In order to run a business, you need a building. Finding that piece of commercial real estate property is a long and complex process. And once you have found the property and you have spent many weeks negotiating every single point of your deal, you feel like you are ready to come to an agreement. The sale or lease document is prepared and is several pages long. All that remains to be done is for you to sign on the dotted line and the process will have been completed.
For those who want to be involved in commercial real estate, whether to run a business, use it as an investment, to be a landlord, or for any other reason, it is very important to have the right contacts. Indeed, networking is vital in any industry, regardless of the type of work you do, but you do have to network with the correct people. In the world of commercial real estate, you have to deal with lending, escrow, titles, architecture, construction, deeds, leases, and more. This means that your network has to include certain types of workers, such as accountants, lawyers, architects, construction workers, and so on.
If you are in the market for a piece of commercial real estate and you believe that you have found what you are looking for, it is time to make an offer. Sometimes, however, you receive no reply in response. This can be both frustrating and confusing, as it is hard to understand why a seller wouldn’t at least provide you with some feedback if they don’t want to accept the offer that you have made. There are a number of reasons why your offer may get ignored.
It has been announced that Bill Halford, the CEO of Bixby Land Co., died on February 26, 2018, at the Ronald Reagan UCLA Medical Center after battling a certain illness. Bixby Land Co. is based in Newport Beach and is one of the most respected companies of its kind in Southern California. Halford became the company’s CEO in 2006 and he was responsible for turning the century-old family-owned company into a real estate operator, developer, and investor. Halford was just 58 years old. Bixby Land credits Halford with achieving their vision of pioneering exceptional value.
Automation is an important tool of capitalism. Its overall aim is to reduce outgoings as much as possible, thereby increasing profits. Any business’ greatest expense is its workforce, which means that if cuts have to be made, this is where employers take a look first. Naturally, the workforce is also a business’ greatest asset, as nothing can be delivered without it. Hence, what companies now try to do is find ways to replace the human workforce with automated systems as much as possible. And it is working. It is known as digital disruption and it impacts every element of society, including commercial real estate.
The Bank of Southern California is an institution that has, as a community bank, helped businesses and individuals across Southern California meet their financial needs. Being a community bank, they believe in offering a personalized experience as they understand that any financial product they offer benefits the community as a whole and therefore also their own organization. The bank has become a true institution in the San Diego area.
There are always changes in the makeup of the commercial real estate market and what people are interested in. Self-storage facilities, however, have held steady and are now believed to be the most secure commercial real estate investment of all. Indeed, it is now a $38 billion industry. Recent research on self-storage units has shown just how viable this industry now is.
Progressive people in California have long complained that Proposition 13 contains a loophole. Specifically, they feel that those who own commercial real estate are unfairly favored compared to those who own residential real estate. The mainstream media has accepted that there is a loophole in Proposition 13, but it seems they have not researched what it is at all. In fact, real experts agree that Proposition 13 is solid and has been since it was first implemented.
Under Proposition 13 tax reform, property tax value was rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold. Once sole, the property was reassessed at 1% of the sale price, and the 2% yearly cap became applicable to future years.
The Orange County commercial real estate market, like all other markets, fluctuates. Sometimes, investors should build, but at other times they should rest. This year, it seems that Orange County is an area for construction, particularly for light manufacturing, distribution, and warehouse properties. This is according to this year’s Mansfield Commercial Real Estate analysis.
Orange County, NY’s total inventory of prime industrial space increased to 22.5 million square feet as of year-end 2017. The amount of space that was added to inventory in 2017 exceeded 1.3 million square feet, the most for the County in at least two decades.
The vacancy rate for industrial spaces, meanwhile, dropped from 4.9%, already low, to just 3.3%.
Why Developers Love Orange County Commercial Real Estate
Many developers love Orange County because of how connected it is to highways and other forms of infrastructure. This is why heavy investments are being made in industrial properties. Developers and investors alike feel the market will become even more tight across 2018.
One recent development was completed by Matrix Development Group, who constructed an industrial warehouse in Orange County that is now shared by Amscan, one of the largest distributors and manufacturers of party goods in the country, and AmerisourceBergen, one of the largest pharmaceutical distributors in the country. Meanwhile, companies such as Aurorchemicals have also moved into the area. They stated that access to airports and highways, the welcome from local politicians, and support from the Orange County Partnership were driving factors in their move.
From site selection assistance, financing options, and employment training to marketing, the Orange County Partnership is your premier (no-cost) resource for economic development support.
Development Trends in Orange County Commercial Real Estate
In 2017, the focus was more on build to suit properties. Indeed, 80% of all square feet in Orange County are made up of such properties. This trend is also set to continue. The aforementioned Matrix Development Group wants to redevelop a property to turn it into a 1.2 million sq/ft distribution center. The land they have eyed for this was originally earmarked for the Ridge retail project but this failed and was abandoned by the developer.
The developer proposing to build a 700,000-square-foot retail, dining and entertainment complex on Route 300 in the Town of Newburgh officially announced it is abandoning the project, two months after the Newburgh school board rejected a 20-year tax-break deal.
While abandoning this project was a significant blow, not in the least due to the loss of potential jobs, it was almost instantly decided that the land could serve other purposes and it seems such a purpose has now been found. There is huge confidence in the market and developers like Matrix, including Frassetto, are rapidly meeting demands.
In 2018, Bluewater Industrial Partners aims to develop a 1 million sq/ft warehouse where routes 17K and 747 intersect in Montgomery. Just last year, a similarly huge property was developed in the same area, which is now the FedEx Ground Distribution Center. Last year, only the Matrix Business Center and the McKesson’s project were larger in 2017.
