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Commercial Real Estate

How Technology Impacts The Commercial Real Estate Market

Technology has an impact on commercial real estate

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 real estate industry is already feeling the effects, as technological advances are rapidly disrupting the conventional ways that people live, work and shop. These advances will have a profound impact on all real estate asset classes, from office buildings to shopping centres to warehouses. In an age of disruption, no real estate is immune.

So will commercial real estate brokers find themselves obsolete, replaced complete by technology? Eventually yes, but it looks like there will continue to be a need for human intervention in the immediate future. Perhaps a good place to see this in action is across Orange County, where modern technology is often accepted with open arms.

Why Tech May Not Be Able to Replace the Broker

Commercial real estate brokers will tell you that each parcel is different. Perhaps they are working on two retail properties in the same city, with the same square footage, yet the value would be very different. This is in part due to the fact that commercial leases are negotiated on by people, which means agreements always end up being different.

There’s no standard agreement for commercial leases. In fact, negotiating the terms of commercial leases is usually expected. Depending on the state of the commercial real estate market, a business may be able to obtain significant concessions from a landlord. A property owner with a largely vacant business park, for example, will most likely make allowances.

There are numerous factors that can make one property seemingly worth more (or less) than another. Perhaps it has been leased below value for a long time due to a special arrangement between the landlord and the tenant. Or perhaps one of the two properties has recently improved its plumbing system. Those are all unique factors that influence price points.

Furthermore, the way commercial real estate businesses, not just in Orange County but across the nation, share their data is unique each time. This is because there are different services to choose from, most of which are on a paid subscription basis and most of which are not customer facing, which means each broker makes different decisions. The only reasonably constant service that brokers can sign up to, and also one of the only customer-facing ones, is LoopNet.

LoopNet is the leading mobile and online real estate marketplace that connects tenants and investors to commercial real estate available for sale and lease.

LoopNet is an excellent service, which is why it is one of the leading providers in the country. However, the listings are still quite minimal, particularly if they are compared to residential listings. The reason for this is that all residential real estate brokers must share their data by law with realty boards that aggregate all of the available properties, so consumers never have to miss out on a property.

Another important reason why brokers are unlikely to be replaced by tech any time soon is because the transactions involved in this sector are hugely complex. For years, attempts have been made at standardizing the way a lease or sale is created, but this is seemingly impossible. With variables such as environmental evaluation, tenant improvements, title issues, city permitting, tenancy, financing, contingency periods, and more, it seems impossible to automate everything. That said, a good attempt has been made by Ten-X, which was able to automate the marketing of a sale and its execution, but continues to require listing brokers to do their work.

Ten-X has completely revolutionized real estate, empowering people to safely and easily buy and sell residential and commercial property whenever they want to and from wherever they happen to be. It’s the only real estate platform that allows buyers, sellers, and real estate professionals to search, list and transact properties completely online.

Commercial real estate transactions are related to leases in 75% of cases, and there are currently no services that have been able to automate even the marketing element of this in full.

Despite efforts to use technology to replace human transactions, commercial real estate deals have to follow a number of steps that tech simply cannot perform at this point in time. These steps are sourcing, locating, qualifying, controlling, creating, and billing a deal, after which payment is received. Today, technology seems to only be able to take over some of those steps, but not all of them. Perhaps this is because there is one thing that technology will never be able to have, and that is an instinct about the local market.

Why Tech May Soon Replace the Broker

At the same time, it is important to understand that overarching businesses want to cut out the middleman. The middleman – the broker – costs billions overall, and there are substantial savings that can be made by eliminating that person in the equation. Sooner or later, some developer will be able to figure out how to replace brokers. Unfortunately for the broker, it feels like that the time has almost arrived. CoStar, for instance, has made it possible for deals to be completed globally. LoopNet has created a consumer portal and Ten-X allows for auctions of distressed properties without external involvement.

One quick look at how the residential real estate market is moving, and it becomes clear that the commercial real estate market will soon follow suit. Almost every element of the residential deal has now been automated and the agent workforce is dwindling as there is less need for their skills. People no longer have to speak to realtors directly about properties because they can simply go online.

