Irrational exuberance. “Irrational exuberance” is a phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the Dot-com bubble of the 1990s. The phrase was interpreted as a warning that the market might be somewhat overvalued. Source: Wikipedia.
Hmmm, ya think? I would phrase it this way - we have lost our collective CRE minds!
The majority of my activity revolves around owners and occupants of manufacturing and distribution buildings in Southern California. I can generally jump in my car and drive to see my clients. Many of the owners that I represent occupy their buildings. I rarely transact the monster deals that make headlines...a downtown sky scraper that sells to a REIT...and I'm content with my practice as I can witness, first hand, how my counsel allows small businesses to grow, expand, and prosper.
So, what am I telling my clients these days? These FIVE things.
If you are planning to sell any time in the next five years - DO IT NOW! Our values have eclipsed 2007... the last high water mark. Low interest rates are almost gone. Chances are great that we will see a major dip in values before 2020.
Moving sucks - avoid it at all costs. There are numerous ways to prolong a move. Make relocation your last priority. Rarely will you see an immediate cost benefit.
If you must move, allow yourself twice the anticipated time to affect the move. There are not enough quality buildings on the market to fill the demand. Consequently, you can't venture out and lease or buy something in one tour - unless you are terribly easy to please. After an exhaustive search identifies a viable option, you must confront a litany of compliance issues - enviro, zoning, planning, fire department, use, building department, ADA, etc.
The occupant market these days MAKES NO SENSE! We toured yesterday with an owner occupant. We have advised him to sell his building. His eyes bulged when we told him his building's worth. His building is a well located 40,000 sf distribution box. We showed him his competition if he was a seller. A true misfit toy - on paper very similar to his - just entered contract at $5,000,000! Close to $150 psf. This same building sold for $80 psf in 2012. Round up your crayons, boys and girls. Playtime is over.
If renewing your lease is preferred, don't attempt this un-represented - unless you want to overpay.Your landlord knows you have few alternatives. He will extort this fact. Do your homework, engage good help. A vacancy for your owner - even if he can achieve a higher lease rate will cost him future revenue to originate.
By: Allen Buchanan
Principal, Lee & Associates
See all of Allen's blogs here.