What I Hear From Business Owners

My days are filled counseling business owners. You see, my commercial real estate practice focuses upon family owned and operated manufacturing and logistics companies experiencing a transition. Frequently, this transition causes a decision to be made about their locations. As an example - let’s say the operation is considering a merger. When two groups morph into one - a duplication of their facilities emerges - and in some cases excess capacity results. Our services are engaged to dispose of the overage through selling or subleasing the unwanted space. An expansion into another state also requires a partnership with us. We are able to locate vacant buildings in need of an occupant and negotiate lease or sale transactions. A dramatic increase in orders could lead to the need for a larger building. Yep. We see that transition a lot these days.  

But today, I’d like to focus on the conversations I’m having with entrepreneurs - outside of their commercial real estate concerns. After all, small business is the fabric of our economy and employs a substantial percentage of our workforce. Never in my four decades as a commercial real estate practitioner have I heard this much angst.  

Hiring is tough. The pandemic of 2020 placed many people on the unemployment roll. To combat this - state and federal government created unemployment benefits which in some cases could reach $1000 per week. Additionally, the time an unemployed or furloughed worker could receive these benefits was extended. Consequently, a worker could make a fairly nice living by not working. Now, that our economy is opening again - manufacturing and logistics companies are finding it difficult to persuade workers back into their plants. An acute shortage of available candidates for job openings exists. Even prior to the pandemic, skilled workers were difficult to find. Those who operate CNC machining or other specialized equipment were in short supply. Now it’s downright impossible to employ these experts. Plus, our community colleges have done a lousy job of preparing students for manufacturing careers.  

Raw material pricing is skyrocketing. Copper, petroleum, plastic resin, building materials, lumber, and steel, are all in terribly short supply. Doubt but I say? Go to your local Home Depot and check out the price for a piece of 2 x 4 lumber. You might want to bring your mortgage broker along with you as a purchase could require a second mortgage on your home! Manufacturers are pinched at every stage - stocking enough components for the creation of their product, increased wages for the folks running their machinery, and higher gasoline prices which cause shipping costs to escalate. Expect to see your pocket book affected eventually.  

Is the grass greener? Regardless of the size of an operation - many are considering locating outside the state of California. But are other states really more receptive?Yes! I just concluded a trip to Georgia on behalf of one of our clients. They have engaged us to locate three facilities for them nationally – one of the west, one in the central part of United States, and one in the east. We found the state of Georgia and the individual communities to be extremely receptive to the 200+ jobs our client will deliver to the local economy. Incentives, reduction in regulation, property tax rate rebates, streamlined building permits, sales tax reduction, industrial development bonds, employee training, tax credits for hiring, are all on the table. We were shocked at the red carpet that was rolled out for our requirement. And here I thought the red carpet was only seen at the Academy Awards. Boy was I wrong! 

Government overreach. AB5, new AQMD requirements, increases in the minimum wage, noise abatement, and lengthy permitting processes all have an impact on the operation of a manufacturing or logistics company. Layer in some uncertainty about property taxes, long-term capital gain increases, the potential abolition of the tax deferred exchange, and the absolutely insane pricing for commercial real estate and you get a sense what’s keeping owners awake at night.  

The California I remember embraced small business and provided a platform to succeed - by stepping aside. Hewlett Packard, Disney, Microsoft, Apple Computer, Amazon all started with a dream in someone’s garage. My how far we’ve drifted.  

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at [email protected] or 714.564.7104. His website is allencbuchanan.blogspot.com.