Marijuana landlord turns activist, arguing local policies are slowing legal weed

Stephanie Smith was balancing one of her 2-year-old twins on a hip during a quiet morning in December when she heard a commotion outside her home in Los Angeles’ affluent Pacific Palisades neighborhood.

Someone began banging on her front door. As she moved to open it, she saw a line of police officers in her front yard and red laser gun sights coming through the windows, bouncing off her and her children.

Officers searched her home. They found and took blueprints for a kitchen remodel project and her cell phone.

At the same time, 80 miles due east in San Bernardino, dozens of officers were raiding two warehouses and another home owned by Smith. They seized nearly 25,000 marijuana plants and arrested eight men for growing cannabis in the three locations without city permits.

Smith wasn’t arrested or fined. But headlines the next day painted the 43-year-old as a “queenpin” and the “mastermind” of a multimillion-dollar illegal marijuana-growing operation.

“To be labeled a ‘drug lord’ in international press was a surprise,” she said.

“I don’t even have house plants.”

Though the mother of five boasts that she’s the biggest cannabis landlord in California, Smith insists she’s just that, a landlord. She says she isn’t involved with the marijuana businesses ran by her tenants.

Smith also insists her San Bernardino clients weren’t hiding. She says they’re part of California’s entrenched cannabis industry that’s struggling to join the emerging legal market, and that those efforts are being hampered by “corrupt” and “regressive” city policies.

Smith shrank from public attention when she was part of a very different scandal a decade ago, legally changing her last name to something that’s as anonymous as it can get.

This time, she says she’s fighting back.

Smith has filed lawsuits against San Bernardino and three other Inland Empire cities over their marijuana policies. And she’s floating marijuana ballot measures in six communities, determined to make conditions fairer for the industry that’s been so good to her.

First brush with infamy

Smith, whose name at birth was Stephanie Darcy, was raised in Minneapolis by a single working mom. She grew up dreaming of being an artist, and she still nurses a passion for painting.

After studying marketing in Boston, and using her artist’s eye to flip houses in the Phoenix area, she moved to Southern California in 2005 to attend business school at UCLA.

She was dating and working for Dr. Craig Alan Bittner, who had a successful liposuction practice in Beverly Hills. Things were going well until 2008, when a trio of lawsuits claimed Bittner had let Smith perform botched liposuction procedures even though she had no medical training. The lawsuits were eventually dismissed.

“At the end of the day, I made a regulatory mistake a decade ago and paid a $242 fine,” Smith said.

Things got more complicated when authorities caught wind that Bittner was violating medical waste laws by using fat removed from his patients to power his and Smith’s cars.

Smith said the intent with “LipoDiesel” was never to suggest that people could actually run their vehicles on human fat. She said it was simply a way to illustrate what was possible if people opened their minds to alternative energy sources. And she said they asked permission from every client, with all but one of some 8,000 patients enthusiastically consenting.

There was no word for internet “trolls” then, but Smith said she was intimidated into silence.

“If I could go back in time, I would have talked very openly about our goals for changing our view of energy,” she said. “I would have talked about my passion for the environment instead of being afraid.”

Becoming a cannabis landlord

Smith’s foray into another controversial industry started as a favor.

With the housing market in crisis a decade ago, Smith dove into commercial real estate.

A friend of a friend was growing cannabis under California’s loose medical marijuana laws as he put himself through law school in 2009. But he was struggling to find space to house his operation, with local and federal policies that made it risky for landlords to take on marijuana tenants.

Smith says she’s never been a “hardcore” marijuana consumer herself. “But like a lot of people, I wanted the laws changed.” So she let the small-time grower lease one of her L.A. properties.

The tenant finished law school and moved on. So Smith put the site back on the market, thinking its water and power stations would make for a good laundromat or nail salon.

She said she had no idea then that anyone would recognize signs of a grow house. But 45 minutes after the property went up on Craigslist, a cultivator offered double the asking price. Soon, she was in a bidding war, eventually landing a grower who paid three times the requested rent.

  • Stephanie Smith in San Bernardino, CA., Friday, May 18, 2018. Smith is the self-proclaimed largest cannabis landlord in California and has become a major advocate for the industry. (Staff photo by Jennifer Cappuccio Maher, The Sun/SCNG)

    Stephanie Smith in San Bernardino, CA., Friday, May 18, 2018. Smith is the self-proclaimed largest cannabis landlord in California and has become a major advocate for the industry. (Staff photo by Jennifer Cappuccio Maher, The Sun/SCNG)

  • Stephanie Smith helps canvas for signatures, for a San Bernardino ballot initiative, with Alexander Navarrette in the Verdemont neighborhood of San Bernardino, CA., Friday, May 18, 2018. (Staff photo by Jennifer Cappuccio Maher, The Sun/SCNG)

    Stephanie Smith helps canvas for signatures, for a San Bernardino ballot initiative, with Alexander Navarrette in the Verdemont neighborhood of San Bernardino, CA., Friday, May 18, 2018. (Staff photo by Jennifer Cappuccio Maher, The Sun/SCNG)

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Today, she said her company, Industrial Partners Group, owns two million square feet of industrial space. Most of it is in Southern California, but she has property as far north as Sacramento. And, while she rents buildings to Walmart and bakeries, many of her warehouses are leased to cannabis growers and manufacturers.

