Ah! Spring has sprung!

Spending time outside during changing seasons has a surprisingly strong influence over our general mood and energy level. But most of us spend about 75% of our day, 5 days a week indoors – – – working.

What effect does our workspace environment have on our physical and mental well-being?

Due to tighter regulations and standards, the days of unsafe, unhealthy and unregulated workplaces are gone. But standard operating procedures, equipment updates, and mandates are still crucial in keeping workers healthy.

Two regulations in California aim to assist in disclosing new mandates regarding energy use.

California AB 1103

California AB 1103, a Nonresidential Building Energy Use Disclosure Program, mandates that a building’s energy use data and previous year ENERGY STAR rating (as determined by the state board) be disclosed to prospective buyers, lessees and financial lenders prior to the sale, lease, or financing of an entire building.

This regulation came into effect in January 2014 for buildings with a total gross floor area measuring over 10,000 square feet, and will be (as of July 2016) necessary for all buildings with a total gross area of over 5,000 square feet, to be compliant with all stated energy regulations and environmental standards.

Title 24

Also in July of 2014, updated 2013 Standards for Title 24, California’s Building Energy Efficiency Standards for Residential and Nonresidential Buildings, went into effect to reduce California’s energy consumption by incorporating new energy efficiency technologies and methods.

Per ALTA Environmental, with few exceptions, all nonresidential buildings must integrate “manual light dimming and on/off controls, tuning, automatic daylighting (photosensor), and demand response controls in buildings over 10,000 square feet. Use-specific occupant sensing controls are required for a variety of different occupancy use cases. In particular, during a renovation project, existing buildings must meet the new Title 24 Lighting Standards when the project affects at least 10% of existing lighting fixtures, or at least 40 fixtures are modified-in-place.”

What Else Can Germinate Workplace Wellbeing?

In addition to adhering to energy efficiency standards, the goal of many workspace designers is to remove distracting elements from the workplace. By keeping the ambient temperature at predictable, steady levels and controlling lighting, workers are more productive and energy use is more efficient.

But what key component is missing in a majority of workspaces? The answer is natural light. Natural light has been shown to increase happiness and thereby, should positively affect productivity levels.

Bringing in the Green

In addition to natural light, fresh research says that indoor plants benefit workspaces, and people. Natural, living greenery plays a critical role in providing a pleasing, peaceful and rewarding environment.

Studies indicate that live indoor plants:

• Enhance indoor air quality
• Reduce sick building syndrome
• Contribute to overall well-being
• Can boost performance, productivity and creativity
• May decrease stress and temper negative feelings
• Can mitigate noise
• Enliven your business’s appearance

The Norwegian State Oil Company shared the findings of a key study they conducted to exam the effect indoor plants had on the general health of a group of office workers. A quote from the study states, “Data from about 12 different symptoms were collected, including fatigue, headache, dry facial skin and dry skin on the hands, coughing, and eye irritation. After this time, half of the group was provided with a selection of common interior plants and half had none. Over three months, considerably fewer health problems were reported by those people with plants. Fatigue and headache fell by 30% and 20% respectively, hoarseness and a dry throat fell by around 30%, coughing by around 40% and dry facial skin fell by around 25%.”

Plants can also be effective at reducing office noise levels. If the types of plants and their specific location in the workplace are chosen carefully, they can act as sound buffers.

Besides reducing noise and increasing health, indoor plants can improve your business’s perceived personality too. Companies – especially those that have clients who visit often – should invest in a green plant program. Placing plants in the entry areas, offices, meeting rooms and other public spaces gives the office a welcoming, comfortable, and caring appearance.

Pushing Out the Noise

We’ve talked about the calming, cleansing benefit of plants and how they can minimize noise. But plants are hard pressed to stifle the grating, unharmonious noises that can shatter the concentration of workers and cause them real long-term harm – especially in warehouse and production environs.

The Centers for Disease Control and Prevention (CDC) tells us that, “Occupational hearing loss is one of the most common work-related illnesses in the United States. Approximately 22 million U.S. workers are exposed to hazardous noise levels at work, and an additional 9 million are exposed to ototoxic chemicals. An estimated $242 million is spent annually on worker’s compensation for hearing loss disability.”

NIOSH recommends, “… removing hazardous noise from the workplace whenever possible and using hearing protectors in those situations where dangerous noise exposures have not yet been controlled or eliminated.”

Since 2004, the Bureau of Labor Statistics (BLS) has reported that over 125,000 employees have suffered substantial, irreversible hearing loss. The BLS notes that neither surgery nor a hearing aid can help correct this type of hearing loss. Even experiencing short-term, loud noises can bring on a temporary change in hearing or a ringing in your ears (tinnitus). These effects may go away after you leave the raucous area. However, if you work in that type of atmosphere every day the damage may be debilitating.

