Flex Space Feasibility Study in the Los Angeles-Long Beach-Anaheim, CA Metro Area

First of 312 areas, in a class that has nearly stopped

Los Angeles-Long Beach-Anaheim ranks 1 of 312 areas for loans to lessors of flex, office and retail investor buildings, though within the area the class is only nineteenth among the 39 classes. The file holds 95 approvals and $133.3 million in gross dollars. All 95 loans are SBA 7(a), and the SBA 504 count is 0. A 1.20x location quotient sits modestly above the national share. Median size, $1.1 million, is 1.84x the national benchmark for flex lessors; loans in the middle cover $735,000 to $2.0 million.

The yearly record explains why this page needs a caution. The class note adds two cautions of its own. Flex space is not separable from office or retail lessors, and lending to such lessors almost ceases from FY2024. The yearly series matches: FY2025 and FY2026 show 0 loans and $0, while FY2018 had 18 loans worth $20.0 million and FY2022 had 21 worth $33.1 million. The counts and dollars for FY2017 and FY2024 are withheld, and the page prints none for them. Anyone planning a flex project should read this as a class whose recent SBA lending is close to nothing.

Lenders and the Los Angeles and Orange County split

Los Angeles County has 75 of the loans and Orange County 20. Harvest Small Business Finance, LLC ($18.0 million) and Enterprise Bank & Trust ($15.8 million) each hold 13 loans on SBA's records. Then come 11 loans held by Wells Fargo Bank National Association ($15.0 million) and 8 held by U.S. Bank, National Association ($15.6 million), the largest average of the four. No 504 lender appears. The table gives holdings of past loans and is no guide to what any holder would do today.

Cancellation took no less than 18.9% of FY2017 to FY2024 approvals. This cell also has no franchise share, no cancellation ceiling and no loss rate so far, all withheld by SBA. Blank on this page, not zero.

Testing a Los Angeles flex project

Because the loans are for lessors, the borrower is an investor in real estate whose income is rent. The study therefore tests rent and vacancy for comparable flex buildings in the submarket, the mix of office, warehouse and showroom uses the building can hold, the cost to improve or re-tenant it, and the lease terms of existing tenants. Debt service coverage should be run on net operating income after a vacancy allowance, and the appraisal should rest on income capitalization with sales comparables. Zoning and parking in Los Angeles and Orange counties can limit use. Since the lessor category does not separate flex from office or retail, class figures are only a rough guide, and a lender should expect a project-specific case. Los Angeles and Orange County figures leave out any loan whose county is not on the July 2023 list.