One reason Smith believes she’s been so successful is that many cannabis entrepreneurs were accustomed to dealing with landlords who refused to sign leases or made them use fake names so they could feign ignorance. Smith said she tried to “inject some professionalism” by treating them like other valuable tenants.

She’s also discreet.

B-Real, stage name for lead Cypress Hill rapper Louis Freese, leases a Downtown L.A. warehouse from Smith. When asked if she has any other famous tenants, Smith pauses, flashes her frequent smile and says: “I have a nice reputation among hip-hop and sports celebrities.”

Smith considers her work with the industry a form of activism. But this election cycle, she says, is different.

“This is my first time taking it to the streets.”

Raid prompts activism

Smith wore a gray cotton shirt, jeans and colorful sneakers on a recent Friday evening as she joined a political support team canvassing San Bernardino’s Verdemont neighborhood. The goal is to collect the 8,602 signatures needed to get her proposed cannabis measure on the November ballot.

Residents seemed largely receptive, though they’ve been through this before.

When Californians voted to legalize recreational marijuana under Proposition 64 in 2016, San Bernardino voters also approved Measure O, which laid out a framework for cannabis businesses to operate in town.

The measure was needed because Prop. 64 gives cities the rights to regulate businesses in their borders. And a study of local marijuana policies shows more than two-thirds of cities in California still bans all marijuana ventures.

San Bernardino awarded its first business permit under Measure O last year, to the owners of Flesh Showgirls. They now run a strip club in one half of the building and Captain Jack’s marijuana dispensary in the other.

But multiple lawsuits were filed over Measure O, and in December a judge threw the initiative out because, he said, it used spot zoning to create a monopoly that allowed just two shops in town. That ruling is being appealed.

Smith says her San Bernardino tenants had applied at least eight times for licenses to operate their businesses legally under Measure O, inviting city officials to inspect their high-end security and odor filtration systems.

A week after the raids, she said two of the tenants received letters from the city saying they could legally grow marijuana if they paid $140,000 in fees. Smith said they paid up but still haven’t been cleared to operate, leaving 100 people out of work. And she said police have been called 10 times since the raids over reports of vandalism and homeless people squatting in the vacant buildings.

The city is now accepting applications under its own licensing scheme. But a new policy says companies previously deemed to be operating illegally aren’t eligible for permits, leaving Smith’s clients with no route to run legal cannabis businesses in San Bernardino.

City and police officials declined to comment on any of Smith’s claims, citing pending and potential litigation.

Branching out

Spurred by what happened in San Bernardino, Smith has filed additional lawsuits against Colton, Hemet and Moreno Valley.

Concerns raised in the suits include Colton’s requirement that residents get permission from the city if they want to grow marijuana plants at home for personal use, as allowed under Prop. 64. And that anyone working for a marijuana business in Moreno Valley, from contractors to janitors, first get a city permit.

Her team is also collecting signatures for marijuana ballot measures in Colton, Hemet, Upland, Bakersfield and Kern County.

The initiatives are tailored for each area, Smith said. That means Central Valley policies support a cultivation-heavy market while San Bernardino is encouraged to put its affordable industrial properties to work by becoming a manufacturing hub, making vape pens and edibles popular with cannabis consumers.

California is close to an inflection point, Smith believes, where marijuana businesses won’t have to hide or beg cities to let them in. When that happens, Smith said she hopes Southern California cities will have fair policies in place that position them to compete for the jobs and tax revenue the cannabis industry can generate.

And Smith, of course, will have properties ready to house those valuable tenants.

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Mazda moves to new office near the Irvine Spectrum Center

  • Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

    Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

  • Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

    Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

  • Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

    Mazda has moved to its new home at 200 Spectrum Center Drive. The group moved to the new building in June. A sign was installed on the building over the weekend. (Photo courtesy of Mazda North American Operations)

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Mazda has moved to its new home at 200 Spectrum Center Drive. The location, near the Irvine Spectrum, is about a mile away from Mazda North American Operations’ old headquarters.

The group moved to the new building in June. A sign was installed on the building over the weekend.

The move was first announced in January 2016.

