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Entries Tagged as 'SBA Loan'

Commercial Lending to Stay Tough

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I spent the day yesterday at the Commercial Broker's Association (CBA) Commercial Real Estate Form.  A great program on relevant issues in today's commercial real estate markets. The one presentation that hit hard was Market Knowledge: Strengths and Weaknesses in Different Segments of the Commercial Real Estate Market presented by Dr. Jim DeLisle, University of Washington Director, Graduate Real Estate Studies at the Runstad Professor of Real Estate. 

My take away: The Commercial Mortgage Backed Securities market, where commercial mortgages were bundled and sold, has pretty much evaporated. The only loans that are being made and will continue to be made are portfolio loans, where the lender actually keeps the loan in their portfolio. The result... very few mortgages are being written. It is much more difficult to obtain a commercial mortgage and the loan to value; the present value, is in the neighborhood of 40% - 60%.  With many commercial mortgages rolling over in the near future, new financing will be a problem. I expect there will be many good opportunities to purchase commercial properties at attractive rates.

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Buying Office Space , Commercial Real Estate , Office Building Sales , SBA Loan

Commercial Office Condos - Are You the "Right Size?"

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Small businesses face competition every day and any edge that can be gained over the huge corporate entities must be taken advantage of in order to compete effectively.  For mature small businesses, there is a new way to gain a competitive edge that wasn’t even an option not very long ago.

Commercial condominiums have appeared on the real estate market recently and small businesses are taking advantage of the benefits. While this option isn’t viable for every small business, it can make a huge difference for those companies that can most benefit.

Young, immature small businesses need lots of leeway regarding office space as they grow and change.  Those companies will likely move through several leased office spaces before reaching their “right size” and being ready to stay in one location and one size facility for the long haul. These are organizations that should remain in the office leasing market for some years to come.

Those small businesses that have found their “right size” and know exactly what they want and need in office space for the coming years can greatly benefit from a commercial condo. The reason to let a company mature and adjust before investing in an office condo is that it may be difficult or even impossible to obtain another condo in the same building in which to expand as the company grows. Businesses that have remained one general size for some time are best suited to investing in commercial condos for office space.

Leasing has lots of downsides. The largest, of course, is the fact that the investor who owns the office space wants to generate a profit from his or her investment. After all, that’s what owning real estate for lease is all about. Other down points include limitations on use, remodeling, even restrictions on paint and carpet color in many cases.

Investing in a commercial condo for small business office space clearly takes the “middle man” – the landlord – out of the picture entirely. The small business obtains financing directly from a mortgage lender, just as is done when a private individual purchases a place to call home.  Small Business Administration guarantees also may be available to allow for a 10% down payment and favorable interest rates.  If you have bought a home, you already know how much less expensive it is to make mortgage payments on a home when compared to leasing a like residence from another owner. The very same is true of office condos.
 
The small business becomes responsible for all repairs on the interior of the commercial condo because there is no landlord to turn to should something break or stop working. A small prudent reserve for such situations is wise on the part of any business purchasing a building, whether a condo or more traditional office space.  In the case of leasing, the landlord is already charging an amount to hold toward repairs in the lease payment each month. Instead, the small business can invest the money in an interest bearing bank account for earn money on the reserve held for repairs.

The business is also responsible for payment of all taxes on the unit. Here again, the landlord of a leased office space has taken this sum into account when setting the monthly rental fee. It’s just a matter of managing your budget so that making tax payments on a timely basis will not create a hardship on the firm.

In the next post about commercial office condos, we will look into the condo association board of directors and how the small business can effectively deal with and participate in that area of commercial office condo ownership.

The Buying Process

Leasing vs Buying Comparison

Related Blog Post: Join the Emerging Trend of Office Condo Owners

 

Buying Office Space , Commercial Condo , Commercial Real Estate , Lease vs Buy , Office Building Sales , SBA Loan

Commercial Office Condos - A Primer

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In our office space Blog we have discussed a great deal in the past about how troubling of a time it is for the Commercial Real Estate market thanks to overly abundant unemployment and the recession.  With every challenge there is usually an opportunity.  In this case, a down markets is a great time to buy commercial real estate.  The old adage of buy low and sell high can be applied to this time period. Of course, it is always scary to get into an investment in a down market, but if you can do it now, you will undoubtable be near the bottom of the market with no where to go but up.

One of the best ways to get into commercial real estate is to buy property that your company can use. One of those ways is to buy a commercial condo. The SBA may even be able to help too with a loan guarantee that would allow you to only put 10% down. A great use of leverage.

Here is a primer from CommercialCondos.com to get you started in understanding the  concept.

