Ron Mgrublian

A new survey released points potential trouble for Proposition 15.  An opinion survey by Probolosky Research shows 48.8% plan to vote against it, 41% for it and 10.3% are undecided.

Although this is goods news, there is still a lot of time between now and election day and a lot can change.  Couple with that, Biden’s overtures that he might eliminate the tax deferred 1031 exchange, Commercial Real Estate Property owners still have a lot at stake this election.

One option to Commercial Property, Industrial and Warehouse owners who occupy their building is a sale-leaseback.  A sale-leaseback not only allows the owner to enjoy an infusion of cash, but rental payments under the lease are usually fully tax deductible.

Aside from a 1031 exchange, another option to Commercial and Industrial Real Estate owners is deferring a capital gain to an opportunity zone fund.  To learn more, see this post: Opportunity Zones: A Commercial Real Estate Capital Gains Tax Savings Instrument

To discuss further or anything else, Contact Me here.

INDUSTRIAL COMMERCIAL REAL ESTATE WAREHOUSE FOR SALE at 15343 ILLINOIS AVENUE, PARAMOUNT, CA 90723

PROPERTY FEATURES:

SIZE: ±9,400 SF Industrial Warehouse on ±15,001 SF Lot

PRICE: To Be Determined

ZONING: PAM2*

APN#: 6240-017-018

• Great Owner/User or Investment Property

• Multi-Tenant Industrial Building - 3 Individual Units With Private Fenced & Paved...

CLICK HERE FOR MORE INFORMATION

As I mentioned back in April, we will be voting in California on the Split Roll Tax in November, now called Proposition 15.  If you’re not sure what “Split Roll” refers to, see my post: Split Roll Tax And What It Means For California Commercial Real Estate.

A more recent update from AIR points out only a simple majority is required for the measure to pass.  Recent polls indicate its likely to be a tight race, 53% of likely voters were in favor per the Public Policy Institute.  Reassessments could begin 2022-2023 but a recent Press Telegram article indicated the assessor might not have the funds and resources necessary to implement it among other issues.

There is an exemption for properties less than $3 million, however owners who have multiple commercial buildings in excess of $3 million are not exempt.  Properties would be reassessed at least once in every 3 years and the 1% base tax remains in place.

For more information, see the post on A.I.R Forms Practitioner: https://airpractitioner.com/2020/08/05/californias-controversial-split-roll-initiative-prop-15-the-basics/

Another Commercial Industrial Real Estate deal got done on a Ron Mgrublian - Lee & Associates listing at 2148 W. 16th St. in Long Beach, CA.  The property a former food facility features floor drains and one ground level door.  It also has a fenced and paved yard, close to the freeways & ports and is in the Cannabis Zone.  If you have a commercial warehouse property you would like to sell or lease, please contact Ron at rmgrublian@leelalb.com.  See brochure.

While many parts of the economy are down right now, manufacturing, e-commerce and cold storage appear to be the segments doing well in Industrial Real Estate.  Though  vacancy rates remain at historic lows, there was a slight uptick from Q1 to Q2.  Lease rates however remained unchanged, CLICK HERE FOR FULL REPORT

COVID-19 drastically slowed Orange County Industrial Real Estate Market activity in the 2^nd quarter of 2020.  Vacancy rates ticked up and a slight decrease in lease rates was experienced.  CLICK HERE FOR FULL REPORT

Despite the situation with COVID-19, the San Gabriel Valley Industrial Real Estate Market saw a decrease in vacancy rates and an increase in lease rates with Industrial Properties in the 2^nd Quarter of 2020.  The upward trend in rates is expected to continue as the effects of the virus subsides, but some re-trading is expected in the 3rd Quarter with Industrial Users.  CLICK HERE FOR FULL REPORT

I often get asked by landlords, “how do I pay you for leasing my commercial real estate property?”  The short answer is a percentage of the rent consideration”.  If you’re not sure what that means, I’ll give one simplistic example to explain

Say I rent your property for 5 years for $10,000 a month.  To determine the rent consideration, you multiply the total number of months by the amount due per month.  In this case it would be 60 months (5 years x 12 months) times $10,000 rent a month which would give us a rent consideration of $600,000.  You then take the rent consideration and multiply by the previously agreed to rate in the listing agreement.  We’ll use 5% for simplicity sake in this example which would give you a total commission of $30,000.00 ($600,000.00 rent consideration x a 5% fee).

Typically, then the $30,000 would then be split by the broker representing tenant and the broker representing the landlord or $15,000 to each broker.  The fee is an important sales tool as a low fee can discourage tenant brokers from presenting and encouraging your property as an option for their clients.

A good broker should also list your property on all the major listing services including here in Southern California, AIR, CoStar and LoopNet Premium.  Additionally, marketing efforts should include mailers, cold calling, canvassing, email blasts, broker meetings, company website listing, intercompany communication systems blast, social media, the web, signs and 3D Virtual Tours because of COVID-19 concerns right now.

