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Commercial Condos

brad_randall

brad_randall

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So, one of my locations has been offered for purchase as a commercial condo. This is 1400 sqft in the middle of a medium size strip mall.

Does anyone have experience with this type of property arrangement in a commercial setting? I know our current landlords are looking to retire and are trying to sell the complex so our historic low cost/sqft would likely increase in the future.

With a quick look, it appears that paying on a commercial loan for the property vs. leasing would generate over $300.00/month in additional cash flow. My assumption is that CAM + my property taxes would be about the same as my current NNN.

The big question is, “once we are ‘done’ with the space, will we be able to move it and recoup our investment?” What other issues should we need to consider regarding commercial condos?
 
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If this building is now privately owned, the owner may do some of the maintenance works to save a few $$$s…Once it becomes a strata building this work will be contracted out and incur some cost…

Can you afford 10% or 15% more than your current rent in the short term?..Not saying it will actually cost this much more but you need to cushion…Put the increased payments in a dedicated building bank account…And let the surplus accumulate until you have a comfortable cushion in reserve.
 
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There is also another pure cash flow benefit, in that , as an owner, you could begin to depreciate the property ( a non-cash expense used as a tax deduction). Check with your CPA for details, but it is no small deal. Of course, you would lose your previous rent expense, but 100% of your new mortgage interest would then be deductible. Overall, unless you think this center is gonna go to hell in a handbasket over the next 10, 15, 20 years, the purchase probably makes very good sense.

Sit down with your CPA for 30 minutes and you will probably leave with a strong sense of confidence in whatever you choose. Good luck.
 
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Assuming the location is one you like and works for you to begin with and the price is fair, this is an opportunity you should never pass up.

I own my location under the same kind of arrangement. Furthermore, I am a licensed commercial property broker. You are nuts if you don’t do it.

Costs should be about the same or less than under a LL. “Condo Fees” are no different than any other version of the real costs for the operation of a building. If you have a triple net lease, you are already paying all those costs on a direct per foot basis.

Key considerations:
  1. How much you pay for the space. Do some local research and get some local advice.
  2. Who will own the other units? If the ownership is dispersed and nobody has more than 50% the due and fees etc are determined by the members of the association. Hopefully the association will spend money wisely, create adequate reserves, contract for things like landscaping, trash, snow removal, pavement and roof maint in ways that save you money over time.
  3. Your business will be MUCH more attractive to a future buyer with real estate included or when the time comes you can sell the business and collect rent… either way you win.
  4. You should review the condominium declarations with an attorney as well as the association documents before buying. Make those items an inspection item in the contract.
  5. Go talk to your banker now. Hopeful, your relationship with them is good. Tell them about the opportunity. Very likely the SBA is going to be your best funding source. They are going to want 10% down. Start figuring out where that money is coming from.
 
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bodegahwy:
Who will own the other units?
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At this point, we’re seriously considering buying the condo space for the Subway next door too! :twisted:

Seriously, as far as I can tell, we’d be the 1st and maybe the only ones to take them up on this offer. I just wonder how hard it will be for them to sell the complex if a few (or only one) of the spots had been sold as a condo?

I’m glad to hear I would be nuts not to do it. And I’d actually be thrilled if the bank only wanted 10% down, I was thinking more along the line of 20%!

I’ll keep you guys posted about how the details.
 
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For conventional lending, the bank WILL want 20-25% down. You have to do an SBA loan or some similar state program to do 10%.

Yes the building owner would have a harder time selling the other units if they only carve off one or two. I think you will find that other buyers step up once things start happening. That is what happened in the center where my store is. I was the second to buy, now several years later they are all sold and there have been a couple of re-sales.
 
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Sat down with my landlord to discuss this. They changed their mind about offering commercial condos now that someone is seriously interested.

So the “too good to be true” part was actually getting to do it at all.
 
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