How the 4 ‘D’s of Real Estate Disrupt Business Transitions – Orange County Register

As previously mentioned here, our commercial real estate practice is centered around family owned manufacturing and logistics businesses.

These companies may lease or own the buildings they operate. Common among them are transitions that generally lead to changes such as leasing, selling, or buying.

Today I want to talk about the 5 D’s of migration and how location is affected.

death

I recently learned that the president of the company has entered into a deal to sell the deceased building. This is hard. Having been robbed of his family and business too early and with a limited amount of planning, he had to make some quick decisions to keep the business alive.

After lengthy discussions and many meetings with accountants, bankers, property advisors and lawyers, it was decided to sell the business and the property housing it. One of the bright spots when a property owner dies is a stronger tax base. In other words, the profit on sale is based on the value at death. Therefore, income tax is less severe.

Arrangement

It’s amazing how many manufacturers are at a loss these days. I spoke with 10 people last week.

Two were sold in 2022, and the remaining eight were either in serious negotiations, had recently acquired a competitor, or were considering a company sale this year.

you may be wondering why? Money is cheap, and the same dynamics that govern real estate investing were felt in the world of M&A. Private equity offers significant benefits to well-established and profitable small businesses. Whether it’s a merger, acquisition or sale, real estate decisions need to be made.

Suppose a competitor is acquired. They probably have a facility they run and now the space is redundant. I have seen this surplus capacity dumped by sale or sublease. What if the business is sold and the commercial property is retained? A lease must be negotiated between the new owner (tenant) and the previous business owner.

debt

With interest rates soaring in the past few months, companies with revolving lines of credit or maturing term loans face a different interest rate environment than they did when debt was incurred.

In some cases, the answer to paying off the loan is to sell the property, and in some cases to lease back the premises.

dissolution

Dave Ramsey once said, “The only ship that doesn’t sail is partnership.” Many limited he has seen successful partnerships, so he doesn’t necessarily agree, but two or more of his people in partnerships get into altercations, leading to partnership acquisitions and outright sale of buildings. I have also experienced

divorce

Once the marriage ends, the spouses must divide their assets and go their separate ways. When you put in the family business and some addresses, the split becomes very complicated. If one party demands that the settlement be paid in cash and the liquidity is insufficient, the disposal of the property remains.

Much of the drama surrounding “D” can be eliminated with careful planning and “what if” games. We recommend that you consult a trusted advisor and plan for the eventuality.

Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange.he is 714.564.7104 or abuchanan@lee-associates.com.