buildings for Sale & Lease
Fullerton is very strongly based on industrial commercial real estate (CRE). This poses a number of benefits and a number of challenges at the same time. Industrial properties are, generally, very large in size. This makes it very difficult for small businesses, startups, and investors alike to purchase them. As a result, most industrial properties in the area are owned either by very large manufacturer, or by commercial real estate investment trusts (REITs). If you were to have sufficient funds available to purchase commercial buildings for sale & lease in Fullerton, however, it is still not a given that you should also do so. In fact, sometimes, renting is more financially viable.
Comparing the financial aspects of lease vs. purchase goes above and beyond the monthly expense on either rent or mortgage. Both have potential associated costs, both have different tax advantages, and more. Hence, before you decide which one is right for you, you need to understand the pros and cons of both options. The exception is if you want to invest, in which case purchase (either through mortgage or through REIT investment) is the only option available to you.
Commercial Property for Sale
Should you wish to invest in commercial property for sale, you need to be able to calculate approximately what you should expect to pay. Because the main CRE properties in Fullerton are industrial or office properties, and most of them are owned by large companies, very little data is actually available on what you can expect to pay. However, generally speaking, the trends in one city closely follow those of the state. As such, the trends for Fullerton or Orange County are:
- Multifamily properties in the county usually cost around $314,841.90, which is a 0.7% rise compared to the last three months, and a year on year 10.5% rise.
- Office properties in the county usually cost around $311.66 per square foot. This is a quarterly decline of 0.2%, although a 11.3% year on year rise. If you own office space, you can usually charge a yearly rent of $19.09 per square foot in Fullerton, which is a 2.7% increase over the past three months. However, it is a 12.7% decrease year on year. Those prices are significantly lower than in the county, metro, and state areas.
- Industrial properties in Fullerton usually cost around $132.74 per square foot, which has been unchanged over both the past three months and the past year.
- Retail properties usually cost around $408.88 per square foot, which has been stagnant over the past quarter. Year on year, however, this is a 14.5% rise.
Commercial Property for Lease
Leasing is the most viable option for small businesses and startups in Fullerton. Purchasing a property here is usually incredibly expensive due to the sheer size of the CRE that is available. When making a purchase, a down payment of around 30% is generally required, which is a level of capital most people simply do not have. Furthermore, if they do have that kind of capital available, they would often be better served by investing this in their own business’ growth instead.
Difference Between Leasing a Commercial or Residential Property
Leasing commercial real estate is very different from leasing residential real estate. First of all, you need to be able to identify the properties that are available, for which you need a broker. There are two types of brokers to choose from. The first is the leasing agent, who works mainly on behalf of the property owner. The second is the tenant broker, who works mainly on behalf of you. In most cases, the lessor pays for the broker, so it is recommended that you enlist the services of a tenant broker if you can. These may also want you to sign a representation agreement, meaning you don’t go to anyone else. You are not under obligation to sign this agreement, but doing so will usually give you a number of benefits.
Besides a tenant broker, you should also get a number of other professionals behind you. This includes an accountant, who can determine whether the offer on the table is financially viable, and a lawyer, who can check over the various legalities of your agreement. Put together, your team will also be able to go over the lease contract with a fine tooth comb, ensuring that the offer is as much in your favor as possible. Do not make the mistake, in other words, of accepting the first offer that is given to you, as this will favor the landlord greatly.
Make sure you negotiate on the following items:
- Whether you have to leave a personal guarantee and, if so, for how long
- What the monthly lease price is, and that this is based on usable square footage, and not the building’s square footage
- What type of lease is offered to you. Usually, you will be offered a percentage lease (for retail stores), net lease, triple net lease, or gross lease. Each has its own pros and cons.
- How long your lease will last, and what will happen at the end of the lease in terms of remaining in the property if you so wish
- How often the landlord can increase the rent, by how much, and which consumer price index this is based on
- Who will be responsible for the property’s maintenance. This is usually tied to your type of lease.
- Whether you can change the inside of the building and, if so, who will pay for that. Usually, if your lease is longer than 10 years, the landlord will pay for this as well as giving you a discount on the monthly lease amount for the duration of the renovations.
- Whether you can change the outside of your building to signpost your customers to your establishment
- Whether you can sublease the space to ensure your lease responsibilities continue to be met in the event that your business contracts or even goes under
- What the exit clauses, penalties, and fines are should you need to prematurely end your lease
- Whether you are able to transfer your lease with the same terms and conditions should you sell your business
- Whether there is a need for cooperative or competitive clauses, such as co-tenancy or exclusive use respectively
- How big your security deposit needs to be
As you can see, there are quite a few things to consider in terms of leasing. They are highly complex agreements between different parties, and you need to make sure that they are properly arranged. Should you purchase, however, you won’t have to deal with the majority of these issues. While you still have to contend with zoning, building codes, and local ordinances, you will otherwise be free to do with the CRE property as you wish.
Investing in a Commercial Building
Investing in CRE is a very good financial decision. It helps to diversify an investment portfolio, which is always a good thing, and real estate investment is seen to be a strong one, even if the markets change. This is because properties are always needed, be that to live in or to run businesses out of. While crashes do happen, as they did quite recently, they can often be ridden out, ensuring you continue to earn income. And, once the crash turns into a peak again, you should be able to sell at a significant profit.
Unfortunately, purchasing a CRE means that you have to have around 30% of the capital available as a down payment. This makes it very difficult for most people to actually do it. However, as previously mentioned, you could opt to invest in a REIT, which has a number of specific benefits. One of the biggest is that you don’t hold the landlord responsibilities when you invest in a REIT, which means you earn a completely passive income instead.
Whether you want to lease or purchase, you have to take the time to do your research and find the best option for you. Consider all the advantages and disadvantages before coming to a final decision. Your team of professionals should be fully involved in this as well.