200 Spectrum Center is owned by the Irvine Co. It is the tallest building in Orange County at 20 stories tall.

Mazda, in a 10-year contract, will occupy five floors and a lobby for a total of 113,000 square feet.

Mazda has had its U.S. base in Irvine for roughly 30 years. It had been at 7755 Irvine Center Drive since 1987.

Around 450 employees were relocated.

Mazda North American Operations Chief Executive Masahiro Moro previously told the Register the move would allow Mazda to “innovate and change the work style and the culture of the company,” calling the group’s old headquarters “old-fashioned.”

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A shortage of commercial real estate – Why?

Supply and demand. A basic economic principle first discussed in the seventeenth century by scholars such as John Locke, Sir James Steuart and Adam Smith.

This Adam Smithian see-saw has broad implications in the commercial real estate market. If supply exceeds demand, a buyer’s market ensues. Conversely, sellers win when demand exceeds supply.

Currently, Southern California is engulfed in a seller’s market largely because of this imbalance between available buildings – supply, and businesses looking to expand – demand.

Seldom discussed, however, are the reasons such an imbalance exists. Here’s a look at some of those reasons.

Lack of new construction

A spate of new construction would, in fact, cause the supply of available inventory to increase, resulting in a parity of demand and supply. But akin to fighting a wildfire with a water pistol, the thirst for supply will not be completely quenched with new construction.

So, with this shortage of supply, why haven’t we seen more building? The reasons are simple. Southern California has a lack of undeveloped land. Virtually all of the new construction we’ve seen in recent years has started with a site containing obsolete buildings that were razed to accommodate the new construction.

New construction is expensive. Land prices are a huge component of new construction — in some cases measuring half the cost — especially since the land includes old buildings that need demolition. The entitlement process is challenging. Cities and counties locally have extensive regulatory requirements in place which add months to the construction time of a new development.

A repurposing to housing

Many, many thousands of industrial square feet have been retired in favor of high-rise apartments and condominiums. Doubt what I say? Just take a look at the area surrounding Anaheim Stadium or John Wayne Airport. Formerly, those areas were home to local manufacturing and logistics businesses. Now gracing the skyline are three- and four-story buildings under construction, which will provide much-needed housing to stem another shortage — but at the expense of buildings where people worked and products are made and shipped.

Money is cheap

Companies can invest 10 percent of the purchase price of a building, finance the balance with a loan through the Small Business Administration, and with Eisenhower era interest rates, enjoy a payment that closely approximates a lease payment — but while owning. Many companies have taken advantage of this structure and the abundance of capital.

When will our markets return to normal – if you can define normal? Unfortunately, my crystal ball is as murky as the SoCal sky on a June morning.

Allen C. Buchanan is a principal and commercial real estate broker with Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com. His website is allencbuchanan.com.

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Real estate briefly: CBRE sells Santa Ana complex for $14M; Morningside in Fullerton opens links, pickleball

  • CBRE Group has sold an apartment complex in Santa Ana to an unnamed investor for about $13.8 million. The Regent, a 70-unit property at 1111 West Santa Ana Blvd. underwent a partial remodel over the past year. (Courtesy of CBRE Group)

    CBRE Group has sold an apartment complex in Santa Ana to an unnamed investor for about $13.8 million. The Regent, a 70-unit property at 1111 West Santa Ana Blvd. underwent a partial remodel over the past year. (Courtesy of CBRE Group)

  • Coldwell Banker Commercial Advisors in Irvine has arranged the $5.7 million sale of the two-story office building located at 3505 Cadillac Ave. in Costa Mesa. (Courtesy of Coldwell Banker Commercial Advisors)

    Coldwell Banker Commercial Advisors in Irvine has arranged the $5.7 million sale of the two-story office building located at 3505 Cadillac Ave. in Costa Mesa. (Courtesy of Coldwell Banker Commercial Advisors)

  • Emile Haddad, chairman and CEO of FivePoint Holdings in Aliso Viejo, has been appointed chairman, effective July 1, to the Lusk Center for Real Estate advisory board at USC. (Courtesy of USC)

    Emile Haddad, chairman and CEO of FivePoint Holdings in Aliso Viejo, has been appointed chairman, effective July 1, to the Lusk Center for Real Estate advisory board at USC. (Courtesy of USC)

  • Bill Witte, chairman and CEO of Related California in Irvine has been appointed vice chairman, effective July 1, pf the Lusk Center for Real Estate advisory board at USC. (Courtesy of USC)

    Bill Witte, chairman and CEO of Related California in Irvine has been appointed vice chairman, effective July 1, pf the Lusk Center for Real Estate advisory board at USC. (Courtesy of USC)

  • Ali Nelson has been named manager of investor relations for Aliso Viejo-based Nelson Brothers Professional Real Estate, which specializes in private student housing near major universities.