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Commercial Real Estate

Bank Of Southern California Moves Further Into Orange County

The bank of southern california moves to Orange County as it expands due to success

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.

As a local community business bank, we are dedicated to providing you with a personalized banking experience. Our team of knowledgeable, solution-driven bankers work with you one-on-one to help you achieve your personal and professional financial goals. We are committed to providing our local businesses and individuals with the personalized banking solutions that they need to achieve their goals.

The bank has been doing so well that they have started to expand further into Southern California. With this move, they specifically aim to have a greater reach into Orange County as a whole. To achieve this, they have attracted new members of staff in the person of Sam Tuyen and Stephen Whang.

Sam Tuyen is taking on the role of Vice President of Commercial Real Estate and SBA Lending. He is highly experienced in this and knowledgeable of Orange County, having come from CDC Small Business Finance in Orange County, where he was the Senior Commercial Lender.

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With 20 years of experience under his belt, Mr. Tuyen is set to become a key asset of the company. He is also truly local, having obtained a business management and economics degree from the University of California in Irvine.

Meanwhile, Stephen Whang will take on the position of Vice President, Business Development Manager. He will hold responsibility for making sure that the financial needs of entrepreneurs and businesses in both Los Angeles and Orange County as a whole will be met. Like Mr. Tuyen, Mr. Whang has a wealth of experience behind him, with a background in relationship management and business lending. He has been in the industry for over 15 years, helping businesses across Southern California become successful. Before his position with the Bank of Southern California, Stephen Whang was with the Bank of the West.

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Similar to Mr. Tuyen, Mr. Whang is also a true California native, having obtained his bachelor’s degree at the University of California, Los Angeles. The appointment of these two financial bigwigs has even been reported on in Coleman Movers & Shakers, who quoted the bank’s Executive Vice President and Chief Banking Officer, Tony DiVita.

We are extremely pleased to have these outstanding bankers join Bank of Southern California. They bring a comprehensive understanding of the Los Angeles and Orange County business community, and they both offer a wide range of expertise that will enable us to best serve the financial needs of business owners, entrepreneurs, and professionals in those markets.

The Bank of Southern California has gone from strength to strength over recent years. Being able to attract experts like Sam Tuyen and Stephen Whang is a testament to that. The bank builds relationships with each of its customers across its seven different branches and Orange County production office, setting themselves apart as members and integral parts of the community as a whole.

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Commercial Real Estate

Self-Storage – The Latest High-Earning Commercial Real Estate Investment?

Investment Opportunities in Self Storage Investments

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.

The national average cost for all unit sizes is $91.14 per month, according to SpareFoot data.

The data also shows that 9.4% of Americans now rent self-storage spaces and that 74% of these spaces are owned by small operators. Various other financial researchers have looked into the business of self-storage. Bloomberg reports that the industry earned $32.7 billion two years ago, while IBISWorld reports that the industry employs some 144,000 people all over the nation.

Growth Indicative of General Trends in Real Estate

Experts agree that this growth is reflective of the general real estate and demographic trends. People have moved into the Sunbelt cities away from the Northeast and Midwest. Millennials want to live in downtown areas, where properties are small. Baby boomers are downsizing but want to keep hold of their memories. Businesses stockpile inventory and need to keep it some where.

The result has been a construction boom and particularly in the world of self-storage facilities.

While retail chains go belly up and hedge funds place bets on commercial mortgages used to finance dying malls, the mini-warehouse industry has set records for construction spending in each of the last six months.

Developments in Shopping

The world of shopping is changing as well. People look for convenience and want to shop on the go. This has increased the availability of online shopping, but also the world of drive through shopping. Once huge and popular malls have now been turned into self-storage areas, some of which operate somewhat as shops as well.

However, there is also some concern around this industry being inside a bubble, and that the bubble is going to burst. This is particularly true in areas such as Orange County, where the overall commercial real estate market has only been growing and it must at some point come to an end. It also seems that, finally, the American dream has changed and people no longer want to own as much stuff. In other words, they may soon have no more need for self-storage spaces.

