IE Business Daily Business news for the Inland Empire.
By Rick Lazar
The Inland Empire’s commercial real estate market is now heading towards a full-fledged recovery after the economic Recession that began in 2007-08.
The demand for existing industrial and office buildings has been steadily increasing since 2012. This fact is greatly supported by the continuing development of large industrial warehouses which are being snatched up by major national corporations that are either relocating and/or expanding their warehousing/distribution/e-commerce departments throughout the Inland Empire.
But what about the development/construction of smaller industrial and office buildings?
There has been no development of smaller industrial properties since 2008. The impact of the Recession was undeniable and resulted in the sale and/or loss of many properties through bankruptcy and foreclosure.
With the Recession clearly behind us, we can look forward to the opportunities ahead. Let’s say you make a decision to expand your business and decide to purchase a 10,000 square foot office or industrial building. You must then consider the following:
- The rising prices of a commercial real estate market that continues to improve.
- The increase in competitive interest rates for commercial loans.
- The lack of development of smaller office/industrial buildings in the past 7 years.
- The fact that the lack of availability of existing smaller office/industrial buildings can only prove to increase asking prices.
As an alternative, you might instead decide to purchase a parcel of land and develop a building. This would allow you to construct a building to your own specifications resulting in exactly what you need instead purchasing an existing building and having to undergo extensive remodeling.
The first decision is to determine the size of the building you would require. You then need to purchase a lot large enough to accommodate the building square footage plus a parking area and yard storage (if needed). Typically a commercial real estate broker could be engaged to find and acquire an appropriate land parcel as you will also need to consider zoning issues etc. when researching available vacant land. You would then enter into escrow to purchase the land and close escrow on the land only after ensuring that you can build the intended property. This would involve the conducting of soils studies (soils composition and compaction) as well as completing an environmental analysis of the land. You would also hire a civil engineer and an architect to assist in obtaining entitlements from the local municipality. In addition, you will have to verify that there are no environmental issues, such as contamination of the soils or sensitive flora or fauna at the site.
You may need to have the property surveyed to verify its size and boundaries. You will have to check the title records for the property to verify that there are no easements that would affect your ability to build on the property and you will need to verify that all utilities are available to the site. Your civil engineer will prepare a site plan, your architect will prepare the construction plans and a landscape architect will prepare your yard plan. You will need to hire a general contractor who will provide you with an estimate of the costs to construct the building and then you will need to contact your bank to obtain a construction loan for the cost of the construction plus the acquisition of the land.
Before you even put one shovel in the ground, there are still many factors that need to be taken into consideration i.e. the type of construction (concrete, block, steel, wood frame/stucco), the size and height of the building (one, two or several stories), the ceiling height, the size of the parking lot and yard area, and the size of the electrical power system, lighting system, elevator system, plumbing system, etc. State and Federal law requires to you to make sure that the building is designed to meet current Americans with Disability Act (ADA) requirements.
The following are a few additional items to consider when making the decision to develop a commercial property. The State of California has enacted laws that have increased the cost of building construction. The State Water Resources Control Board now requires that, on new construction, the storm water drain only on to your property. In other words, you are not allowed to drain rain water on to City streets. The cost of installing an on-site drainage system can be quite expensive, even adding as much as 10% to the cost of construction. In addition, the new California Energy Commission Efficiency Program (Title 24) can add as much as $10.00 per square foot to the cost of construction and this cost can double on medical buildings.
The entire process of developing a commercial property from inception to occupancy can take anywhere from 8 to 20 months, as opposed to a typical escrow for the purchase of an existing commercial property which can take anywhere from 45 to 75 days.
In conclusion, even with the current real estate market supporting increased asking prices for existing properties, the process involved in developing a new commercial building requires considerable more time and the overall cost is typically much higher.
Rick Lazar is Senior Vice President at Coldwell Banker Commercial Sudweeks Group and can be reached at (909) 793-3600.
