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5 Ways to Increase the Value of Your Commercial Property in 2019

5 Ways to Increase the Value of Your Commercial Property in 2019 on morrissegroup.com

The New Year is the perfect time to make property resolutions

By the time this is posted, the New Year will already be weeks old – and in that time, many personal resolutions will have been tossed, amended, and forgotten. That fresh start gusto is difficult to maintain unless you have the drive and a great reason to keep it going.

As much as the New Year is a time to reassess personal goals, it’s also a great time to do the same with real estate investments – including your goals for a specific property and looking at ways to increase its value. And because the added value will increase your return, property resolutions may be a whole lot more successful and easier to measure than the personal ones.

Here are some suggestions to get your CRE off on the right foot in 2019:

1. Is it time for a facelift?

Cosmetic changes to property generally come in two sizes: great and small. They can range from improved security measures or new exterior paint to a remodel of the lobby or a completely new facade. They can also be as simple as new landscape plantings and lighting, or even getting creative with local artists – and in a place like South Florida, these last three items can go a long way.

2. Gaining value through efficiency

In examining previous operating expenses, there may be a few areas where money can be saved. Two major ones that can be addressed are electric bills and water usage. Switching to energy-efficient bulbs and replacing windows could lower monthly electrical bills, while changing out flush valves on commercial toilets can mean water savings without replacing the fixtures. It’s also better for the environment, and this, in turn, is more attractive to the mindset of many of today’s tenants.

3. Sub-metering utilities

This third item goes hand-in-hand with number two. Most tenants understand that they will have to pay for utilities, and for many, the monthly total is divided up among all of the tenants. By installing a sub-metering platform, however, each tenant will have his or her own meters. This makes tenants responsible for managing their own utilities rather than an average by square footage based on the entire building – and this can be a huge selling point for prospective tenants who are looking to control costs.

4. Change the intended usage

Neighborhoods always seem to be changing, especially in fast-growing South Florida. What was once an industrial area becomes an arts center, and then that may transform again into retail and residential. If the neighborhood in which a property is located is becoming something other than for what it was originally zoned, then perhaps it might be time to get a zoning variance so the property can keep up with a changing location.

5. Rent to reflect improvements

The quickest way to raise value is to raise rents, but there really needs to be an asterisk next to this final suggestion. Before upping the rent, it’s important to look at the data on the property, as well as that of surrounding properties to discern whether or not your tenants are paying a market rate and if there is even the potential for a reasonable increase. A great way to make an increased rent more palatable for a tenant is to have it specifically reflect tangible improvements made to the property.

A partner in making and keeping smart CRE resolutions

When coming up with property resolutions for the coming year, it’s important to remember that you’re not in this alone. The Morris Southeast Group team is skilled at not only property management but also help you devise ways to make your property achieve the most value.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Can Tiny CRE Be Big In SoFlo?

Can Tiny CRE Be Big In SoFlo on morrissegroup.com

Size may not matter when it comes to investing in South Florida commercial real estate

For several years now, many Americans have had a love affair with the small things in life. Families and millennials embraced smaller homes and micro-units as a means of living affordably in the wake of the Great Recession, of embracing efficient and sustainable ideas, and of simply owning something. Whatever the reason, micro-living represents a popular shift in the collective mindset.

It was only a matter of time before some entrepreneurs and CRE developers, investors, and business owners also embraced the Lilliputian life. In cities across the country, small and awkward spaces – once seen as empty in a bigger-is-better world – are literally getting a new lease on a profitable life.

The reasons why less is more

The small space CRE movement is a natural byproduct of cities across the country creating high-density, pedestrian-friendly neighborhoods – very much like the building boom along Fort Lauderdale’s Las Olas Boulevard. The results are that space is at a premium, parking is limited, businesses must rely heavily on foot traffic, and residents require a variety of convenient services.

For the owner/investor, that spells opportunity. A BISNOW article on the tiny boom mentions the CBS sitcom Two Broke Girls, in which two waitresses made a deal to convert an old supply room behind their dinner into a small cupcake business with a sidewalk window. That may be fiction, but many entrepreneurs are using similar tactics – and many of the new multipurpose ventures are giving small a big name.