Is Self-Storage Unstoppable?

Self-storage has been around for a very long time. In 1891, Martin and Josh Bekins founded a moving company to help people move to Los Angeles, developing a huge concrete and steel warehouse for them to store their belongings in, which opened in 1906. In 1964, the first true self-storage solution, as we know them today, was opened in Odessa, TX, targeting oilmen in particular. As the oil industry in the area changed, the facility eventually closed down. However, in 2013, it was purchased, renovated, and opened again as a self-storage facility.

The Great Recession saw a huge increase in the number of people needing self-storage facilities. Homes were foreclosed and people searched for places to store their belongings. In urban areas, in particular, including in Orange County, there has been a huge increase in demand for self-storage. At the same time, a slow down is now expected.

A flood of new supply is crimping growth in the self-storage sector. The party is coming to an end in the self-storage business.

That being said, some areas still see up to 90% occupancy rates at their facilities and the rental rates can be two or three times higher than other types of commercial and residential properties.

Self-Storage Facilities Still a Good Investment Despite Predicted Slowdown

Despite the upcoming slowdown, self-storage remains a good investment. One reason for this is that people who sign up for a facility, just as people who sign up for the gym, forget about it and simply keep paying even if they don’t use it. Furthermore, if they do use it, they are often willing to pay more incrementally each year, because they don’t want to go through the hassle of moving all their belongings between storage facilities.

The key question is whether the market is now saturated or not. Some areas across the country, including New York City, have now placed a limit on how many more new self-storage facilities can be established, and how many existing spaces can be converted in an effort to encourage more manufacturing and industrial use instead. It is not clear whether areas like Orange County will follow suit, although it is not unlikely.

Investors see abandoned malls as a candidate for conversion into self-storage consumer cubby holes, a true full circle of consumerism.

Over the next few years, baby boomers will continue to downsize, which means they will likely continue to require storage spaces. However, younger adults, are delaying the things other generations have always done, particularly settling down and starting a family, which means there is less requirement for properties in suburbia. It also means there is less demand for accumulated stuff. Put together, this will translate in less demand for self-storage as well.

Expected Impact of Upcoming Technological Innovations

Furthermore, the world is changing, and with every changing development, other demographics alter as well. In Orange County, for instance, there has been some research into the potential impact of autonomous cars.

The coming revolution in transportation will be a game-changer for real estate. At the sector level, high-quality infill malls with densification opportunities should be the biggest beneficiary. Implications are likely unfavorable for self-storage, billboards, transit-oriented residential, and commoditized retail.

At the same time, there are those who believe that the self-storage industry, which has done nothing but grow for the past century or so, will simply continue to do so. Investors say that the next financial crisis is only just around the corner, which will once again drive demand. Furthermore, in areas such as Orange County, there has been a lot of interest and investment from Asian markets, particularly China, and those investors often require storage spaces for their items and belongings, which will have a positive growth impact.

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Commercial Real Estate

Does Proposition 13 Favor Orange County Commercial Real Estate Investors?

California Proposition 13 Help or Hurt Commercial Real Estate Investments

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.

Tax experts agree that the Proposition does not have a loophole. What it does have, however, is a degree of ambiguity. Specifically, the ‘change of ownership’ regulations are quite confusing and can be misconstrued. However, this could quite easily be resolved if a statutory amendment was made that would not alter the rest of Proposition 13. This is a change that the Howard Jarvis Taxpayers Association (HJTA), as well as the business community, are now pushing for.

The Howard Jarvis Taxpayers Association is dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights, including the right to limited taxation, the right to vote on tax increases and the right of economical, equitable and efficient use of taxpayer dollars.

The amendment, if successful, could be presented in Senator Patricia Bates’ House Bill 1237 (2017).

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Specifically, what the bill would address is the technical issues surrounding tax in which fictitious entities are involved. These include complex partnerships and limited liability companies. The bill would not, however, alter Proposition 13, thus remaining consistent in its content.

