Monthly Archives: October 2005

Enterprise Buyers

 

While many investors complain about a lack of deals and high pricing, others see nothing but opportunity. One difference in perception is risk tolerance. Another is a reluctance to embrace new development models. But I think the biggest factor in the vision discrepancy is the nature of their organizations.

Enterprises are better positioned to uncover deals because they simply see more opportunities. By enterprise, I mean an organization devoted to purchasing and developing investment real estate. While this may seem obvious, the majority of the real estate market is made up of individual investors, users, and trade buyers who operate at a relative disadvantage because they lack enterprise resources. Interestingly, it’s not necessarily size or type of structure that is the determining factor, but a disciplined approach to sourcing and operating property. Many small enterprises are extremely effective because they work within a larger network and command useful technologies. Enterprises have strategy, focus and can match their resources accordingly.

Enterprises work with a business plan based upon a market need or a strategic advantage. For instance, some enterprises have an advantage in construction expertise, tenant relationship, a capital source, or simply vision. Enterprises will make their own markets and create their own deal flow. In many cases, enterprises already know which properties will fit their model and it becomes a matter of process.

Technology has greatly changed strategic execution. Googling, internet mapping, and online title records help identify prospects. Smart phones, digital cameras, and internet communication give immediate information and access.

Enterprises are better suited to use new technology to meet their goals. For instance, one enterprise buyer has equipped me with a database that I access on my handheld computer when I am in the field. This provides focus and real time communication.

Enterprises also differ from “end-user” buyers because they invest in people, relationships and systems. A typical enterprise includes senior real estate experience, access to finance, and perhaps the most significant – the ability to stick with a plan. It is still a relationship business and the enterprise is able to get its message out to more people.

Should individual buyers devote the same resources as the enterprise buyer? It truly depends on their perspective. But without building an enterprise model, it will impossible for individuals to compete for “deals” on a regular basis. Luckily, for all smart investors, there are always opportunities to have a balanced portfolio that includes rent growth and appreciation to make the non-enterprise buyer welathy.

Post Industrial Land Use

 

When the last few aircraft factories close, we will have witnessed the complete deindustrialization of major plants in Los Angeles. Big steel, auto, tires, and glass are all gone. In their place are retail centers, big box distribution, a smattering of public buildings, and new urbanist housing.

Smaller factories continue to disappear. Some factory owners just tire out. Chinese industry out-produces many others. The threatened closure of the Los Angeles Air Force base in El Segundo will be devastating to many of the local aerospace contractors. The end of the WTO apparel quotas will finally destroy all garment manufacturers that are not considered fashion. What’s slightly different about this current wave of closures is that new uses need to be found for the existing building stock. These buildings are not “tear downs”, because the marginal value of the improvements still exceeds the land value. The good news is that vacancies are low and different tenancies are being found.

Large parts of the Westside, Hollywood, and Downtown are now a software, internet, gaming, video, and media  convergence. Many areas in the old industrial core have been reborn as an extension of Mexico and Latin America with their own stores, shops, factories, and cultural institutions. Fields of warehouses cover the plains of Carson, Industry, Commerce, Ontario, and points farther east.  Scattered about are a few remaining production facilities that are either too specialized or too small to go overseas.

Post industrial Los Angeles will see many smaller enterprises as they learn to operate in a networked world. Many businesses will focus on ethnic niches to remind large immigration populations of home. New housing and its related amenities will appear in industrial areas as the need for housing overwhelms the stigma of old industrial property. Industrial buildings with visibility, public transportation, parking, and human dimensions will be easy to convert to newer uses. Those buildings located in distant industrial parks far away from residential areas will find limited new uses unless they can be converted to distribution.

Real estate decisions are also different in post industrial Los Angeles. Finding the best deal will be secondary to neighborhood demographics, local amenities, and cultural differences. Light rail and bus transportation will play a greater role in site location. Workplaces will incorporate the lifestyle of employees and owners. New users will want flexibility in the buildings they occupy much different than the original designed use.  Important things to look at are the shell, placement on the lot, and naturally, location.