Contact me if you have further questions.

You have a few options when it comes to selling or leasing your commercial property.  The most common options would be selling it, leasing it or doing a sale leaseback.  There are positive and negative to each option, lets run through a few:

Selling:  When selling a commercial property, you will primarily come across two types of buyers, users and investors.  The good news is investors are usually well capitalized, often are cash buyers, highly qualified and can close quickly.  The downside is investors typically must pay less to make the investment numbers pencil.  Additionally, investors are usually a lower risk buyer to the seller (high chance of closing and lower risk of falling out of escrow) and for that they get a discount (less risk less reward).  Some industrial investors will start considering assets at the $5 million level and over and more at $10 million and over.

Users are buyers who intend to use the commercial property for their business.  Due to the many benefits of owning your own property and typically being less qualified users can pay a higher price.  The downside is users typically are less sophisticated and take longer to complete the transaction.  You also run a higher risk of falling out of escrow with a user buyer (higher risk/higher reward).

One of the things to consider when selling is capital gains.  You can defer your real estate capital gains through a 1031 exchange but there are some rules you must follow.  You have up to 45 days to identify 3 potential replacement properties and 180 days to complete the purchase. 

Leasing:  Leasing your property is another option.  The upside is collecting passive income, avoiding potential costly environment remediation issues and/or capital gains a sale may trigger.  The downside is you must play landlord and deal with the many issues that brings.  A few examples could be legal, maintenance and/or vacancy issues. 

Sale-leaseback:  Sale-leaseback could be another option if you would like to sell your property and continue to occupy all or a portion of it.  A typical reason for this could be a cash infusion for the business, pulling equity out the to deploy in other areas and more recently a way to avoid tax risk due the potential passage of the split tax roll.  A buyer for a sale leaseback would typically be an investor, so many of the advantages and disadvantages listed above apply.  An investor for a sale-leaseback will typically want a longer term, however if the investor is primarily buying the property as an investment to lease to other tenants they usually will grant a short-term sale-leaseback if you just need extra time to wind down your business or move it.  The price of the sale is mostly driven by the rent you agree upon for a longer-term deal, so the higher the rent, the higher the sale price and vice versa.

Just got word from A.I.R. SB 939 failed to forge ahead.  During the Appropriations Committee hearing to today, the measure failed to advance.  CLICK HERE FOR MORE DETAIL

Lee and Associates Long Beach is pleased to announce 3D virtual tours are now available with the addition of Matterport.  Per Matterport's website, sell at a 4-9% higher sale price, decrease time on market up to 31% and 90% buys are more compelled by a listing with a 3D tour.  With coronavirus and COVID-19 social distancing concerns and the reluctance to tour at all, this may be the only way to get your space shown.  Additionally, generating higher engagement and interest in these slower economic times may be to key to closing the deal and getting that buyer/tenant.  Click here for a demo.

Originally posted February 3rd, but things have changed considerably since with the global coronavirus COVID-19 pandemic and social unrest!  With the desire to socially distance and find open spaces one must wonder if people will be motivated to avoid the dense urban centers and move to the more spread-out area of the suburbs.  This would be a bit of a countertrend to previous years with the TODs (Transit Oriented Developments) and mixed-use developments in city centers.

On the other hand, the desire to avoid crowds and packed retail buildings, more folks are using ecommerce.  This will only increase the already overwhelming demand for warehouse space, especially in the areas close to the population base where faster delivery is possible.

These changes have only led to a stronger argument for this trade idea!

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This trade seems to make more and more sense for the commercial real estate investor of late.  Multifamily appears to have peaked after an extended run and is experiencing downward pressure over concerns with governmental/legislative issues, especially regionally here regionally in Southern California.  Meanwhile, Industrial is starting to take over as the hottest commercial real estate segment.  Also, some apartment owners no longer have the tolerance to deal with the higher demands and maintenance needs multifamily typically requires or they have moved out of the area.

The solution?  Sell your Multifamily Assets and Trade into Industrial Real Estate Properties.  Why Industrial?  Ecommerce and its explosive need for space.  With all the big box retail giants like Sears and Toys R Us shutting down, ecommerce has disrupted the industry transferring the need for space from store to warehouse.

In 2017 e-commerce accounted for 9% of all retail sales in the United States and is expected to grow to 12.4% this year!  Based on those numbers e-commerce appears to still have a lot of room to run.

It’s also normally considered an easier asset to manage with less demands.

So, what’s the first step if you’re interested?  Get an idea of what your Apartment Building is worth, so you have an idea of your budget.  Next get a list of available properties to trade into.  This can include leased properties with stabilized returns, upside potential or vacant properties with proforma projections.  A good broker should be able to help you with this, feel free to reach out if you do not know where to start.