Making Sense of Proposition 13 and Senate Bill 1237

When people sell their property, Proposition 13 dictates that the value is reassessed to put it in line with market value, which affects the new buyer. The 1% rate cap will remain in place, however, and they also have the guarantee that there will be no more than a 2% yearly increase on the property’s taxable value. The issue, however, is that certain properties have been owned by the same individual or entity for many decades, which means that the taxable value of that particular property is often far below the actual market value. It is for that reason that Proposition 13 includes the stipulation that, when a property changes hands, it must be taxed, even if just initially, at market value. It isn’t until after it has been purchased that the 2% rate increase cap comes in place, which is the same as with all properties. Doing so means that the taxable value is in line with market value whenever there is a change of ownership.

However, it seems that it is possible to avoid the intent stipulated in Proposition 13 if fictitious entities are created, transferring those with the sale. This is what has been referred to as the loophole in Proposition 13.

For homeowners, when a property is sold, a new name is put on the deed and the property is reassessed. But for commercial properties with complex ownership patterns – publicly-traded corporations, real estate investment trusts, limited liability companies, partnerships and trusts – change of ownership is difficult to define in law, nearly impossible to enforce in practice, and subject to endless manipulation.

The biggest problem is that Proposition 13 was implemented to make the entire system, for residential and commercial property alike, fairer, ensuring people weren’t burdened with unmanageable tax bills while at the same time properly contributing to the community. The fact that this unfairness exists in the Proposition means that those who oppose it can also use it to fight against the proposition in its entirety.

Thankfully, the business and tax community are now coming to agree that the Proposition itself is fair, just poorly worded. This has resulted in new bills, such as House Bill 1237 as described above, from being developed. Another important potential alteration to make the Proposition fairer is Proposition 218.

In general, the intent of Proposition 218 is to ensure that all taxes and most charges on property owners are subject to voter approval. In addition, Proposition 218 seeks to curb some perceived abuses in the use of assessments and property-related fees, specifically the use of these revenue-raising tools to pay for general governmental services rather than property-related services.

Public employee unions, for instance, currently oppose SB1237, because agreeing to it would mean they can no longer take on the rest of Proposition 13. In fact, it is believed that at the 2020 statewide ballot, a motion will be put forward to completely remove the protections that Proposition 13 offers for commercial properties.

Tax affairs are incredibly complicated. However, the HJTA currently represents millions of tax payers, including homeowners, who want to protect Proposition 13 and preserve it because it works tremendously in their favor. At the same time, they agree that the business community should take greater responsibility for the tax burden on Orange County, which could be addressed through SB1237. Losing Proposition 13, they feel, would be a huge threat to Orange County’s business interests and it would indeed affect all of California. What is needed instead, is a law that makes it entirely clear that commercial properties should have their value reassessed when they come under new ownership, regardless of the entity that owns it. The saga will undoubtedly continue for some time yet and it is not yet clear what the most likely outcome will be.

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How to Find the Perfect Commercial Building

How to Find the Perfect Commercial Building
Photographer: Alesia Kazantceva | Source: Unsplash

Is it time to upgrade? Do you need more space than you're working with right now, or perhaps more employees (which means more space)? Then it's time for you to put on your investment hate and look for the perfect commercial building.

Whether you lease or buy, you should never settle for less than what you need. Ready to learn more and figure out how to find the right property for you?

We've got three helpful tips below.

1. Get Curious

One of the worst things you can do when you buy any kind of asset, real estate or not, is not know exactly what you want. It makes your process harder, your realtors job harder, and the process a lot longer for everyone involved.

So before you decide you're looking for a commercial building, or at least before you look for the first listing, ask yourself the following questions.

What Purpose You're Buying it For?

This is probably the easiest question to answer, but it'll let the realtor or whomever you're working with know exactly where to start. Are you trying to open a storefront or an office building where there will be more people and computers vs pallets of merchandise?

If you're selling something in your space, do you need both a storefront and a back room for distribution or will those spaces be separate?

Are you Looking to Buy or Lease?

On one hand, leasing is cheaper and most times quicker than buying a property. But on the other hand, buying a property makes more financial sense, as you now have control of the building and it's worth.

