Category Archives: Note

A brief writing. Industrial real estate related.

Choosing a Legal Business Entity: Corporation, LLC or Sole Proprietorship?

Choosing a legal business entity is one of the biggest decisions a small business owner will make. When deciding on an entity, one should consider the exposure of personal assets to liability, potential tax advantages, the ability to transfer ownership and the management structure desired.  When leasing or buying an commercial warehouse or manufacturing building, your business entity will be placed either on the lease form as Lessee, or it will hold fee title to the property you buy.  On the flip side, landlords often use LLC’s to hold title to industrial properties in Southern California and Los Angeles.  The LLC is now the favored holding entity for commercial real estate.  Here is a primer on the most common entities:

Sole Proprietorship: If a business is owned by one owner and is not incorporated, it is a sole proprietorship, which is a simple and inexpensive way to conduct a business. It’s also the most prevalent type of small business in the country. The owner is taxed on individual tax returns. The big drawback with sole proprietorships is that the owner is fully liable for business obligations, meaning that personal homes, cars and savings can be pursued by creditors.

Limited Liability Company: As liability increases, business owners should consider a limited liability company, which can cost between $200 and $250 to set up. LLCs protect owners from individual liability, while still allowing the owners full or limited management rights as they desire. As a separate legal entity, an LLC can own property, incur debts, enter into contracts and be a party to civil actions. LLCs offer several taxing options. If the LLC has two or more members, the entity can choose to be taxed as a partnership or a corporation. An LLC that elects corporate treatment may opt for S corporation treatment. If no election is made, the IRS will tax the entity as a partnership.

Partnerships: Partnerships consist of an association of two or more persons who have not incorporated and carry on a business for profit as co-owners. Partnership arrangements are flexible, allowing partners to split ownership and profits however they wish–general partnerships, limited partnerships or a limited liability partnership. General partnerships can be formed without any formalities. General partners are liable for the obligations of the partnership, and each partner can bind the partnership contractually with third parties. A limited partnership requires at least one general and one limited partner, with the limited partner having no management responsibility. Limited partners are liable only for the money invested in the partnership, while the general partner remains liable for all partnership obligations. Through their individual tax returns, partners pay taxes on their interest in the partnership’s profits and losses.

Corporations: Corporations are advantageous because they shield personal assets, allow free transfer of ownership and ensure continued existence if a shareholder dies or leaves. A corporation is a separate legal entity that can own property, sue and be sued, and has status as a separate taxpayer. To organize as a corporation, articles of incorporation must be filed with the state. Corporations must also establish bylaws, issue shares and hold annual meetings. Ownership is through stock, which can be categorized in different classes and freely transferred. Corporations can be taxed either as C corporations or S corporations, which refer to their respective subchapters in the Internal Revenue Code. The S corporation does not pay taxes; instead, the income and deductions pass through to the shareholders, who are taxed on their individual tax returns. A C corporation pays tax on its net taxable income, but shareholders must also pay tax on dividends they receive. C corporations can obtain tax deductions for business expenses, which are not available to other entities.

Tips for Choosing A Real Estate Agent

Choose a broker who has experience in your immediate area.

There is no substitute for true market knowledge, which can only be gained through extensive transaction experience in a defined geographic area. It is, quite simply, the only way to acquire the market ‘intelligence’ required to drive the hardest bargain for a tenant or buyer. An experienced tenant/buyer representation specialist who works in your target market knows not only what is available in your market before anyone else, they know every landlord’s negotiating strategy, motivations, financial constraints, operating expenses and other key information he can use to your advantage. Be careful of tenant/buyer representatives who don’t specialize geographically as they must rely on unreliable and incomplete third party databases for market data.

Choose a broker who has experience in your particular product type.

The importance of specialization also applies to the type of property contemplated in the lease or sale transaction. There are stark differences between industrial, office and retail properties. The physical aspects of each are substantially different, as are the lease structures, term, conditions and operating expenses, among other things. For example, a full service gross office lease is a completely different challenge than a single tenant industrial triple net lease.

Contact an agent specializing in the Central Los Angeles region and industrial manufacturing and warehouse properties.  Extensive property listings provided upon request to qualified clients.

City Of East Los Angeles? Incorporation Aspirations

Map East Los Angeles highlighting public facilities

There have been three previous attempts at incorporation in East Los Angeles in 1961, 1963 and 1974. The name of the proposed city is the City of East Los Angeles. The community is 7.5 square miles (4,783 acres) in size. The community is bounded by the cities of Los Angeles, Commerce, Monterey Park, and Montebello. There were 126,054 residents in East Los Angeles, according to the 2000 Census.  There are 4,783 acres in East Los Angeles, 164 acres of which are industrial zoned land (375 parcels).

