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How will your family deal with its commercial property?

I heard an interesting comment on a webinar this week. My goal is to tune in to at least 12 a month and supplement those views by listening to three podcasts a week. If successful, I consume between 288-300 hours of content each year.

During every episode, I want to glean a minimum of one new idea or concept. Annually, I then learn 288-300 new things. It’s a simple way to expand my knowledge to become a better resource to my clients and more interesting to our family and friends.

My takeaway: We spend 99% of our working time each day in endeavors our clients spend 1% of their working day accomplishing.

As I considered our clientele — family-owned and operated manufacturing and logistics businesses — this rang true. Many only lease or buy one piece of commercial real estate ever. Certainly, those “in the business,” such as investors, are more active. But perspective was gained with that in mind.

Therefore, our advice must be straightforward and on point. After all, they don’t do it every day. We must learn to communicate complex concepts simply as if they were educating us in a manufacturing process.

Although a scant amount of time is spent – 1% – my focus today is on that small percentage, as I’ve seen many great things transpire.

Generational wealth

Businesses that adopt a strategy of owning the building from which they operate use their 1% most effectively, in my opinion.

The majority of the time is in the acquisition, fit-out and move. I’ve witnessed many groups that buy a location and then never relocate. All the while, the real estate appreciates, tax benefits are enjoyed and depreciation accrues.

Equity in the buy can be tapped for business expansion such as buying a competitor, buying new equipment or hiring employees. When it’s time to sell the workhorse (the enterprise paying the mortgage), direction can vary. Some choose to sell the company, retain the building and originate a long-term lease with the new owner of the business.

Others prefer to sell the real estate and deploy the equity into one or several income-producing property assets. Regardless, enormous wealth is created that can be passed to heirs.

My most extreme example came through such a story. A family founded a manufacturing business during the go-go years of the mid-60s. Lifestyles were supported. Real estate was bought to house the expanding operation. When the patriarch and matriarch died, their children decided to sell the company and retain the real estate.

When the family realized the new operators were cutting corners, a decision was made to liquidate the company’s home and diversify into other locations. Six years later, the holdings have doubled in value along with the cash flow. Meanwhile, the buyer of the business went bankrupt. Apparently, the family’s strategy was sound.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 


Source: Orange County Register

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