    Ali Nelson has been named manager of investor relations for Aliso Viejo-based Nelson Brothers Professional Real Estate, which specializes in private student housing near major universities.

  • Dee Grace demonstrates her paddle technique on Morningside’s new pickleball court. Pickleball is one of the fastest-growing sports in the country, especially for older adults. (Courtesy of Morningside)

    Dee Grace demonstrates her paddle technique on Morningside’s new pickleball court. Pickleball is one of the fastest-growing sports in the country, especially for older adults. (Courtesy of Morningside)

  • Wendy Bell takes to the Links at Morningside. Built at a cost of $1.6 million on nearly four acres of vacant land on the Morningside campus, the new golf course offers six holes as well as a practice hitting cage. The links were installed with artificial turf to make the course environmentally friendly and easy to maintain. (Courtesy of Morningside)

    Wendy Bell takes to the Links at Morningside. Built at a cost of $1.6 million on nearly four acres of vacant land on the Morningside campus, the new golf course offers six holes as well as a practice hitting cage. The links were installed with artificial turf to make the course environmentally friendly and easy to maintain. (Courtesy of Morningside)

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The Register has new details on the $133 million sale of the JCPenney distribution hub in Buena Park. Nicholas Chang and Richard Lee of NAI Capital in Irvine, along with Patrick J. Sullivan of NAI Hiffman and Brett Spitzer of NAI Global Corporate Solutions,, brokered the sale of the 1 million square foot industrial facility. The deal, NAI reported, was the largest contiguous single-tenant transaction in Orange County over the last 25 years. Chang, Lee, Sullivan and Spitzer represented both the seller, JC Penney and the buyer, Oak Brook, Ill.-based CenterPoint Properties.

CenterPoint plans to renovate the property and market it for lease as it becomes available.  JCPenney has said it will lease back the center for about a year. The Register previously reported the expansive complex is divided into four 250,000-square-foot sections, which could create an opportunity for multiple tenants. The property was built in 1967, according to CoStar Group, a commercial real estate data provider.

CBRE Group has brokered the sale of an apartment complex in Santa Ana to an unnamed investor for about $13.8 million. CBRE’s Priscilla Nee and Dan Blackwell represented the buyer and the seller, an investor who purchased the property last April and renovated it to sell at a gain. The Regent, a 70-unit property at 1111 West Santa Ana Blvd. underwent a partial remodel over the past year. The buyer plans to continue the renovation plan and should be able to realize rent increases of about 30 percent once the property is stabilized. The property features seven studio units, five junior one-bedroom/one-bathroom apartments, 28 regular one-bedroom/one-bathroom and 30 two-bedroom/two-bathroom units.

Coldwell Banker Commercial Advisors in Irvine has arranged the $5.7 million sale of the two-story office building located at 3505 Cadillac Ave. in Costa Mesa. The 18,208-square foot building sold to an unnamed local investor. Michael Dorsey and Stephen Madigan with Coldwell Banker represented both the buyer and seller in the transaction.

Leases

Jeffer Mangels Butler & Mitchell has renewed its lease for 15,325 square feet in the Jamboree Center at 3 Park Plaza, Suite 1100, in Irvine as it celebrates the 10-year anniversary of the office’s opening. Founded in Los Angeles in 1981, the law firm opened its Orange County office in 2007 to serve its Orange County clientele, which includes hospitals, medical device manufacturers, financial institutions, business owners, investors and individuals. The Irvine Company is the landlord of the Jamboree Center; Travers CRESA brokered the lease. The lease renewal is effective June 1, 2017, for a five-year period.

Milestones

Ladera Ranch-based Money360 closed more than $45 million in loans in April, the company announced. This brings the company’s total production to over $250 million in closed loans, with an expected $500 million in transactions by year’s end.

The loans included:

–$9.7 million bridge loan for a two-story, 198-room hotel property in Fayetteville, N.C.

–$7.7 million bridge loan for a multi-tenant, medical office building in San Jose.

–$8.5 million bridge loan for a five-story, multi-tenant office property in Orange County.

–$4.9 million bridge loan for a two-tenant, 19,107 square-foot anchored retail property in Ocean County.

–$6 million permanent loan for a one-story, 10-tenant retail property in Johnson County, Kansas

–$3.48 million permanent loan for a one-story, four-tenant retail property in Johnson County, Kansas

–$5 million permanent loan for an anchored retail center in San Bernardino County.

The company reports that in March it surpassed $200 million in closed transactions. It took Money360 more than a year-and-a-half to hit the $100 million mark, but less than six months to increase to $200 million.