"Many people understand what a residential condominium is because the concept has been around for generations. In order to understand commercial  condos (also called "non-residential" condos), we can apply many of the residential guidelines, but with the added benefit of potentially increasing profits for your business.

Following is a simple list of frequently-asked questions that will give you a quick and thorough education about commercial condos.

As a business owner who currently leases my workspace, how would I benefit from buying that space?

The most obvious benefit is that you'll own the property rather than rent it, so over time it will gain equity and become a valuable long-term asset. If you leased your 1000 square-foot work space for $30 per square foot for 10 years, you would spend $300,000 (excluding any annual increases) during that time, but all that equity would go to your landlord instead of you. If you'd purchased the space, each year you would be paying yourself and increasing your equity in the property. You could also have multiple tax benefits that you'd not be able to take as a tenant, such as mortgage interest, property tax deductions and deductions for repairs and depreciation. As an owner rather than a tenant, you'll have complete autonomy and freedom to create the exact space you need for your work. You can redesign and remodel to your heart's content.

What are some of the less obvious benefits?

If you're moving into a new location, a lease option (leasing now with an option to buy later) can lock in the purchase at today's price. And if you purchase more space than you need, you can rent out the remainder. Those rental units will pay for themselves while building equity for you.

How do I purchase a commercial condo?

Many business owners don't realize that while commercial banks are hesitant to make loans, the Small Business Administration (SBA) is actively offering up to 90% financing to established businesses for the purchase of office, industrial and retail space. There are many financing options available, but the financing can be complicated because the lender won't necessarily understand what type of property it's dealing with. Is it residential? Commercial? Retail? What kind of loan is it? That's why we suggest that you work with a trusted banker or broker who can bring in a team of experts (accountants, lawyers, architects, as needed) to help you find the best loan and the best property.

Will I have to pay property taxes?

Yes, because you are the owner of a piece of property. But like a home loan, the property taxes can be rolled into your monthly loan payment.

Some residential condo complexes have homeowners associations and dues to pay. Is this true with commercial condos?

Yes, there will be an HOA (homeowners association), and there will be monthly dues. But these dues pay for property maintenance, landscaping, insurance, professional management, and more. If you owned a house, you would also be paying for these things. One advantage of an HOA is that it guarantees that these maintenance issues will be addressed and that the property will be well cared for.

How are the common areas like parking lots, lobbies and walkways maintained?

Property maintenance will operate the same way it did when you were a renter. The developer, or owner of the property, will turn the management responsibilities over to the HOA and the board of directors (which is usually made up of individual owners like yourself). Usually a property management firm will be hired and paid from the HOA funds.

What does the board of directors do, and how involved will I need to be?

The board makes day-to-day decisions about caring for the property. For example, the parking lot may need to be re-paved, or the sprinkler system may need to be upgraded. The board prioritizes these various needs, seeks bids from vendors and makes sure the work is completed. As an owner, you may choose to serve on the board or not. It's not required."

If you are interested in finding out more, request assistance finding commercial real estate for sale from our top local buyer representatives.

Also check out our lease vs buy and financing alternatives articles.

 

Buying Office Space , Commercial Real Estate , Investment Real Estate , Office Building Sales , Office Space Negotiations , SBA Loan

SBA Chief on Increasing Small Businesses' Access to Capital

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Karen MillsPhoenix Business Journal Friday, February 26, 2010 (Excerpts) - Karen Mills was sworn in as head of the U.S. Small Business Administration last April, just as the economic stimulus bill was starting to revive the SBA’s lending programs. Now she is pushing President Barack Obama’s jobs plan, which calls for increased lending to small businesses, tax breaks for hiring and business investment, and programs to help innovative businesses grow.

Mills sat down Feb. 18 with Kent Hoover, the Washington Bureau chief of American City Business Journals, to talk about increasing small businesses’ access to capital...

...We have a program called 504. It’s for owner-occupied real estate, if you expand and create jobs. Temporarily, let’s use 504 to do owner-occupied real estate refinancing -- not the bad stuff, not the speculative portfolios that have been accumulated; but owner-occupied, and you haven’t gone into default. It’s probably less risky than funding an expansion. It looks like we can do it for zero subsidy; we’ll charge a fee to take on the risk, and we’ll need a little administrative oversight. We think we can do $7 billion to $10 billion at very little or no cost to taxpayers.

We have the infrastructure to do that right now. We know the demand is going to be there. (end)

How to get a SBA Guaranteed Loan

Boston Office Space , Office Building Sales , Office Space , Office Space Negotiations , SBA Loan