Looking at space differently

Clearly, not every small space will double as a gourmet cupcake shop, but looking to repurpose unused, underused, or vacant small spaces requires a degree of similar creativity. You have to understand what local consumers need, reach out to the right entrepreneurs, and think outside of the box (store, if you will).

A current tenant may want to try a new venture on a smaller scale, while a new business might be eager to get a foothold in a high-rent area without the astronomical overhead of a dedicated space. It could also mean bringing several small boutiques together under a single roof in a micro-mall located in the shell of a brick-and-mortar space or, as in Miami’s Upper Buena Vista, under the canopy of some magnificent trees.

Big brands are also going small

At the same time, larger brand names – Nordstrom and IKEA, to name two – are expanding into smaller spaces to meet the changing demands in the retail market. Normally located in malls, box stores, and any location that requires a car to get there, these big-things-in-small-packages venues allow these national retailers to reach the new urban dweller.

These smaller locations provide more limited merchandise as well as an opportunity for customers to interact with store personnel, ask questions, and then place an online order to be picked up at the same location.

Going small in a big way

At the end of the day, efficiency, convenience, and ROI are necessary to make tiny CRE a big success. Those three values are also at the heart of Morris Southeast Group as our professional team works to make big CRE goals come true.

For a free consultation or to learn more about our property investment opportunities and/or other services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

What Rail Can Do For South Florida

What Rail Can Do For South Florida on morrissegroup.com

It’s all-aboard for investors

Florida and railroads seem to go hand-in-hand. It was, after all, Henry Flagler’s vision and money that extended rail down the east coast of the peninsula and helped turn South Florida into South Florida with a capital “S.” With the completion of that essential mode of transportation, developers, investors, and residents soon flooded the state and transformed the land of sun and sand.

New forms of rail are being looked at as a potential solution for moving a huge number of people and easing the state’s growing traffic congestion problem – while also inviting development and investments. Complicating this effort is a complex debate, as rail also happens to be one of the most hotly-contested topics when it comes to city planning.

An intercity link for Florida

Tri-Rail, which was authorized by the Florida Legislature in 1989, has been the single link for commuters and tourists traveling between the state’s three most populated counties. Then came talk of a high-speed rail line to link South Florida’s major hubs with Orlando – and Brightline was born.

It’s been a rocky road for the line. Priding itself on speed, comfort, and cleanliness, Brightline also comes with a hefty price tag that includes an expensive fare for riders and a list of unexpected fatalities. Brightline was not cited in the deaths, however, and more than half were ruled suicides.

Despite these early challenges, many investors are maintaining a positive feeling toward the opportunities the rail service can bring. Development projects continue to line up in close proximity to Brightline’s three stations, located in West Palm Beach, Fort Lauderdale, and Miami. All three downtown areas are looking at new residential, retail, and office expansions.

The latest news has Brightline partnering with Richard Branson’s Virgin Group. The rail service’s new name will be Virgin Trains USA. In addition, the new brand filed with the Securities and Exchange Commission to become a publicly-traded company.

The expansion of rail within cities

With two north-south rail lines now operating, next comes the question of how to move people east and west or even how to bring them to other major areas of the cities. For example, once a traveler arrives at one of the three Brightline stations, they now have to rely on walking, rental cars, public transportation alternatives, or a ride-sharing app to further navigate each region. This, in combination with expanding downtown areas, has city officials and developers looking at light rail systems.

In Fort Lauderdale, that meant The Wave. And, yes, that’s past tense because, in May 2018, the whole plan collapsed. Critics argued the idea was obsolete before it even broke ground, saying that travelers would more likely use ride-sharing apps or driverless vehicles. There was also concern the system failed to connect downtown with the airport and seaport.

Developers had been counting on the rail system, which would have linked key areas of the city’s downtown. In fact, many of the projects, already begun before the rail project was nixed, were located near planned Wave stations. Nevertheless, developers remain positive that the loss of The Wave will not deter an expected population surge; it just means a greater strain on the current public transportation system and overly-congested roadways.