New ventures

The Morningside retirement community in Fullerton has opened a pitch and putt golf course and pickleball court. During the construction process for Links at Morningside, the management team worked with the California Department of Fish and Game and the Army Corps of Engineers to restore the land with thousands of trees, shrubs and ground cover native to the Fullerton area. Hundreds of weeds, shrubs and non-native plants were removed as part of the $100,000 habitat restoration project. Built at a cost of $1.6 million on nearly 4 acres of vacant land, the golf course offers six holes as well as a practice hitting cage. The links were installed with artificial turf to make the course environmentally friendly and easy to maintain. The community also completed a $2 million renovation of its onsite Lakeview Hall community room which now houses a professional stage and a game room.

People in real estate

Emile Haddad, chairman and CEO of FivePoint Holdings in Aliso Viejo, and Bill Witte, chairman and CEO of Related California in Irvine, have been appointed to key roles on the Lusk Center for Real Estate advisory board at USC. Haddad, as the new chairman, and Witte, vice chair, will help fill the role left by Stan Ross, who is retiring after 18 years as chairman. Their roles are effective July 1.

Ali Nelson has been named manager of investor relations for Aliso Viejo-based Nelson Brothers Professional Real Estate, which specializes in private student housing near major universities. Nelson will be the central point of contact for investors and will be responsible for the preparation and execution of investment documents. Previously, she was the director of operations and assistant director of client services at JRW Investments, a wealth-management firm in Pasadena.

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Allen Buchanan: When will commercial real estate prices crater?

At their very essence, commercial real estate values are the result of a price a buyer with reasonable motivation will pay and a seller is willing to accept. Easy enough.

Let’s layer in some complexity, however, as the previous statements assume the buyer will actually write a check for the purchase. In reality, most buyers seek financing for their buy,  which sets in place an approval process by a lender.

Typically, lenders — short of Aunt Mabel who taps her trust fund for you — will require an appraisal, regardless of the size of the down payment. So if the buyer and seller agree to a price and the lender’s appraisal doesn’t conform, the transaction has an issue? Yes. Absent another buyer who is willing to assume the previous buyer’s price but without a lender, the seller must reduce his price and the buyer must inject additional cash to bridge the gap or something in between. So, the first cause of a drop in pricing would be: the property won’t appraise.

But, what are some other reasons?

A spike in interest rates. An obvious result of an increase in borrowing costs would be higher payments. Higher payments — which fewer buyers can qualify for financing — means fewer buyers, and less competition equals a drop. A spike in interest rates also could also cause business activity to decline. The resulting lack of business could place less pressure on a company’s need for space. With demand for space subsiding and fewer interested buyers, prices drop.

The Black Swan event. Transactions generally spike when prices are increasing or when they are falling. When prices are on the up, sellers win. Buyers score when the reverse happens. Uncertainty — I’m not doing anything until this is resolved — is a result of the Black Swan event such as a war, a collapse of student loan repayment, terrorist attacks on our soil, foreign leaders who launch a missile, a government shutdown, or a county bankruptcy – as we experienced in 1994 in Orange County.

New inventory. We’ve been waiting for a building spree for quite awhile. Yes, we have added some new buildings, but we also have seen many others demolished in favor of apartments. In short, for myriad reasons — which will be left for another rant — the supply of newly constructed commercial real estate has not kept pace with the demand.

Buyers say enough is enough. Recently, we accepted an assignment to help a buyer find a new home for his business. When we started touring available choices, the buyer was disappointed at the low inventory and lack of quality buildings. Plus, the asking prices were jarring. Flash forward, asking prices have now hopped another 15 percent. Our tour last week was met with, “Wow! How have asking prices increased that much in fewer than two months?” It dawned on me that if buyers refuse to pay the prices, which is unlikely, prices will drop.

It’s akin to a giant game of musical chairs. This era of crazy money paying outrageous prices for commercial real estate WILL stop. We just don’t know when.

Allen C. Buchanan is a principal and commercial real estate broker with Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com. His website is allencbuchanan.com.

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‘A persistent and growing underclass’ in Orange County, report shows

Parents holding down two or three jobs each.

Families doubled and tripled up in cramped apartments.

Underachieving students.

Poor health and nutrition.

A dwindling working-age population.

It is not all bad news, but Orange County’s new Community Indicators Report, an annual study by government agencies, businesses and philanthropies, points to many woes woven into the fabric of the county’s sunny suburbs.

One thread links them all: a calamitous shortage of affordable housing.

“Clearly, homelessness, overcrowding, and family financial instability are directly linked to high housing costs,” warns the 74-page data-rich report released last week.

“But other factors are indirectly linked. When families spend 50% or more of their income on housing, they have less remaining to pay for health care and healthy foods, affecting overall health.

