With commercial real estate in a tailspin, if you’ve been toying with the idea of buying a building, you’ll find plenty of bargains. Just ask Craig Cooke. The CEO of Rhythm Interactive, a 12-employee marketing company in Irvine , Cal, bought a building in March at a discount of 40% to 50%. “The state of the economy worked to our advantage,” he says.
Even a well–established company might want to tread carefully. Take Abel Zalcberg, who runs OFM, a 26-employee furniture distributor in Holly Springs, NC, who has built two facilities over the past seven years. Recently, he decided to buy a building for operations in a nearby area the company entered five years ago. “We’ve grown our revenues enough in the new location that we’re comfortable making the move,” he says. “Your expenses have to be in line with your profit margins before you can purchase your own building”.
Consider how fast you’re going to grow. If you’re likely to be bursting at the seams in the near future, buying might be inefficient. Instead, you might rent in a building with extra space you can lease when you need it.
If you decide to buy, you’ll face the challenge of financing the effort. That’s particularly difficult now, because banks are still reluctant to lend to small businesses. Your best bet may be trying to get a loan under the SBA’s 504 program, aimed at helping small businesses buy real estate, equipment, or machinery at below market rates.. But be prepared for hassles. Cooke spent about four months working with both the SBA and his bank. During that time, he had to fill out reams of paperwork and deal with a constant back and forth. The effort took so long that the developer almost canceled the deal. “It was very stressful,” he says.
In some cases, you might have no other option but to buy a building—and figure out how to pay for it. That’s what happened to Crystal Kendrick, who runs the Voice of Your Customer, an eight-employee marketing firm in Cincinnati, Ohio. As a participant in a federal government program that is obligated to spend 3% of its budget in so-called underutilized business districts, she had to set up her office in one of those areas. When she couldn’t find any acceptable rental space, she decided to buy.