Miami’s rail alternative moves forward

Meanwhile, Miami has had a 16-year light rail fight on its hands. The battle began in 2002 when a half-cent sales tax was instituted to extend the Metrorail system into south Miami-Dade. The money, however, was redirected to the Miami-Dade bus system.

In September 2018, a vote by the regional Transportation Planning Organization provided support for the county’s bus rapid transit system or BRT. The line will provide a linkage via US 1 to Florida City. Rather than rail, a new fleet of buses with doors wide enough to allow multiple passengers to enter and exit would operate on 20 miles of existing, dedicated bus lanes. Fourteen stations along the route would provide services.

SoFlo’s CRE linkage

For as long as trains have been traveling down the Florida peninsula, so to have developers and investors. It’s unfortunate that so many ideas seem to be bogged down in battles, whether the proposed public transit system operates on rail or rubber. The idea is to think and move forward to solve SoFlo’s transportation issues.

Fortunately, South Florida’s culture and climate remain an attractive lure for many, and development is following suit.

For a free consultation or to learn more about Morris Southeast Group’s property investment opportunities and/or other services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

When Your CRE Investment Property Is A Landmark

When Your CRE Investment Property Is A Landmark on morrissegroup.com
If those walls could talk, would they tell you landmark status is profitable?

When it comes to CRE investments, there’s a niche market filled with challenges and rewards that can be intimidating to some and thrilling to others: owning a landmark property.

Very often, historic landmark properties tend to be residential ones, typically a free-standing home. In recent years, perhaps as a pushback against development, multi-family, and commercial properties, as well as entire neighborhoods, are using national landmark status as a means of preserving the culture, appearance, and/or significance of a region.

Criteria for landmark status

In order to qualify for landmark status, a building must meet one of six criteria that recognize the site’s “exceptional value or quality in illustrating or interpreting the heritage of the United States in history, architecture, archaeology, engineering, and culture and that possess a high degree of integrity of location, design, setting, materials, workmanship, feeling, and association.”

The property owner – or, in the case of districts, the local government, local preservation board, or homeowner’s association – is responsible for filing the application, which can take anywhere from four months to a year to be approved. The property owner must give permission for his or her building to be listed as a historic property, so this process can never be done behind the owner’s back.

Challenges of owning a landmark property

Needless to say, owning or investing in a landmark-listed property presents a unique set of challenges. At the top of the list is the ability – or freedom – to renovate the structure, particularly since there are certain Americans with Disabilities Act (ADA), energy-efficient, electrical, and structural standards that must be met. Landmark applications shouldn’t be made until after renovations are complete, and many owners worry that their hands will be tied.

Those worries can be eased, however, with the understanding that whatever it is about the building that makes it historic must be preserved. This is truly a labor of love. There may need to be negotiation with and approval from local historic boards or municipalities, but renovations can certainly receive a green light.

Consider, for example, the number of historic Art Deco and mid-century modern buildings that have had their outer shells preserved while the interiors were upgraded. It’s important to note, however, that some regions of the country also grant landmark status to interiors as well as exteriors – and that can make things a little tricky

The benefits of a landmark building

For the investor who wants to own a piece of history, there are benefits to landmark property status. For starters, most structures are located in historic districts which are usually in the heart of cities. Very often, this location means massive foot traffic for tenants.

At the same time, there’s also the prospect of developing a reputation as an investor who cares about the community in which the building is located. That alone can help attract prospective commercial and residential tenants.

Then, there is a tax incentive. An income-producing property that is listed or is soon to be listed on the National Registry is eligible for a 20% federal rehabilitation income tax credit. The property must retain enough materials and historic characteristics for it to be eligible.

Your SoFlo CRE and landmark specialists

Morris Southeast Group has been serving the community since 1976. We know the neighborhood treasures and the hidden gems that not only hold potential, but also have a historic tale to tell – one that provides benefits to owners, tenants, and the public when this history is preserved.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Is There Room For Self-Storage Investment In SoFlo?