“With parents working two or more jobs to afford housing, they may lack the time to help children with homework or afford after-school enrichment, affecting educational achievement.”

If the housing crisis continues, the report predicts, the result will be “a persistent and growing underclass,” while higher-income residents bear the burden of supporting a swelling elderly population.

“There are two chief ways to tackle the problem of out-of-reach housing in Orange County,” it adds. “Bring earnings up or bring costs down.”

  • Course-taking in career technical programs related to science, technology, engineering and math jumped 40 percent from 2014 to 2016 in Orange County schools. Here, Aliso Niguel High School students Julia Hopkins, left, and Shanice Berry, worked on biotech experiments at a showcase in December 2016 for OC Pathways, a program that focuses on work-based learning. (Photo by Mark Rightmire, Orange County Register/SCNG)

    Course-taking in career technical programs related to science, technology, engineering and math jumped 40 percent from 2014 to 2016 in Orange County schools. Here, Aliso Niguel High School students Julia Hopkins, left, and Shanice Berry, worked on biotech experiments at a showcase in December 2016 for OC Pathways, a program that focuses on work-based learning. (Photo by Mark Rightmire, Orange County Register/SCNG)

  • As Miguel Hernandez steers, his fellow students Lizbeth Gomez and Rudy Martin Del Campo showed off Century High School’s solar powered vehicle at a December 2016 showcase for OC Pathways, a career-based program for students in 14 Orange County school districts. (Photo by Mark Rightmire, Orange County Register/SCNG)

    As Miguel Hernandez steers, his fellow students Lizbeth Gomez and Rudy Martin Del Campo showed off Century High School’s solar powered vehicle at a December 2016 showcase for OC Pathways, a career-based program for students in 14 Orange County school districts. (Photo by Mark Rightmire, Orange County Register/SCNG)

  • Brandon Bock, left, and Jason Ayala from McFadden Intermediate School in Santa Ana, guided their robotic vehicles at a December 2016 showcase for OC Pathways, a state funded program which encourages students to excel in science, technology, engineering and math-related subjects. (Photo by Mark Rightmire, Orange County Register/SCNG)

    Brandon Bock, left, and Jason Ayala from McFadden Intermediate School in Santa Ana, guided their robotic vehicles at a December 2016 showcase for OC Pathways, a state funded program which encourages students to excel in science, technology, engineering and math-related subjects. (Photo by Mark Rightmire, Orange County Register/SCNG)

  • The landscaping and barbecue area on the second floor at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The landscaping and barbecue area on the second floor at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The the laundry room is one of the amenities offered at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The the laundry room is one of the amenities offered at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The bike storage area left, and fitness center, right, are two of the many amenities offered at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The bike storage area left, and fitness center, right, are two of the many amenities offered at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The game is one of the amenities offered to residents at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The game is one of the amenities offered to residents at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The second floor outdoor playground at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The second floor outdoor playground at the Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The fitness center is one of the amenities offered to residents Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The fitness center is one of the amenities offered to residents Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The computer lab is one of the amenities offered to residents Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. The room is used for children to do their homework or learn English. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The computer lab is one of the amenities offered to residents Clark Commons affordable family apartments family apartments project in Buena Park on Wednesday, May 10, 2017. The room is used for children to do their homework or learn English. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

    The 70-unit Clark Commons affordable family apartments was built at the at the corner of Orangethorpe and Stanton Avenues in Buena Park on Wednesday, May 10, 2017. (Photo by Leonard Ortiz, Orange County Register/SCNG)

  • Clark Commons, a 70-unit low-income housing project in Buena Park, has a playground and a cmputer center. It was built on the site of a blighted retail center. The city provided $7.7 million in loans to Jamboree Housing Corp., a non-profit developer. (Courtesy Juan Tallo)

    Clark Commons, a 70-unit low-income housing project in Buena Park, has a playground and a cmputer center. It was built on the site of a blighted retail center. The city provided $7.7 million in loans to Jamboree Housing Corp., a non-profit developer. (Courtesy Juan Tallo)

  • Bobbi Smith,15, uses the free wifi to do her homework at Clark Commons, a low-income housing project in Buena Park. More than 2,500 families are on the waiting list for the 70-unit complex, which opened in February 2017, with the help of city loans. (Courtesy Juan Tallo)

    Bobbi Smith,15, uses the free wifi to do her homework at Clark Commons, a low-income housing project in Buena Park. More than 2,500 families are on the waiting list for the 70-unit complex, which opened in February 2017, with the help of city loans. (Courtesy Juan Tallo)

  • At Buena Park’s Clark Commons, a 70-unit low income housing project, a resident coordinator helps children with homework. The waiting list for apartments includes 2,500 families. (Courtesy Juan Tallo)

    At Buena Park’s Clark Commons, a 70-unit low income housing project, a resident coordinator helps children with homework. The waiting list for apartments includes 2,500 families. (Courtesy Juan Tallo)

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Some good news

The report notes several positive trends:

— At 3.7 percent, the jobless rate is lower than that of California or the U.S. In 14 of 19 high-tech industries, its employment concentration is higher than the national average.

