Office and Warehouse Facilities with a Good Reputation: To Buy or Not to Buy Revealed by Brian Fielding

Dear Mr. F,

I was approached by one of our local businessmen about his company’s desire to consider a sale/leaseback of their office and warehouse facilities. The company has been around for a very long time and the owners enjoy a great reputation in our community. Is this an opportunity that you would recommend commercial investors to consider or is this too risky a venture?

 

Signed,

Antonio F., Salem, Mass.

 

Antonio,

A wonderful question and I thank you for sharing it with me and our readers.

While money is generally plentiful in our current economy, the bad taste of the banking industry fiasco has left many lenders eager to loan monies only to those that don’t need it. I say that with my tongue planted firmly in cheek, but there is an element of truth to that statement that concerns the Fed and may be a causative factor in the nation’s economic recovery to be slower than it ought to be. It is for that reason that I encourage companies to consider sale/leasebacks – a way to obtain the monies that those entities need to grow and prosper without subjecting itself and its principals to often burdensome personal guarantees and numerous restrictions on how those monies may be spent.

Throughout the country we can find everything from Mom and Pop stores to Fortune 500 companies deciding that they are not in the real estate business and do not want their capital tied up in real estate assets. The credit is often excellent, the facilities are usually properly sized and designed for their operations and the question should not be whether an investor should strongly consider these offerings, but rather how does one get into a position to become among the first to be aware of them.

What your question brings to mind is how important it is for the investor to be “in the loop”, to get to know the leading businesspersons in his chosen community, and to understand the local business environment. We recommend that our readers become involved in the various civic organizations and religious groups within your community. Get to know your local politicians and industry leaders and demonstrate your eagerness to be a contributor to your community and to show your financial prowess and fair dealings. Antonio, you have clearly managed to position yourself into that type of respected position … the fact that a successful businessman feels comfortable enough to inquire of you demonstrates that you have earned a certain level of respect.

Of course you still have a great deal of due diligence that you must do … from a full inspection of the financial reporting on that company to an analysis of the value of the underlying commercial property should the company unexpectedly run into trouble. But you are on your way … and this question is one that demonstrates the importance of getting to know your target community and the business leaders.

We are eager to hear how this turns out.

Sincerely,

Brian

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Q and A: Potentially Contaminated Properties and How to Handle Investing in Them

Dear Mr. F,

We have found the nicest investment property right in our hometown, but our attorney is concerned about the fact that there used to be a drycleaner in this store. It has been over 30 years since it operated at “our” location, shouldn’t that be long enough ago to not be concerned?

Betty F.

 

Dear Betty,

Your attorney is giving you sage advice. It was commonplace for drycleaning operations to dispose of excess cleaning fluid by simply pouring it into the driveways or streets outside the store. The resultant “Perc” is considered an environmental hazard, it degrades by “natural attenuation” very slowly and not only is the “Perc” a hazard that can pollute drinking water, it also may emanate vapors that can seep through the flooring into the store.

We strongly suggest that you find a licensed environmental professional to assess the site [this will often include a Phase 1 report to identify if there is a likelihood of a spill [extremely likely if one had a drycleaning operation], and suggest certain areas on [and maybe around] the property for soil sampling. Further, many states have regulatory language that deems such sites as areas of concern and subject to various sorts of conveyance terms – something you can find doing some online research, but given the potential ramification, we recommend retaining specialized counsel to advise you.

Sorry to be the bearer of bad news, but of course it is better to be forewarned than to scramble to correct.

Best of luck in all of your ventures,

Brian Fielding

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Brian Fielding Sheds Light on the Dollar Tree’s Recent Acquisition

Real estate advisor Brian Fielding, provided commentary today on the acquisition of Dollar Tree’s acquisition of Family Dollar. He explained that both companies have been building assets that have been prominent in the net lease market. The merger will not only make Family Dollar’s real estate assets larger than the other major competitor, Dollar General, but one could reasonably expect that the consolidation could result in the closing of less profitable stores. Family Dollar had already announced its intention to close nearly 5% of its existing locations and while Dollar Tree has stated that it will continue to operate FD under its existing name, it is difficult to imagine that DG and FD stores in close proximity will not be consolidated under one of the brand names.

This merger and the previously announced store closings serve as a reminder to the net lease investor that the success of each store individually should be considered when seeking to acquire any asset. For while the corporation will likely stand behind the obligations of the remaining term on existing leases, the investor will not only face the prospect of having a “dark” store, but will likely have many challenges in convincing a replacement tenant that the site is a good one for other businesses.

Brian Fielding suggests that persons new to the real estate investing business follow the progress of Dollar Tree and Family Dollar and the company’s decision to close certain stores and open new ones. The business cycle that follows may be indicative of a trend that will be followed in other retail industries.

 

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