Is There Room For Self-Storage Investment In SoFlo? on morrissegroup.com

It’s the stuff of CRE opportunities

Any talk of commercial real estate investments is usually about retail and office spaces, industrial facilities, and multi-unit residential properties. There is, though, another niche CRE market that’s figuratively and literally full of possibilities: self-storage.

A recent list of the top 10 self-storage markets to watch has South Florida at number 8, and for some very good reasons: properties that are currently available, population, new growth centers, and, of course, the human need to hold onto stuff.

Why SoFlo is especially attractive for self-storage

In a sense, the demand for self-storage in South Florida is a bit like the perfect storm. For starters, a large proportion of the population lives in residences that provide very little in-house storage. These properties run the gamut – from rental properties or condos to old-Florida homes or luxury hi-rise units.

There’s also the matter of demographics. At the top of the list are aging Baby Boomers, many of whom retire and head south to start a new life chapter in Florida. What many discover, though, is that despite their downsizing from their previous residence, they still have lots of stuff – collections and sentimental possessions – that won’t fit into their new location.

Similarly, Millennials and younger individuals tend to rent in bustling downtown hubs, where units are small with very little storage. As they acquire things and move to different-sized units, some items need to be stowed away for another day.

Why self-storage is especially attractive for investors

For the investor, self-storage can potentially lead to a steady income stream. Very often, self-storage facilities do not require the same amount of maintenance as a more traditional CRE space.

Additionally, the average stay in a self-storage unit is one to three years. With proper management and knowing the market, it’s possible to maintain a stable occupancy which can lead to a steady 8% to 10% return.

Challenges to self-storage investment

Despite the South Florida region sitting at #8 on a self-storage markets-to-watch list, there are still some things to consider. Some investors believe the time to have entered the market was immediately after the Great Recession when many homeowners lost their homes and a lack of storage space created a definite need.

At the same time, experts estimate that developers will complete approximately three million square feet of self-storage in South Florida in 2018. The increase in development means that there are higher vacancies, which in turn leads to lower rents.

Meeting those self-storage challenges

As with any CRE investment, it’s imperative to know the market. Despite the challenges above, some developers are giving self-storage a whole new look in order to meet the changing demand. The market, it seems, has niches within its niche.

Self-storage occupants tend to live within a 1 to 5-mile radius of their storage unit. As more people opt to live in storage-limited residences in downtown areas, some developers are transforming storage facilities from rows of garages to something that looks more like a stylish office building and locating them within the community rather than on the fringes. It’s becoming more common to see multi-use building plans also include a portion of the construction dedicated to self-storage.

New projects are also racing to offer clients new perks, such as larger spaces for maneuvering bulky furniture, environmentally conscious climate controls, music, and brighter lighting. Perhaps the most niche-specific self-storage unit in the area is The Collection Suites in Doral, a facility for car-enthusiast residents of luxury condos in Miami who are in need of additional parking spaces.

Knowing the SoFlo market

Founded in 1976, Morris Southeast Group knows South Florida, its neighborhoods, its needs, and its CRE trends. For a free consultation or to learn more about our property investment opportunities and/or other services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Why Working With an SIOR Agent Matters

Why Working With an SIOR Agent Matters on morrissegroup.com

Investor confidence is just one of the rewards

The commercial real estate (CRE) marketplace can, for some investors, seem like a very intimidating world. Properties, regulations, and legal intricacies are plentiful – and so an individual will most likely want to develop a relationship of trust with a CRE agent.

Unfortunately, selecting the right agent can be just as intimidating. Unlike doctors and lawyers, there is no highly-specific, legally-mandated designation for an individual to practice commercial real estate – and that’s why professional organizations are key to establishing a standard of practice and designating a professional’s success in meeting those standards.

SIOR leads the way for CRE professionals

The Society of Industrial and Office Realtors, or SIOR, is one such professional organization. As an affiliate of the National Association of Realtors (NAR), SIOR has committed itself to maintain the highest professional and ethical standards in the CRE industry. At present, the organization has more than 3,200 members around the globe.