If you have the budget to buy a smaller space, but you're worried about outgrowing it quickly, it may be better to lease and save your money until you can buy.

But if you have a large budget and you can afford a big space – buy something bigger than you need. That way you can lease out the rest of the space to someone else and make some money back to help you pay your commercial loan or mortgage.

Another thing to consider when you're deciding whether to buy or lease is how much time you can commit to the property. As a renter (leasing), the building owner is responsible for upkeep and repairs.

If you buy the building, you're then responsible for those things yourself. That means employing someone to keep up with whatever landscaping there is, even if it just means shoveling the snow so you don't get sued from a slip and fall.

2. Reframe "Location, Location, Location"

Let's get one thing straight. The location of your commercial building is just as important as the location of your home or your brick and mortar storefront. But in a different way.

You're not going to think about how close it is to foot traffic, if it has enough parking nearby for people to visit, and the things you'd consider for other purchases. Instead you want to think about the logistics of whatever kind of commercial building you need.

With online shopping and drop shipping becoming so popular, most people are shopping for some sort of warehouse. Now – what does a warehouse need to be considered a good location for business?

It needs a few things. You want to be near a port or airport or some sort, as close as you can get without paying more in rent/purchase price. You also want it to have enough room for loading trucks and it to have some sort of space for an organizational system inside.

There's no point in renting a giant warehouse if you can never find anything in it. Most of the time warehouses come empty, but whoever sells you the building can give you some leads on shelves and commercial organizational structures.

You'll also need some sort of office that can act as your returns and processing center. Commercial printers (and enough hookups/energy to power them) are essential too. How else are you going to print all those shipping labels?

Most commercial buildings come with some sort of office to workspace or warehouse ratio. If you don't like what you see and you're buying- not renting- the property, it's okay to ask if you can reconfigure the construction.

3. Find Enough Space at the Right Price

The next thing you have to do is find a location that's big enough for what you need, but not oversized. Just like when you buy a home, there's a cost per square foot. You want to make sure you're not 1) overpaying for that or 2) overbuying for what you need.

You should use at least 80% of your space, assuming you'll need some room to grow. Figure out what the dimensions of your current commercial space or office are. How much more space does each room need?

The other way to do that is to look at what your profit is and what you're currently paying. How much more can you afford to pay when you switch from your current location to a bigger one? While it's not exact, could you pay double your current rent for double the space?

Make sure you compare your current price per square foot to the potential building's as well. While there will be some variance, you shouldn't pay significantly more unless you're in a prime location or the building comes with some other kind of amenities.

Buying the Perfect Commercial Building

Once you've asked yourself the questions above, considered your location needs, and done some serious math – then you can consider buying or leasing a commercial building.

It doesn't matter if you do it on your own or use a commercial real estate company, starting out with a good idea of what you need is the key to success.

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Commercial Real Estate

Where Investors Should Focus In Orange County Commercial Real Estate

Commercial Real Estate in Orange County California

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.

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Commercial Real Estate

Want To Invest In Commercial Real Estate In Orange County? Choose Warehouse Building Investments

Want to Invest in Orange County Real Estate Choose Warehouse Properties

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.

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Commercial Real Estate

Settling Agent Disputes In Commercial Real Estate Deals

Picture of a man on the phone trying to settle a commercial real estate disagreement or dispute

Almost every profession in this country is closely regulated by different associations and official bodies. In the world of Orange County real estate in general, that professional body is the California Association of Realtors (CAR). The CAR is dedicated to advancing the profession of realtors and ensure that certain standards are put in place. The CAR can help settle and mediate commercial real estate disputes.

The purpose of the CALIFORNIA ASSOCIATION OF REALTORS is to serve its membership in developing and promoting programs and services that will enhance the members’ freedom and ability to conduct their individual businesses successfully with integrity and competency, and through collective action, to promote real property ownership and the preservation of real property rights.

