Family owned and operated manufacturing and logistics providers — and the ways in which their commercial real estate is managed — provide the cornerstone of my brokerage practice.
Growing up in a family-owned and operated manufacturing business helped provide me with keen insight into the challenges faced by these local employers, who are key components of our local communities. I recall numerous Christmas gatherings with our company’s employees and the special meaning of this time of year.
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The holiday season is a time of family, traditions and gathering around a warm and welcoming home. Much like the heart of the holiday season, family-owned manufacturing businesses often have a central hub — their commercial real estate. In this column, we’ll explore the unique challenges and blessings that come with harmonizing real estate and the traditions of family businesses.
Tradition and succession planning
Picture a family-owned manufacturing business as the treasured holiday feast, and the real estate as the time-honored recipes that have been passed down through generations.
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Planning for succession in such an environment can be as intricate as the preparation of a family recipe. It’s about ensuring the family tradition continues to thrive while also preserving the home in which it all began.
Decking the halls with financial considerations
The holiday season is typically marked by financial decisions — gifts to buy, decorations to adorn and feasts to prepare. Similarly, real estate assets within family businesses bring their own financial considerations.
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Property values and rental income are like the ornaments and lights that decorate the family tree, enhancing its beauty. However, just as the holiday season comes with its expenses, so do real estate assets with maintenance and operational costs.
Balancing these financial aspects is critical for a harmonious holiday season.
Gifts and legacies and tax obligations
Gift-giving is a central theme of the holidays, but when it comes to real estate within family businesses, it’s essential to navigate the legal and tax implications carefully.
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Diversifying the feast
During the holidays, it’s common to try new recipes and incorporate diverse flavors into your traditions.
In the world of family-owned manufacturing businesses, real estate can be the secret ingredient to diversification and growth. Ownership of the buildings from which your company operates can be a magical way to increase generational wealth.
These strategies can bring new flavors to your business traditions and ensure a bountiful holiday season.
Family harmony
The holiday season is a time for unity and togetherness, but it can also bring forth differing opinions and tensions within families. Managing real estate assets within a family business can require the skill akin to Santa’s elves.
The family, much like the ornaments on a tree, should work together to create a harmonious atmosphere.
Holiday recipes
As with any holiday feast, it’s often helpful to learn from the masters. Let’s explore a couple of real-life examples.
The Smith family, seasoned in the manufacturing business, wisely chose to own their real estate. As the value of the enterprise grew, so did the worth of the real estate. Additionally, in tough times, rent paid by the operation could be subsidized by the ownership of the building.
It is common these days for the value of the real estate to far eclipse that of the occupying business. Merry Christmas indeed!
On the other hand, the Johnsons decided to lease the facilities from which their enterprise operated. They avoided the heavy down payment needed to own their real estate. However, leases have maturity dates and rents over time have risen.
No additional equity is built, and the operation must constantly face an evolving rental market. This can be great when rents are depressed but troublesome in a time like today, when rents have escalated to a historically high-level.
Blending real estate assets with family-owned manufacturing businesses during the holidays is similar to preparing a cherished family recipe — a delicate balance of tradition, innovation, and unity. You can create a holiday season that’s not only joyful, but also filled with the promise of enduring traditions and lasting legacies.
So, as you gather around the family table during this festive season, remember that your real estate assets can be the foundation of your traditions, and the family business is the holiday feast that brings you all together.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