As part of its mission to uphold these standards, the organization established a designation as a means of not only rewarding those professionals who have worked rigorously to meet SIOR’s rigorous requirements for entry, but to also serve as an indicator to clients that an agent has gone far beyond others in that field.

Achieving SIOR membership

Not every CRE agent is a member of SIOR. That honor belongs to a select class of professionals who have made a commitment to better themselves and the industry. To considered for entry, eligible candidates must have a minimum of five years experience in the field, with a proven significant level of deal volume.

After applying, the real estate professional then embarks on a series of SIOR-established goals, including classes on finance and a heavy emphasis on ethics – obtaining endorsements from other SIOR designees is necessary to complete the process.

SIOR designation and the investor

In addition to recognizing real estate professionals for their commitment to achieving and maintaining SIOR’s standards, the designation is also a way to communicate to clients that they can have confidence in the ethical and professional practices of SIOR brokers. When those four letters follow an agent’s name, it says a lot:

  • The agent is a member of an elite class of CRE professionals, one who is the most knowledgeable, experienced, ethical, productive, and successful in the field;
  • The agent has gained the confidence of others in the profession, from corporate executives and other brokers and agents to lenders;
  • The agent is committed to maintaining those standards and SIOR designation through ongoing education, professionalism, and ethical behavior;
  • The agent is able to connect investors to a global network of other SIOR designees;
  • The agent has a proven reputation as a deal closer.

SIOR in South Florida

Ken Morris, the President of Morris Southeast Group, is proud to be among the two percent of real estate professionals who have achieved and received the SIOR designation. His commitment to industry professional and ethical standards has elevated his team to reach for those same goals. The result is seen each day in the relationships with long-term and new clients.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

A Tree Grows In South Florida

A Tree Grows In South Florida on morrissegroup.com

Landscaping your CRE is an important investment

When considering the value of any residential property, a lot of attention is given to its curb appeal. It’s an industry unto itself – so much so, that countless home improvement shows are devoted to front yard makeovers.

That same attention to appearance’s detail, though, is often neglected or ignored completely when it comes to a commercial real estate (CRE) and that is unfortunate. As it turns out, many of the benefits of curb appeal are as important in CRE as they are to residential properties.

The benefits of landscaping CRE

When considering the outside appearance of a commercial property – from retail to multi-family to even industrial spaces – there is, of course, the initial investment. This amount can vary based on how much the owner or investor would like to accomplish.

That being said, the benefits typically outnumber those costs:

  • First and foremost, landscape enhancements are another way of increasing a property’s value immediately and long-term. The building interior may need regular upgrades to address changing technologies, but landscaping, if done correctly, continues to add value to a property, particularly as trees grow and become established.
  • At the same time, the first impression of your property can determine outside interest in leasing space. Ignore the outside, and it’s more likely that people – including potential tenants or buyers – will reach a negative conclusion about the building’s owner or manager.
  • Improved landscaping can mean improved foot traffic and business for tenants, which, in turn, leads to a financial benefit for the owner.
  • Study after study has shown that green space is aesthetically pleasing and has a calming effect on people, hence the old adage to stop and smell the roses.
  • Finally, landscaping is good for the environment, especially in urban areas, where the combination of sun and cement can create an urban heat island. Increasing tree canopy or the addition of green parking lots can significantly cool things off – which is why municipalities in South Florida are greening medians and adding public park spaces.

CRE Landscaping 101

What the CRE owner is able to accomplish has a lot to do with available space, zoning, and, of course, budget. That being said, any landscaping improvements will need a degree of maintenance, such as irrigation, pruning, mowing, and edging. These responsibilities can either be added to the in-house maintenance crew or contracted to a private landscaping service.