When realtors are affiliated with the CAR, they are also mandated by arbitration and mediation standards. Hence, if there is ever a dispute, the CAR has procedures in place to help in resolving such. However, a commercial real estate agent is not a realtor. As a result, while some still choose to join the CAR because of their overall professional standards within the world of real property, they are also not bound by those arbitration and mediation requirements.

Some people believe that it is this particular lack of overseeing body that makes commercial realtors akin to cowboys. They believe that the term is suitable for them because it describes the fact that they work hard, are true entrepreneurs, and take whatever they can. This is particularly true for those commercial real estate professionals that operate on a commissioned-sales payment arrangement, which most of them do.

The amount a commercial real estate agent receives on a commission is calculated as a percentage of the total commercial property sale price or lease value. While it’s illegal due to anti-trust laws to set a market- or industry-wide standard for commission percentages, most agents earn anywhere from 4% to 8%.

However, regardless of how professional the commercial real estate agents are – or aren’t – there are bound to be disagreements. Usually, those are related to the manner in which they get paid. And this is where they truly set themselves apart from cowboys, because while their disputes may not be arbitrated by the CAR, they also don’t meet at high noon at the OK Coral.

How Commercial Real Estate Agents Resolve Complaints

The vast majority of disputes between commercial real estate agents is a fee disagreement. Most professional commercial real estate agents try to prevent this from happening by starting any negotiation with a clear understanding of who will be paid what even before the deal is negotiated. They have faith in the fact that their coworkers are as honorable as they are, in other words, understanding that working in an ethical manner ensures that there will be no misunderstandings, that deals will go by smoothly, and that everybody will get paid with the right amount. Mainly, however, they ensure that they have a written agreement in place for everything, including escrow, leases, responses, offers, listings, and more.

In a few situations, a contract must also be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last more than one year. You’ll need to check your state’s laws to determine exactly which contracts must be in writing.

Additionally, while it is certainly true that commercial real estate agents don’t join the CAR, because they don’t have to, that doesn’t mean that they are not represented by any professional body. They are often members of the Association of Industrial Commercial Real Estate (AIR CRE).

AIR CRE is an innovative, member-owned platform that provides commercial real estate professionals in Southern California with the critical tools they need to be successful. We have curated the best resources that the industry has to offer, and packaged them together as a single integrated network. Our Members have unparalleled access to a system of market research, listings services, contracts and legal resources, networking, and education.

AIR CRE has also created a platform for agents who are involved in a dispute and require arbitration. This has become even more important since there have been significant changes in the market for commercial real estate professionals in Southern California.

Then, there is the fact that the majority of commercial real estate agents work from an office, rather than completely independently. While it is true that the agents are often not classed as ’employees’ of these offices, they can access their policies and procedures and use them for their own issues. These include dispute resolution strategies and mediation options.

How a Resolution Is Obtained in Disputes Between Agents

If a dispute does occur, most commercial real estate agents will be able to go through five different steps, escalating to the next one whenever a particular step did not bring a successful solution. These steps are:

Step 1 – Work with the other agent to try and come to an amicable solution for the problem.

Step 2 – If no resolution can be agreed upon by the two parties, managers will be brought in. These can be intra-office or interoffice.

Step 3 – If managerial involvement still does not lead to an agreeable solution, an arbitrator will be brought in for mediation. This arbitrator should be independent and skilled in bringing negotiations back on track.

Step 4 – Should mediation fail, then a new form of arbitration will commence, known as binding arbitration.

In binding arbitration, disputing parties waive their right to a trial and agree that they will be bound by the arbitrator’s final decision. Binding arbitration is suitable for business disputes in which two parties need to resolve internal conflicts in order to expedite an outcome.

Step 5 – If the binding arbitration fails to resolve the situation, then both parties will seek legal advice in an attempt to litigate towards a resolution. This is rare, because the point of a binding arbitration is to avoid going to court. However, this can be circumvented by suggesting that the new dispute is based on the binding decision of the arbitrator.

That being said, most commercial real estate professionals will say that it is very rare that things ever get past the second step, and even rarer for them to get past the third step.