— At 5.4 percent, the overall high school dropout rate is lower than the state’s 9.8 percent. Course-taking in career technical education related to science, technology, engineering and math (STEM) jumped 40 percent over two years.

— The proportion of residents without health insurance sank to 9 percent in 2015 from 17 percent in 2013, in the wake of the federal Affordable Care Act. The number of poor children with health insurance grew by 40 percent.

— While many communities resist affordable housing projects, a few are being built with city governments’ support, including in Yorba Linda and Buena Park.

We are losing our millennials and Zers,” Lucy Dunn, president and CEO of the Orange County Business Council, a trade group for the county’s largest companies, told a group of 150 executives and government officials at an Orange County Forum gathering last week.

“Cities: you have to say yes to housing…We need city council people not be afraid of the next election.”

Disturbing data

Among the report’s troubling trends:

— To afford a median-priced, one-bedroom rental unit, an hourly wage of $27.62 is needed. Yet 68 percent of Orange County jobs pay below that.

— Orange County’s cost of living is almost double the U.S. average (87% higher). Housing costs are 356% higher than the national average.

— Residents 65 and older are the only group projected to grow proportionate to other age groups in the next 25 years.

— 48 percent of children are not developmentally ready for kindergarten

–Nearly 60,000 households are on waiting lists for government rental assistance.

Michael Ruane, an affordable housing executive who was the county’s project director on its first indicators report 17 years ago, said the data show “there are two Orange Counties.

“What’s striking is the enormous variation. You have poverty in a prosperous region. You have a knowledge economy with high wages, and a tourism economy with lower wages.”

Low pay, high costs

Tourism jobs—some 200,000—make up one of the biggest sectors in the county, along with business and professional positions, and healthcare and social services employment.

But jobs in theme parks, hotels and restaurants pay far less than other large sectors: $24,300 a year on average, with thousands of workers making the minimum wage of $10.50 an hour or slightly above.

Anaheim, home to Disneyland, Orange County’s largest employer with 28,000 workers, is one of the poorest cities in the county, the report notes, with its highest high school drop-out rate (11.5 percent).

Racial and ethnic disparities are stark.

Latinos, on track to grow from 35 percent to 40 percent of the county’s population over the next two decades, experience far more poverty, less access to health care and worse educational results than non-Latino whites (42 percent of the population) or Asians (19 percent).

“Parents work two and three jobs, even on weekends, to make ends meet,” said Al Mijares, county superintendent of schools.

“I know parents who board early buses in Santa Ana to work at south county eateries. They get home late in the evening. So kids are unsupervised. No one can help with homework.”

Adding to the stress, he said, is “overcrowding. There may not be a bed for every member of the household. There may be no place to study.”

Youngest fall behind

The report makes no policy recommendations, but Mijares, whose department is one of the report’s sponsors, said publicly-funded universal pre-kindergarten would be the single biggest boost to educational success.

Georgia, Florida and Oklahoma have enacted statewide pre-K programs, but California has yet to fund a comprehensive program.

Kimberly Goll, executive director of the local Children and Families Commission, said Orange County is the first in California to measure and track factors affecting kindergarten readiness in all its school districts.

Among the 48 percent who enter kindergarten unprepared, some lack motor skills—too much screen time, not enough crayons and physical play, according to some experts. Others lack emotional and cognitive development.

“It is scary that half of our kids are not ready to start kindergarten,” Goll said. “It is well documented that they are then more likely to drop out of high school. They are more likely to become teen parents. They are more likely never to attend college. They are more likely to be arrested for a violent crime.”

Last year, a third of Orange County eleventh graders failed to meet state literacy standards, while 57 percent failed in math.

Still, efforts are ramping up to prepare students for higher-paid jobs requiring STEM skills. Thanks to a state grant, 14,000 high schoolers participate in OC Pathways, a program offering courses and industry contacts in three areas:  Health Care/Biotechnology, Engineering/Advanced Manufacturing and Information Technology/Digital Media.

Vocational education has changed, Mijares said. “For instance, automobiles have become complex, with sophisticated computers under the dash. You need to be an engineer to understand what’s going on.”

More elderly, fewer workers

If demographics are destiny, then the county’s population trends are daunting.

“Families are migrating to other parts of the state and country that boast cheaper housing and lower costs of living,” according to the report. “For the workforce that remains…the social burden of supporting the growing older adult population will fall on them and them alone.”