Still, here are a few basic landscaping suggestions:

  • Consider what the property already has and determine how best to utilize it. Do current plantings need pruning? Can they be dug up and moved to another location? Make note of plantings used in large commercial parks and condo complexes and take pictures so a landscaper can match that appearance.
  • If there is a lawn area, ensure that it’s properly maintained or improve its appearance with sod.
  • Investigate alternatives to traditional gardening such as xeriscaping, which means using slow-growing, drought-tolerant plants that will not put a strain on water supplies, and planting South Florida native plants, which are better adapted to local growing conditions.
  • If there isn’t a lot of room for major landscaping, try using large, colorful pottery on either side of the door or along the sidewalk. These can be planted with small trees, shrubs, or seasonal flowers.
  • With many tenants now sharing indoor commercial spaces, extend that shared space outside with a common area for outside working, dining, or relaxing. It’s another way to make a property more attractive for potential tenants.
  • Keep landscaping interesting with plants, shrubs, and trees that can provide color, flowers, or texture.
  • When it comes to trees, keep an eye toward hurricane season. As much value as trees add, they do require maintenance to make sure they’re healthy and safe.
  • Don’t forget about the nighttime appeal of the property. Landscape lighting helps to keep the property looking its best at all hours.

Landscaping in South Florida

Morris Southeast Group is fortunate to be located in South Florida, where there is a 12-month growing period. There really is no excuse to not take advantage of the climate, the wide variety of rugged, low-maintenance plants, and our ability to connect you with landscaping professionals to help you achieve and maintain your curb appeal vision for your CRE investment.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Beware of Hidden CRE Issues

Why smart, thorough inspections are vital in real estate

There is no doubt that a property inspection, as nerve-racking as it may be, is an important and necessary part of the purchasing process. The last thing anyone wants when purchasing a commercial property – or any property, for that matter – surprise, or what I like to call “landmines.”

Sadly, buyers cannot count on sellers to disclose all there is to know about a property. But having a qualified third-party inspector take a hard look at a building not only uncovers these landmines but can also save investors and owners money in the long run. There are three key areas where landmines are usually found:

1. Physical structure

It goes without saying that a proper inspection will include the physical structure itself. This means taking a closer look at everything from the roof to windows to wiring to heating and air conditioning units to drainage and ADA and code compliance.

There’s also the matter of what cannot be seen with the naked eye – and subsurface plumbing is a prime example. All too often, broken water and waste lines are not discovered until after purchase, when the new owners receive water bills higher than budgeted. Issues missed with an improper inspection can result in expensive headaches and repairs – in this case, breaking up cement flooring.

2. Zoning

Unfortunately for investors, zoning is an area that’s not only overlooked, it’s also not even on the radar. The bottom line is that it’s imperative to ensure that zoning and codes allow the intended use of the property before purchase.

3. Environmental

Again, this is an inspection of what isn’t so apparent. I often like to make sure my clients have, at the very least, a Phase 1 audit, in which an environmental audit company does a thorough look at the books and records of the property’s previous use. This will help uncover any environmental issues that may still be lingering in the soil surrounding and beneath the structure.

If warranted, this can lead to a Phase 2 audit, in which the environmental audit agency takes soil samples to check for any contaminants. Although this is more suitable for industrial properties, there have been cases of office properties located near gas stations that have experienced a leak, thereby impacting the surrounding properties.

The Morris Southeast Group response

Throughout the CRE process, you must learn all you can about a property of interest. While it’s impossible to protect oneself from everything, a thorough inspection can bring you that much closer to that everything ideal.

Working with the professionals at Morris Southeast Group can connect you to your perfect property, and help you learn all there is to know about that property so there aren’t any landmines getting in your way.

For a free consultation or to learn more about our property investment opportunities and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

To Buy Or To Lease?

That is the CRE question

It seems fitting for Shakespeare to be the inspiration for this headline. In many ways, the Bard faced this same dilemma as a playwright, actor, and businessman. In his time, traveling troupes of actors would perform in rented locations or even out in the open, often passing around a hat for payment. As London’s population grew, building owners would lease out performance space and keep a portion of the profit.

When the owner wanted to do something different with the building, the actors found themselves back on the street and performing for a pittance. Shakespeare, already an established playwright and founding member of a joint-stock theater company, and his fellow shareholders were tired of remaining dependent on landlords and decided it was far better to own a theater: The Globe.

