April 15, 2016
By: Dennis Kaiser
Small building acquisitions tend to fall below the radar, especially when there are so many large deals being closed. NGKF’s David Kluver says smaller deals are big business. Recent examples he cites include a 18,156-square-foot industrial building in Lake Forest, CA, a 21,303-square-foot, office building in Laguna Niguel, CA, a 6,000-square-foot, retail property in Lake Forest, CA, and an 11,500-square-foot, industrial property within the Irvine Spectrum. Connect Media asked him to explain what’s driving this smaller building acquisition trend.
Q. What property sector is the hottest for small building acquisitions in Orange County?
A. All three primary sectors of industrial, office and retail are hot for small building acquisitions, if the property has an A or B location and A or B level of construction. Supply is very limited because the land cost has risen to a level where only residential or large retail or medical new construction make sense.
Q. What types of buyers are looking for small office and industrial assets? And why?
A. Financing is still at an all-time low so qualified users of small office and industrial space like to lock in their facility costs that are comparable to rents. These facilities are excellent retirement vehicles for the individual or small group that owns them and can typically pay the asset off over a 15- to 25-year loan period.
Q. How are you advising your clients in this market?
A. There are a number of instances lately where my investment clients were looking for a tenant for their asset, but ended up deciding to sell it at a market high instead. The demand from buyers is very high because they can’t find the right product. Sellers are realizing that they can make a strong profit because of the lack of available smaller assets. In several cases, I have sold an asset in the 3% cap rate range, then have done a 1031 exchange into the open market for a property in the 6% range. Off-market deals are common, especially for user and investment buyers … it is critical to anticipate a deal before it hits the market.