Jarring noise can also be unsettling mentally. It adds to stress, breaks concentration (which can cause a safety hazard in itself) and interferes with needed communication. Accidents increase and employee discomfort leads not only to health issues, but also to high employee attrition rates.

Warning signs that your workplace may be too noisy:

• You hear ringing or humming in your ears when you leave your workspace.
• You have to shout to be heard by a coworker a short distance away.
• You encounter temporary hearing loss at your workspace.

So how loud is too loud – legally?

According to the standards set by OSHA, “Legal limits on noise exposure in the workplace are based on a worker’s time weighted average over an 8 hour day. With noise, OSHA’s permissible exposure limit (PEL) is 90 dBA for all workers for an 8 hour day. The OSHA standard uses a 5 dBA exchange rate. This means that when the noise level is increased by 5 dBA, the amount of time a person can be exposed to a certain noise level to receive the same dose is cut in half.”

Ensure Employee Safety and Satisfaction

Maintaining compliance with state and local laws and regulations, ensuring building safety and employee comfort, and staying informed of the latest technology trends to ensure profitability can be a full time job for any property owner. Meissner Jacquét Commercial Real Estate Services, a San Diego-based commercial real estate management firm, employs energy management and sustainability practices in its service offerings to clients to address these issues.

Energy conservation and efficiency efforts help reduce property owners’ operating expenses, improve tenant retention by increasing tenant comfort and productivity, and increase asset value. Jerry Jacquet, a Principal at Meissner Jacquét, says that “our property managers identify all sustainable opportunities in order to position our clients’ assets so that they remain competitive in the marketplace, while meeting ownerships’ sustainability goals.”

Entrusting your real estate asset to a qualified, professional commercial property manager will not only keep your building up to standards, but will positively affect your bottom line.

Sources:

Meissner Jacquét Commercial Real Estate Services
Alta Environmental
Green Plants for Green Buildings
First Choice Hearing

Industrial Space Sets the Pace in Commercial Real Estate

The growth of the U.S. industrial real estate market finished strong at the end of 2014. The year posted an astounding “19th consecutive quarter of falling vacancy rates to reach its lowest national level in nearly 14 years, ending 2014 at 7.2%,” as stated by CoStar.  2015 promises to be yet another banner year for the industrial market.

Demand for Industrial and Commercial Space is on the Upswing

The anticipated 3.5% rise of the gross domestic product (GDP) in 2015 –  due to more people landing new jobs and overall wage increases –  will have a direct impact on the industrial real estate market.  Predicted is a fall in vacancy rates and a rise in rents. However, the expectation is that this pace will decrease as the year goes on and construction catches up with demand.

CoStar goes on to say, “GDP is considered a primary driver of demand for industrial space because its components — online and brick-and-mortar consumer spending, businessspending, homebuilding, exports and imports — all generate activity in the warehouse and logistics market.” California industrial real estate markets are among those growing at a fast pace.

Vigorous job growth combined with elevated consumer confidence is ramping up the construction appetite for not just warehouse space in six major California markets, but also multifamily and office space. This trend is expected to last through 2017.

“The forecast is optimistic for commercial real estate once again, and is expected to remain solid for the next few years,” says Jerry Nickelsburg, adjunct professor of economics at UCLA Anderson School of Management and UCLA Anderson Forecast Senior Economist. “Developer sentiment in general is buoyed by a recovering economy, job market growth and increased imports through California ports.”

Preference Shows Build-to-Suit and Warehouse Space

“Industrial demand remains hot for all types of industrial and commercial real estate space – fulfillment/distribution center, warehouse, manufacturing, and flex,” said Thomas J. Bisacquino, President and CEO of NAIOP, the Commercial Real Estate Development Association.

Structures in the industrial sector owned by manufacturers are plants or factories, characteristically using power-driven machines and materials-handling equipment.  Whereas warehouse space often serve as distribution and order picking facilities, which fall into four main categories – private, public, automated, and climate-controlled.

While some commercial industrial buildings are built specifically for a single user, many are built as part of an industrial park on a  build-to-suit basis. These buildings are constructed for a range of reasons, including:

• Companies with aged or outdated facilities want new facilities to allow for updated processes
• Firms are relocating their facilities to more desirable markets
• Companies require more space as their businesses grow
• There are new products to manufacture or process
• Multi-plant companies are expanding
• Multi-plant companies are consolidating several smaller plants into a large, single facility

Right now industrial preference in the U.S. favors smaller warehouses, in both new and existing space.