The manufacturing sector makes up 11 percent of East Los Angeles jobs.  Ten of the largest employers are manufacturers of products ranging from metals, brushes and adhesives to tortillas and ice cream.  Food-related manufacturing is more concentrated in East Los Angeles than in the County as a whole.

Top property owners by assessed value include the Roman Catholic Archbishop of Los Angeles, California Water Service Company, AltaMed Health Services, Telacu Development, and Humboldt Creamery.  Major industrial zoned streets include Noakes St, Union Pacific Ave., Calzona St., Los Palos St., Indiana St., Gage Ave., Bonnie Beach Place in the southern section.  In the northern section, known as City Terrace, major streets include Medford St., Fishburn Ave., Worth St., Marianna Ave., Fowler St., Whiteside St., Valley Blvd.,  and Knowles Ave.

Possible Expansion of the Artist Live/Work Area

The City of Los Angeles is currently exploring the expansion of the artist live/work loft area into more industrial areas south of the current area.  The expansion would allow increased conversion of existing industrial buildings in the area to joint live-work uses.   A public hearing was held last week at SCI-Arc on 3rd Street.

Only obsolete industrial buildings should be allowed to be converted.

City of Vernon: SoCal’s First Exclusively Industrial City

Vernon was founded and incorporated in 1905 by James J. and Thomas J. Furlong, both ranchers, and John B. Leonis, rancher and merchant. John Leonis was of Basque origin, coming to Southern California in 1880 to work for his Uncle Miguel Leonis whose original 1862 adobe dwelling in Calabasas was designated City of Los Angeles Cultural-Historic Monument #1. John Leonis established his own ranch on unincorporated county land southeast of Downtown. Recognizing the significance of the three major railroads running through the area, he convinced railroad executives to run spur tracks off the main lines and incorporated the adjacent three miles as an “exclusively industrial” city named after a dirt road, Vernon Avenue, crossing its center.

While waiting for industry to develop in the area, the founders of the city thought of marketing Vernon as a “Sporting Town.” In 1907, on land leased from Leonis, Entrepreneur Jack Doyle opened what was billed as the “longest bar in the world.” It had 37 bartenders, 37 cash registers and a sign advising “if your children need shoes, don’t buy booze.” Next door Doyle opened the Vernon Avenue Arena where 20-round world championship fights were held starting in 1908. Soon after, the Pacific Coast (baseball) League built a ballpark with its left field corner abutting Doyle’s bar and its own entrance into the park. The Vernon Tigers won three Consecutive league pennants. Last call for Doyle’s Bar was June 30, 1919 when over 1,000 people swilled their last pre-Prohibition drink. The chamber of commerce now sits atop Doyle’s onetime empire.

After 1919, Vernon went back to being exclusively industrial. Two giant stockyards, one owned by John Leonis, opened with meat packing quickly becoming Vernon’s signature industry. Twenty-seven slaughterhouses lined Vernon Avenue from Soto Street to Downey Road until the late 1960s. Said one longtime Boyle Heights

Resident, “we could smell Vernon in the evenings at our home.”

In the 1920s and 30s, heavy industries such as steel (U.S. and Bethlehem), aluminum (Alcoa), glass (Owens), can-making (American Can) and automobile production (Studebaker) grew in the City. The 1940s and 50s added aerospace contractors (Norris Industries), box and paper manufacturers, drug companies (Brunswig), and food processors (General Mills, Kal Kan). Giant meat packers (Farmer John and Swift) continued to grow. A strong, unionized labor force meant excellent middle class incomes for thousands of families.

In 1932, the City differed with Southern California Edison over industrial rates for Electricity, John Leonis orchestrated a Vernon bond measure to authorize the construction of the city’s own Light & Power plant, which is still operational today. Low-cost power and water, along with low taxes, attracted businesses to Vernon. Later, economical factors including, the free flow of capital and labor across borders had, by 1980, utterly transformed Vernon’s industrial face.

The City’s signature businesses, the slaughterhouses, relocated. Lower-cost producers in the East and Midwest reduced meat packing plants from 27 to today’s two. Bethlehem and US Steel competed unsuccessfully with European and Asian suppliers. Studebaker and American Can are closed. Defense cutbacks negatively impacted Alcoa and Norris industries. Today smaller industrial/commercial establishments including fashion design, garment-making, film production, electronics, and waste recycling are characteristic of the business community in Vernon.

by Pete Moruzzi, 1997.