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Commercial Real Estate

Newport Beach Welcomes New Chipotle Headquarters

Chipotle is a popular Mexican grill restaurant that was originally opened in 1993 in Colorado by Steve Ells. Since then, it has remained headquartered in the Rockies. However, in a surprise move, it seems that the company is now moving its headquarters to Newport Beach, something that has sent shock waves throughout the fast food industry. It seems that the company, which started as a humble eatery near the University of Denver and grew to a global chain of some 2,300 restaurants, is ready for something new.

When Chipotle opened its first restaurant in 1993, the idea was simple: show that food served fast didn’t have to be a “fast-food” experience.

The E. coli Outbreak at Chipotle

Recently, Chipotle seemed to be a restaurant that went from strength to strength. In fact, in July 2015, the company’s stock price reached almost $750, a new record. However, towards the end of that year, there was an outbreak of E. coli contamination, which caused tremendous damage to the value of the company.

When Chipotle announced the closure of 43 restaurants in Oregon and Washington state on Nov. 3 because of the outbreak, sales dropped nationally by 20 percent over the next few days. Sales were down 16 percent for the entire month of November.

Decline in Sales at Chipotle

Naturally, the company wanted to show that it was sincere in expressing apology to its customers. In spite of that and despite the containment of the outbreak, earnings declined. Various tactics were tried, including the addition of new menu items, but it was to no avail. Shareholders, including activist Bill Ackman, publicly criticized the company, which eventually resulted in Steve Ells stepping down as CEO and taking on the position of executive chairman instead.

The expanded board was supported by activist investor Bill Ackman, whose Pershing Square Capital hedge fund took a nearly 10 percent stake in September 2016.

Chipotle seems to be recovering since Ells stepped down, resulting in the company being able to move away from Denver and to Newport Beach. This came after a new CEO was appointed, who hails from Southern California. Interestingly, competition is fierce here with In-N-Out Burger, Del Taco, and Taco Bell all operating in the area as well.

Direction of the Company with Brian Niccol as CEO

Brian Niccol, the new CEO since February 2018, explained that the move will not come without some cutbacks, but that it is believed to be an opportunity for sustainable growth.

We have a tremendous opportunity at Chipotle to shape the future of our organization and drive growth through our new strategy. In order to align the structure around our strategic priorities, we are transforming our culture and building world-class teams to revitalize the brand and enable our long-term success.

Field operations workers and restaurant employees will maintain their position. However, some cuts will be made among corporate employees. So far, various corporate functions, including human resources and finance, have started to make the transfer, as the company has identified the commercial real estate property for their operations. Interestingly, Brian Niccol was the CEO as Taco Bell prior to his new appointment, which is based in Irvine.

To date, Chipotle has offices in Denver and New York, and those will be consolidated into offices in Newport Beach and Columbus, OH. This came as a significant surprise for both Denver and for Newport Beach. Indeed, no notices were given about the imminent move, which is rare considering the scale of operations of moving a huge company. In fact, even Tara Finnigan, deputy city manager for Newport Beach, was not aware of the move.

Unidentified Location of New Offices in Newport Beach

It is also not clear, what the location of the new offices will be, other than that they will be in Newport Beach. This could mean, therefore, that Chipotle is still looking for office space and this is welcome news. According to JLL, a real estate firm, there has been an increase in availability in office spaces due to more efficient use of space and new construction in the area. Hence, now could be a very good time to invest in this type of real estate.

Nationwide, vacancy rates for office spaces stand at 12.6% while Newport Beach’s vacancy rate is 10.7%. In Fashion Island, it is as low as 6%, in fact. The result is that rents are far more expensive as well, around 11% higher than the rest of the county, or 46% on Fashion Island. Again, if there is currently an opportunity to invest in office spaces, it is important to strike while the iron is hot.

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Commercial Real Estate

Big Sale In Orange County Commercial Real Estate

The world of commercial real estate in Orange County is always exciting. Because it is such a hot market in which virtually every business would like to have a presence, and because there is almost no land available anymore, and properties that do come up are snapped up very quickly. Just recently, four multifamily properties were sold across Orange County and San Diego County by Marcus Millichap.

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