Employment Heads Demand for Commercial Office and Retail Space

Commercial office space demand is fueled by professional employment trends. Additional factors apart from the number of employees influence space demand. These factors include workspace utilization levels, related rent levels and cycles, tenant type, employee attrition, company growth rates, and general culture.

There is a particularly compelling trend steering the demand for commercial office space. It’s called “live/work/play” and it’s not just real, it is statistically significant. The rebirth in urban living – especially downtown living (downtown where? NY, LA, SF?) – is boosting secondary office markets throughout the country. What’s interesting is that this drive towards downtown office space is coupled with a call for high quality work environments that don’t cramp the millennial generation’s working style. The layout and design of the urban office space is being used more and more as a recruiting tool to get millennials in the door. This group – quickly gaining seniority in the workforce – wants flexibility, open spaces, variety, and access to amenities in their office life. Redevelopment is rampant, but it is not always easy to morph older, existing space into the new trendy look and feel.

There’s no doubt that the influence of Millennials can be felt in all industries, but the impact is enhanced in the commercial real estate industry.  “We get to create and deliver spaces that are not only in demand but innovative, and this not only aids in recruiting new workers but in obtaining and retaining tenants. It’s a win-win,” says Jerry Jacquet, a Principal at Meissner Jacquet Commercial Real Estate Services in San Diego.

The ERA prepared demand forecasts for various land uses in California, including San Jose, Los Angeles and San Diego region, spanning from 2010 to 2030. In the study, the forecast calls for the commercial office space demand low to be 2,369,200 square feet by 2030 and the high to be 3, 625,400 square feet.

In commercial retail space boomers are having a similarly strong influence, especially in the burgeoning need for medical space.  In investment surveys, these spaces have been seen as a “buy” for 2015 by 36.3% of respondents, and a “hold” by 40.6%, with only 23.1% advising “sell.”  That being said, investment and development in the commercial retail sector ranked lower than industrial or office sectors in the same survey.  The ERA survey put the retail space low at 204,500 square feet and the high at 322,400 square feet.

Reshoring and Structural Demands Drive Industrial Growth

“There is still plenty of upside for the commercial industrial market, particularly for rental growth. Both cyclical demand drivers—GDP growth and expanding manufacturing sector—and structural demand drivers—e-commerce and supply chain evolution—will promote strong user demand across geographies and product types,” said Scott Marshall, Executive Managing Director, Industrial Services, The Americas, CBRE.

Take a look at the stats in the graph below from CoStar on industrial real estate inventory, published by NAIOP in the summer of 2014.

The demand for commercial industrial space is evident at the local level in San Diego, where the job hike and the recuperating economy are strengthening market fundamentals. “The industrial market in San Diego saw near pre-recession lows in vacancy with positive indicators across the board in 2014. The recovering economy, the reshoring of many industrial-related manufacturing jobs, the defense sector obtaining both new and renewed contracts, as well as recent big investments in the biotech sector have all fueled confidence in the market,” said John Frager, Executive Managing Director for CBRE San Diego. “In 2015, we expect to see continued big sale price appreciation, significant lease rate appreciation, and more spec development.”

Sources:

UCLA Newsroom

NAIOP

Costar.com

Meissner Jacquet Commercial Real Estate Services

The process of buying or selling commercial real estate can seem overwhelming. However, with the right processes and trusted advisers, these transactions can return positive gains for investors.

Reasons to Acquire a Commercial Property

Commercial real estate is purchased for a variety of reasons, including the ability to:

• Decrease capital costs
• Lower overhead costs
• Institute production improvements
• Accomodate company growth
• Maximize recruitment efforts by relocating to a desirable submarket
• Invest in an upwardly trending property to maximize return

Whatever your reason for acquiring commercial property, it’s a detailed process.  Before any purchase, the buyer must align the purchase with their business initiatives, needs, and operation profile. Many times, commercial property is purchased with tenants – and leases – already in place.

Finding the Right Commercial Real Estate Representation

There are many players involved in the purchase and sale of commercial real estate. That is why it is paramount to secure the right representation. Commercial real estate agents and brokers are knowledgeable and can provide market-specific insight.  In addition, a commercial property management firm can offer unbiased advice and act as the buyer’s or seller’s representation.  In many cases a commercial real estate management firm offers corporate services, including acquisition / disposition due diligence, financial and accounting services, and lease administration.

Document Review

Once you have the right representation, it is time to turn your attention to analysis of the subject property – due diligence should include inspection and document review, among others.

