A lot of active businesses are asking me  if now is a good time to buy instead of lease.  This has prompted me to reprint a post from a couple of years ago.  The principles remain the same even if the price negotiations might look a little different in the current soft market.  Enjoy!

 

So you want to buy a building in El Segundo?  Talk about a submarket that went from sleepy to Silicon Beach in a heartbeat!  Like the Arts District in downtown Los Angeles, the small industrial buildings in its cozy neighborhoods have a huge appeal for creatives.  (I mean, who wouldn’t want to call “Smoky Hollow” – a funky 15 block enclave along the southern edge of the city – home?)   New ideas seek a new neighborhood.   Creatives want to create their universe.

 

Needless to say, values have shot up and every building owner has stars in their eyes.   There are real and there are false indicators of value in a resurgent neighborhood.  Be careful.  Don’t buy without an experienced, sober broker working on your behalf. 

 

First of all, accept the fact that a hot neighborhood is a seller’s market.  There isn’t much negotiating on price but even in the hottest neighborhoods, there is a range.  Some factors clearly weigh on a property’s value.  For example, parking can dictate whether an industrial building is a viable candidate for adaptive use to creative office.  If the site is tight, a good broker can persuade the seller to consider a price at the lower end of the range and can press for more flexible deal terms. 

 

Ultimately, it is the energy of the people and businesses migrating to the area that creates relative value.  Does that transformative energy matter to your business?  If not, I can find you a building in Gardena that is much cheaper.  Are the businesses migrating to the street creating a critical mass that will embody a unique culture and panache to the address?  That might be crucial if hipness makes you more competitive in the race to recruit top creative talent. 

 

The big question that keeps buyers awake nights is “will it continue to appreciate?”  Buying to make money in real estate frontiers is for visionary risk takers who get into these neighborhoods early when naysayers think they are crazy.  Buying when the resurgent neighborhood is in full swing must be for sound reasons related to your business.   The upside will take care of itself.