Commercial Office Condominiums

Who wins, Who doesn't?

Traditionally, office condominiums have appealed to small businesses, professional firms and medical practices with stable business models.

These office-users typically purchase 1,000-5,000 square feet - well below the focus of the usual commercial broker who searches for tenants with far larger space needs. I'm proud of my 20 years of commercial broker experience serving all sizes of companies, budgets and location specific needs.

PROS: In recent years we've experienced a slow-growth national economy, historically low interest rates and a volatile Wall Street. These factors have led many successful professionals and entrepreneurs to look at alternative investments in the real estate market - including owning their own office condo space.

The key driver of the office condominium market is the prevailing rental rate. If new office space is leasing at $25-26 a square foot, and a user can buy new office space at $16-18 a square foot, there's an immediate return on that real estate investment.

Because of the savings per square foot, many medical practices, laboratories, ambulatory surgical centers and other healthcare businesses find owning office space makes financial sense and provides a stable, familiar location for their patients. Condominium ownership works well for medical professionals because build-out costs are extraordinary. Bringing in water, vacuum, gas and air, and electric to the center of the office, then repair the floor - this gets expensive quickly.

CONS: On the other hand, much of corporate America prefers to lease office space - a trend that shows no sign of abating. A Fortune 500 company with large space will invariably select leased space or a build-to-suit single-user investment. Most large space-users understand that owning the real estate is not the best investment. For instance, Walgreen's makes a 40 percent return from its products and 7 percent on its real estate.

For national/regional companies, office condo ownership has some significant potential pitfalls. It's very difficult to move to a newer building, add more space to accommodate growth, or downsize in the event of a staff reduction.

Disputes can arise among owners about the costs associated with maintaining condominium common areas, allotting parking spaces or renovations to "freshen" an older building. When you start dealing with larger users, a condominium form of ownership for office buildings becomes complicated. A Condominium Association can be a distraction from day-to-day business activities.

Finally, office condominium ownership raises the question of an exit strategy. What happens when a small company closes its doors, or an entrepreneur decides to retire?

After 20 years of serving Tucson, Arizona's commercial real estate market, my clients, large and small, continue benefiting from my incorporation of the latest in state-of-the-art technology. My investment analysis tools create clear choices for each real estate investment. Your success is my proudest achievement.

Market forces driving the renewed interest in office condominium's - also called commercial condominiums - are historically low interest rates, certain income tax and financial benefits to owning rather than leasing, competition among bankers to sell Small Business Administration loans and, not least of all, pride in ownership.

Business owners take pride in the appearance and functionality of their offices because their premises reflect the quality of the goods or services they provide. Small business owners do not have sufficient revenues and personnel to occupy an entire building or fill an entire floor of a high-rise, nevertheless small business owners appreciate the long-term protection from rising rents and the investment value of owning their own business premises. Commercial condominium ownership is often the best investment choice for the small business owner.