The age 65-and-older group will grow from 14 percent today to 26 percent of the population by 2040, the report predicts. The number of working-age residents for each dependent (children and the elderly) will shrink from two to one.

“The fewer people of working age, the fewer there are to sustain schools, pensions and other supports to the youngest and oldest members of a population,” the report notes.

Turning malls into housing

Cities often prefer retail development, which brings in sales tax revenue, to multifamily housing, which sparks political opposition.

Even luxury housing is controversial: in March the Newport Beach City Council rescinded its approval of a 25-story project for million-dollar condominiums after opponents threatened a referendum.

Steve PonTell, CEO and President of National Community Renaissance (National CORE), a non-profit affordable housing developer, called on employers at the forum event to “see themselves as being in the housing business.”

Hospitals, for instance, should “have hundreds of units of apartments in conjunction with their facilities,” he added.

Open land is scarce, but as shopping centers begin to retrench under the e-commerce onslaught, struggling retail areas can be converted to housing, the report suggests. “Underutilized retail corridors may be the only viable option for increasing the supply,” said Ruane, who heads an Urban Land Institute initiative to assess the potential.

In Yorba Linda, National CORE, where Ruane serves as executive vice president, built Oakcrest Terrace, a 69-apartment complex for low-income families on the site of a former car dealership. The city contributed about 20% of the funding.

In February, Jamboree Housing Corp., an Irvine nonprofit, opened Clark Commons, a 70-apartment complex for low-income families on the former site of a city maintenance yard and blighted retail center in Buena Park. The city contributed $7.7 million in loans.

One testament to the housing shortage: Clark Commons has a waiting list of 2,500 families.

Homes for the well-off

Orange County’s home building 2014-2015 was mostly for higher incomes.

To buy a home

Only 43 percent of first-time buyers have the necessary income ($92,000/year) to qualify for buying an entry-level home, down from 52 percent in 2009.

To rent a home

In Orange County, a $28/hour wage is needed to afford a one-bedroom apartment.

Cost of living

Orange County is 87 percent more expensive than the national average.

Homeless students

More than 28,000 students are homeless, doubled-up or tripled up with other families.

Education

Under 30 percent of poor students meet state math standards. Under 40 percent meet literacy standards.

*Live in hotels, motels, shelters or unsheltered
Source: U.S. Census Bureau

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Before selling commercial real estate, do these things

You’ve made a decision to sell your commercial real estate. Reasons vary from seller to seller but generally involve a transition – a change in the market, the sale of a business that occupies the building, business growth that outstrips capacity, a loan that is due, an ownership squabble, or gravitation toward another investment.

Regardless of your reasons, most sellers focus on the commercial real estate’s value as the central motivation. OK, I get it. However, before exposing your building to the market, I would recommend you consider the five things below.

Title search

A title company such as First American or Fidelity will typically open a free title order for you – preliminary commitment or “prelim’ — in the hopes of insuring the title upon sale. Contained within the multi-page document are exceptions or conditions to be met prior to an ownership change. Easements, loans, tax liens, mechanics liens, leases, and the nature of the building’s ownership – LLC, individuals, family trust, etc. – are all detailed. You’re interested in understanding any issue that could prevent a sale – such as a suspended LLC or an unsatisfied tax lien.

Building inspection

Some sellers allow a buyer to become more acquainted with the physical issues of their commercial real estate – such as the condition of the roof, remaining life of the air conditioning and heating, un-permitted improvements, or parking lot paving. I believe a seller should invest in a pre-sale inspection, take a look at the recommendations and price accordingly.

Environmental survey

If your buyer borrows money, most lenders will require a Phase I environmental assessment as standard loan processing. Why, you may ask, should you invest money in a similar report? Fair question. The easy answer is to know, with certainty, your property is environmentally clean and will pass lender scrutiny. You might also save a bit of time if the buyer’s lender can “rely’ on the report and avoid duplication.

Evaluate loans

Back to the title report. Are any loans recorded against your property that have been paid in full? If so, they shouldn’t appear on your report. Typically, this means the satisfied loan has not be reconveyed correctly. If the loans on title are in fact still active, carefully evaluate any pre-payment penalties that must be incurred if you sell the property.

Tax consequences

The time to understand how big a tax bite a sale will create is prior to placing the building on the market. Remember, several taxing agencies are standing in line, hands outstretched waiting to be fed. Included are the IRS – capital gains and depreciation recapture, the Franchise Tax Board, and the Affordable Care Act. Your situation may vary and there are ways to defer your tax bill, however. Please spend some time with your CPA and know how much will be left if you choose to pay the taxes.

Allen C. Buchanan is a principal and commercial real estate broker with Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com.

 

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