Tuesday, October 25, 2016

Who is Buying Now

If all politics is local it must be closely related to real estate - in particular commercial real estate! Who is buying and what they are buying is so local it is almost impossible to discuss legitimately beyond a certain area - unless you have the numbers. The numbers are the most important deciding factor for purchasing and many sellers do not understand that and just make assumptions based on old data or prices they could have gotten 10 years ago. What a mistake!

Which numbers, you may ask. Good question as it matters again, locally. That is where a real commercial agent makes a difference for you. They may or may not be CCIM certified and registered with all the expensive support groups, or not. If they are professional and informed they may be more valuable to you as a buyer than someone who just touts associations much like someone always name-dropping is supposed to impress you. Let's take a look at what someone should know about in your area depending on what it is you are considering purchasing and why.

1. Employment. If you are evaluating a number of locations for manufacturing, fast food, distribution, anything that requires employees we cannot just assume "build it and they will come." I live in an area where unemployment is at or about 5%. Recently Amazon announced hiring 500 people for distribution jobs. Soon after another larger manufacturer in the area announced adding 650 great production jobs. The hospital opened another huge location (the largest employer in the county) and 4 more smaller companies announced hiring. No people available for the jobs!

2. Housing. Take the above scenario then add this little tidbit in. Most of the people who will be taking the jobs that have been offered will want to rent for $800-$1200/month. If they are buying something it will be in the $150-250,000 range. We don't have any inventory of those products in this area - and since 2008 80% of the development companies that would have built those homes are no longer around - they have taken jobs somewhere else or even in a new industry. So where will we put them?

3. Training. Our local technical college provides something called Fast Start for employers moving into the area. Can you imagine the value to an employer to have someone very familiar with all the processes needed they can hire and start working on day one? Yes they pay for this service, but it doesn't negatively impact production - that is all done in the classroom.

4. Taxes. Here is a number everyone considers and few try to do anything about. Your agent should be educated enough to know who he can call, ask, beg, provide information for to impact what your taxes will be in the next 10 years if you bring those manufacturing or distribution jobs to this market. If not, find another agent.

5. Water. We aren't just talking EPA or state environmental agents - not just considering if you are going to leak something into the water but if you need water for your business. I have seen numbers for getting tied in to local water and sewer for some manufacturers running as high nearly to the cost of the land itself! Ridiculous you say? Nope, real. One small operator putting in a car wash paid $100,000 for the 1.5 acres on a major 4-lane. The initial cost from the county for the water/sewer service connection was proposed $160,000. They worked on it with their agent and the county and got it down to $80,000. Much worse in some instances with large water users in the food production business.

6. Access to Distribution. Many state highway transportation departments are finally getting some funding and are spending money - and they will spend it when future tax dollars are at stake. Make this point locally and get some help getting your products over to the 4-lane (12 lane) much more efficiently and safely.

7. Relative Cost of Land. If you can buy 1 block off the interstate for half the cost, is it worth it? If you can buy 40 miles further away from downtown metropolis for half the cost, is it worth it? Or maybe not half - but at what price is it worth it? Congestion, safety, speed of delivery, not all products go into town but does more than half go out of town? If you look at a major city, pick any major city. Is there an area that isn't as appealing regarding crime? Is there an area of town that is blighted? If you move into that area who is to say you can entice enough good workers to come there and feel comfortable changing shifts at 1 a.m.? But you save big bucks buying that piece of crap land, and it was encouraged by the city counsel, right? Do what is right for your workers too.

Just some thoughts about numbers not everyone considers. Please leave comments on some you have experienced as well.