Times haven’t really changed

While times have changed, Shakespeare’s work has remained timeless – and so too has the “to buy or to lease” question. In fact, it’s often the top question among my commercial clients, regardless if they’re interested in an office, retail, or industrial space.

In order to come up with the best answer, there are a few questions and metrics that need to be examined:

1.  What is the nature of the business?

All businesses are not created equal, and as a result, there are specific variables that will often drive the answer to the own/lease question. For example, a manufacturing business will most likely need to own a space so it can have a facility specifically designed for its needs – which can include smelting equipment, laser-cutting technology, or something else that’s very expensive to relocate each time a new location is leased.

On the other hand, a more standard company – office, some industrial, or even retail – may have a more difficult time coming to an own/lease conclusion. Factors that drive that decision to own include a business model that is unlikely to change, quick expansion being unlikely and plans to be in business for a long time.

2.  What is the opportunity cost?

Determining this requires the entrepreneur to look at an amount of money and to decide where that money is best used. For some, the answer will be to invest in a property as an owner, anticipating back-end gains as it appreciates in value. For others, a wiser choice would be to put that money back into their business, the bond market, pork belly futures, or whatever else they choose.

3.  What is the cost to operate and occupy vs. leasing?

As with any business-related decision, it’s critical to look at the bottom line – and this question gets to the heart of the own/lease dilemma. Owning and operating have their own costs, as does leasing. When looking at these numbers, it’s important for the costs of either option to be at or near each other, plus or minus 10%.

If either number is significantly higher or lower, then the next step is to closely examine what’s driving that discrepancy. With more questions come more answers, and this results in greater clarity on whether to buy or to lease.

4.  What if Shakespeare lived in South Florida?

When we think of Shakespeare, we often consider him as a solitary worker, a genius locked behind closed doors with his quill and paper. Scholars, though, believe otherwise. Shakespeare was part of a talented team that worked closely together, excelling in boldness, flexibility, and foresight.

That’s pretty much how I would describe the team at Morris Southeast Group, especially as we assist clients in making smart decisions for their businesses and their investments.

For a free consultation or to learn more about our property investment opportunities and/or other services in South Florida, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Site Selection in Tertiary Markets, Making the Most of Incentives

Site Selection in Tertiary Markets, Making the Most of Incentives on morrissegroup.com

Incentive packages can really make a difference to a smaller company’s profit and loss statement… There is no question that incentives play a role in site selection, even in small-town America.

While the Amazons of the world grab headlines for site selection and financial incentive packages to lure them to community ‘X’ and ‘Y,’ it’s worth remembering when seeking an industrial site or back-office location that tertiary markets in many U.S. markets are working just as aggressively to attract businesses with programs and incentives that appeal to manufacturers, distribution companies, and office occupiers.

Of course, the main elements of a site search – location, facilities, access to a qualified and perhaps abundant employment pool, and connectivity to major transportation services such as freeways, rail, cargo-friendly airports, and ports, remain the most important aspects of in a site search, yet securing incentives for your clients will add real operating income to their bottom lines.

Our firm was recently involved in the $4.5 million acquisition of a 280,000-square-foot manufacturing and distribution facility on 19 acres on behalf of The Legacy Companies, a leading food service and consumer appliance organization with multiple household name brands based in Fort Lauderdale, Florida.

After evaluating at least a dozen sites in six southern states, including Tennessee, Arkansas, Mississippi, and Alabama, the client selected a Paris, Kentucky property because it checked all the boxes and the Commonwealth of Kentucky offered a flexible incentives package. The Kentucky Business Investment (KBI) program allows companies to decide what percentage of their annual incentive allotment they’d like to take in payroll tax and/or corporate income tax. For example, they can do 0% in payroll and 100% on income one year, then change it up and request 36.3% in payroll and 63.7% the following year, or whatever split they choose.

This creates maximum flexibility for recipient companies. A company with few employees and high-profit margins may want to take more on corporate income. Those with many employees and lower income may want more back in payroll. It allows individual companies to decide on the best fit for them.