Generally, when performing due diligence, document review should include information about:

• Zoning uses and restrictions
• Property history, including previous sale data
• Special land features including potential erosion, avulsion, falling debris, and possible hazardous substances
• All utility information, including water and sewage
• Any liens or unpaid property-related bills
• Certificates, notices, orders or requisitions that affect the land or buildings

Investor Structures

Purchasing commercial property comes with options in structuring ownership.

A sample list of ownership structures includes:

• Buying as an individual
• Buying through a partnership
• Buying through a company
• Buying through a trust

Before purchasing, every investor should obtain clarity on:

• Available loan amounts
• Loan-to-value percentages
• Terms (eg. 5, 10 and 15 years) and amortization length
• Variable vs. fixed rates
• Payment estimates that include principal and interest

Professional advisers can help you determine which option is best for you, the property and your individual circumstances.

Commercial Property Legal Representation

Of course before you make any offer, consult a legal professional. Your lawyer, along with the commercial real estate adviser managing the sale, will aid in reviewing the sale documents, terms and conditions, along with interpretation of any existing tenant leases, and instruct on any related tax issues.

Before making an offer, it is in your best interest to make it subject to certain conditions (laid out by both buyer and seller), such as favorable finance options, and approval of the terms and conditions of any tenant’s lease. Agree on a date – in writing – when you want  your conditions met. Also, stipulate that no other party can purchase the property unless the conditions are failed to be met by an agreed upon date.

Steps to Sell Commercial Property

The first step in selling property of any type is determining its value. Included in this process is identifying comparables from the property’s submarket to aid in valuation and calculation of actual and potential income. Areas to address include finance options, maintenance records, environmental reports, and detailed data on the surrounding area. This adds up to a substantial amount of paperwork, some of which takes a considerable length of time to compile. Again, bemoaning the reason of why it is beneficial to contract with a professional.

Meissner ​Jacquét Commercial Real Estate Services, a San Diego-based firm, offers Acquisition / Disposition Due Diligence services to its clients.  Jerry ​Jacquét , a Principal at Meissner ​Jacquét , has worked with numerous clients during their due diligence processes and says that, “not performing due diligence before any purchase or sale can wreak legal and financial havoc for an investor.”

Processes Validate Buyer Interest

Performing document review and initiating analytic processes aids in keeping the sale on track, and validates the buyers’ interest in the property.

So how can you get started? First, collect all necessary paperwork that validates ownership, property standing, and fulfills the buyer’s requests. These records will also substantiate your claims regarding the property.

According to Receivership News (a publication of  the California Receivers’ Forum), the following documents should be included in that collection:

• Site plan
• Lot size and zoning information
• Architectural drawings
• Photographs (both aerial and ground level)
• Legal description
• Title commitment
• Narrative portions of an appraisal
• Capital expenditures (details of last 3 years, current and planned)
• Real property tax bills (last 2 years and current)
• Governmental inspection reports (description and status of any violations)
• Utility bills (one year)
• Licenses (description and name of licensed entity)
• Lease(s), sublease(s) and/ or operating agreement(s)
• Service agreement(s) (cancellation rights/penalties)
• Occupancy information (current YTD and last two full years, both detail and summary information)
• Competitive market analysis
• Furniture, Fixtures & Equipment inventory
• Environmental study – Phase 1
• Life and safety information/inspections
• Floodplain information
• Income Statements (current YTD and last two full years, both detail and summary information)
• Balance Sheet (current and last two YE, both detail and summary information)
• Ground Lease

Make it Shine

Putting your property’s best foot forward is an important step towards selling it. Make efforts to institute cost-effective repairs both to the physical structure and surrounding land.  Easy fixes include, fresh paint, minor plumbing repairs, system checks, landscape refresh, pressure wash walkways, window cleaning, and parking lot re-stripe.

The Nuances of the Sell

Find and hire representation that specializes in commercial real estate, then compile a list of the property’s highlights. Catalog all of the aspects that make it unique, appealing and profitable. Be very descriptive. Be sure to investigate the current zoning allowances as these change from time to time. New allowances could make your property even more valuable.  An experienced commercial real estate agent/broker will market your listing in all the usual places, but will also be creative and think outside the box to find all available selling opportunities.

Financing options need to be vetted carefully.  What if you still have a mortgage on your property? Check your loan papers carefully for potential early payoff penalties and parameters around assumability of the loan. Both will impact what you need to ask – and get – for the property.

The Bottom Line

The bottom line is – do not leave any room for error, unanswerable questions, negative financial or legal surprises, or apathetic buyers.

Sources:

• California Receivers’ Forum
• US Bank National Association
• California Business Properties Association
• Meissner ​Jacquét Commercial Real Estate Services