The year 2017 also saw the expansion of Steris Corp’s Chester. About 60,000 sq/ft was added to the building and is now used to disinfect medical supplies. People continue to have confidence in the market and there is even a concern that some businesses have to be turned away from Orange County simply because there is no space.
Indeed, even smaller stores, such as internet distribution companies and ready-made meal developers are looking for space in Orange County. So far, they seem particularly interested in a Sol Eckstein development, who will offer a triple-net lease at $7.50 per square foot.
Investors know that there are vast opportunities in Orange County commercial real estate and that it’s a market that will continue to thrive. Therefore, it’s important for investors to keep the city of Orange County in focus when considering places to invest.
Since the end of the recession, values of industrial properties have doubled. In fact, they have grown by 11% since April 2017. Compare this to the commercial real estate market as a whole, where there was a 1% decline, and it quickly becomes apparent where the money is. This is according to a recent report by Green Street Advisors, based in Orange County.
Ecommerce is a disruptor that has proven to have a revolutionary impact on retail, creating strong headwinds as companies work to rationalize their physical store footprints. On the flip side, industrial properties have greatly benefitted from the proliferation of online shopping.
Orange County is known for its low vacancy rates in residential properties, but its warehouse properties have even lower vacancy rates. In fact, there is a shortage in industrial properties, particularly in warehouses across the region. Anyone interested in manufacturing, logistics, operations, or any form of warehousing will struggle to find something. And it seems that the key reason for this, as highlighted in the Green Street Advisors report, is online shopping.
Online Shopping and the Commercial Real Estate Industry
Because so many people now shop online, warehouse needs have changed tremendously. In the past, retail outlets were the owners of the majority of consumer goods. Today, however, all that is different. In fact, according to one report, online shopping was up 16% in 2017 alone.
In the fourth quarter and in 2017 as a whole, U.S. online retail grew faster than it has since 2011. E-commerce represented 13% of total retail sales in 2017 and 49% of the growth.
Warehouses have had to be redeveloped so that they were able to store things to be distributed not to retail stores, but rather to people’s homes. Not just that, consumers now expect to receive their orders in a hurry, often even on the same day. The result is that there is a need for warehouses in all metropolitan regions of the country.
Supply Unable to Keep Up with Demand
As is usual in real estate, it seems that demand has by far outpaced new supply. Hence, those in need of properties can no longer make demands in terms of where or what they are looking for. Rather, they have to take whatever is available. This is also seen in a shift in focus of real estate acquisition companies such as Bixby Land Co., who now focus more strongly on warehouse properties.
Bixby Land Company targets the acquisition of institutional quality industrial properties in California and select Western U.S. markets. Industrial investments are focused on high quality warehouse and distribution buildings in major West Coast markets.
The numbers across Southern California are impressive:
1. Los Angeles County is home to 800 million sq/ft of industrial space. They have a vacancy rate of just 1.4%. A further 2 million sq/ft is currently being constructed. According to experts, this shortage is likely to lead to a 9.5% increase in rental rates. The latest big leases in this area include Tempur Sealy, Fashion Nova, and Glenair Aerospace.
2. Inland Empire is home to 520 million sq/ft and has a vacancy rate of 3.7%. A further 21 million sq/ft is currently being developed. Last year, rents rose by 26% and it is expected that they will rise by at least another 8%.
3. Orange County is home to some 200 million sq/ft and has a vacancy rate of 2.4%. Additionally, a further 1.2 million sq/ft is currently being developed. Over the past five years, rents have grown by 7.6% on average each year and this is expected to be 4% this year. Engineered Floors, Shindoa Design Center, and Volcom are just some of the new big leases.
State of the Art Developments for Warehouses
Additionally, there has been a significant change in need when it comes to warehouses. No longer are businesses happy with a simple rectangular area with a lot of height. Rather, they require all kinds of state of the art technology for improving their operations.
Developers and investors are so confident of market growth that some have been getting involved in new constructions that are known to be ‘speculative’. This means that they have not yet found a tenant at all but that they are so sure they will be able to secure tenants in the future that they are more than happy to invest millions in new constructions. This is also due to the fact that warehouse design has gone through significant changes, meaning that modern and new facilities are likely to be in big demand.
Warehouse design has changed a lot in recent years, as large distribution centers (DCs) have moved away from single channel to multichannel inventories and even smaller warehouses have begun to automate many operations.
It is common to see clients looking for facilities that are much taller than ever before. In so doing, goods can be stacked with ease. Since forklifts are no longer a requirement with robots now doing most of the job, having higher buildings is much more feasible. Indeed, automation of most processes has led to significant changes in design.
It is also vital that all warehouses have proper electricity supply. Not just that, but businesses mus also look for sustainable supplies to reduce their environmental impact. Additionally, they require more extensive parking bays so that the distribution trucks have direct access. Lastly, they need increased security to keep all their goods safe.
Is the Increase in Prices for Warehouses and Industrial Properties Justified?
The question is whether it is justified that these types of properties have truly soared in value. Rents continue to rise in order to meet that increase in value. With Green Street Advisors reporting that there has been a doubling in the value of commercial industrial properties since the recession ended, it seems that the need, if nothing else, is not artificial. Where there is a demand, there needs to be an appropriate supply.
Naturally, things will have to slow down eventually. There will come a point where all online operations have been able to find the warehouses that they need. Until then, however, these once believed to be boring investments will continue to pay off.