As well, KBI has three target requirements, which companies must meet annually to be eligible for their incentives:

  • A negotiated jobs number
  • A negotiated average hourly wage
  • Corporate investment amount

The Legacy Cos. opted for the payroll incentive package worth up to $600,000 if the firm hits its targeted numbers annually for employment, average hourly wage and investment over a 10-year period. The performance-based incentives are available at the company’s discretion on corporate income and/or payroll tax deductions. On payroll tax, the incentive contribution breakdown would be one-half percent from the City of Paris, one-half percent from Bourbon County and 3 percent from Kentucky.

We worked closely with the Gordon Wilson, the Executive Director of the Paris Bourbon County Economic Development Authority and Taylor Sears, a Project Manager with the Kentucky Cabinet for Economic Development, an executive branch of government that reports to the state governor, to negotiate the incentive package.

Our criteria during the site search featured:

  1. Maximum drive time from major terminals – UPS, Swift, Conway
  2. Distance from the property to nearest interstate, which is important for freight routing
  3. Employment data, average hourly employment rates and cost – for manufacturing and warehouse workers
  4. Facilities – with right column spacing, ceiling heights, loading capacity
  5. Fit within a pricing model that aligned with the client’s business plan

Here is why the deal worked for The Legacy Cos. Paris is 18 miles from Lexington, KY, the horse country capital of North America with an MSA population of approximately 400,000. The region has a deep pool of potential assembly and distribution workers, but also mid-level and even senior management personnel, if Legacy decides they want to continue expanding in Paris. The current plan is to employ 60 full-time people at its new facility.

Lexington also has culture, The Lexington Opera, the University of Kentucky Center for the Arts, University of Kentucky sports, Churchill Downs Racetrack in nearby Lousiville (home to the Kentucky Derby) and NASCAR racing. Interstate 75 is about 15 minutes from Paris. Paris landed CMWA, or Central Motor Wheel of America, which supplies aluminum and steel wheels to major car makers such as Toyota, which built a plant in nearby Georgetown, KY in the 1980s and has been a draw for automotive components makers ever since.

As logistics go, trucks can depart from Paris and reach two-thirds of the U.S. population with a one-day drive. The Cincinnati/Northern Kentucky International Airport (CVG) is currently ranked #2 in the U.S. for air cargo and with a new, $1.5 billion Amazon facility there, the airport expects to move into the #1 spot soon. DHL has one of its three worldwide air cargo hubs at CVG. As well, Louisville International Airport (SDF) also has two major UPS operations; Worldport air hub and Centennial ground hub.

Kentucky Governor Matt Bevin is an American businessman and has helped set the tone for Kentucky’s economic growth. In January of 2017 Kentucky became a right to work state. Kentucky smashed records for investment growth when it attracted $9.2 billion in 2017 compared with its previous best year, 2015, which drew $5.1 billion of investment capital to the state — only including manufacturing, distribution and technology business – not retail or restaurants, according to a spokesman for the Kentucky Cabinet for Economic Development.

Similarly, a SIOR colleague of mine, Tim Echemann, SIOR, CCIM with Industrial Property Brokers in Piqua, Ohio, recently leased half of a new 100,000-square-foot factory building in Defiance, OH to DECKED, the truck bed storage and cargo van storage systems manufacturer. He said the city payroll tax rebate would likely save DECKED $50,000 a year in city income taxes, or enough to pay for one full-time employee with benefits for a year, and that was a significant reason for the auto parts company to select that property.

Echemann is also listing an industrial building in Tiffin, OH that is within a property tax abatement zone in which the owner/occupier can save about $30,000 in property taxes a year during a 15-year period, based on the assumption that the new building would be valued at $2 million.

“The cities in the tertiary markets of Western Ohio and Eastern Indiana that offer incentive packages can really make a difference to a smaller company’s profit and loss statement. There is no question that incentives play a role in site selection, even in small-town America,” Echemann said.

This article was originally published at GlobeSt.com.

Ken Morris is principal of Morris Southeast Group. To reach Morris Southeast Group, call 954.474.1776. You can also reach Ken directly at 954.240.4400 or via email at kenmorris@morrissegroup.com

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