Article

Take Up Space

Commercial Real Estate Deals Abound

Richard Gray

January 20, 2012

It’s no secret that the real estate market experienced drastic changes during the past two years. Those wanting to sell property face an uphill battle, competing against years’ worth of inventory. On the other hand, those seeking to purchase real estate have new opportunities as the economy continues to recover. Thankfully, though, local businesses have some great opportunities in commercial real estate. Though this recession has affected small businesses, there is a silver lining: buyers can access prime real estate for much less than a year or two ago, particularly in the commercial market where vacancy rates are up. While there’s still abundant supply, small business owners should seriously consider whether now is the right time to purchase commercial space. SBA loans still a good option. One of the best financing options for Utah’s small businesses seeking to purchase or construct owner-occupied real estate is a Small Business Administration (SBA) loan. SBA loans, which are specifically designed to help companies grow and prosper, are ideal financing vehicles for office buildings, warehouses, retail outlets and special purpose-type facilities, such as restaurants, lube shops or car washes. And thanks to the federal government’s efforts to stimulate the economy, these types of loans are more plentiful than ever. Because SBA loans are partially guaranteed by the government, most banks are willing to make them, even to businesses that may not qualify for a traditional loan. SBA loans are also less capital-intensive, requiring just 10 to 20 percent down, versus the 30 to 35 percent down needed for traditional loans. Business owners can leverage current commercial real estate rates and plan for their future by purchasing a building they can grow into. As long as the business occupies at least 51 percent of the building, it can qualify for an SBA loan. Under this scenario, a company can buy the property now at lower-than-normal costs, lease out the other 49 percent, and use the rent it receives to cover part of the building loan payment. If you’re worried your business may be too big to qualify for an SBA loan, know that a small business is defined as having fewer than 500 employees. This means 95 percent of Utah companies are eligible. Consider using a personal loan. While SBA loans are the answer for many companies, some small business owners may want to consider obtaining a personal loan to purchase a building, and then rent the building back to the business, as one of our customers recently did. The company had outgrown the building it was leasing, so the owners found a new facility. Because they were planning to use the building for the long term, they considered purchasing the building. The main concern was the consequence of taking capital out of their business to make the purchase. After analyzing the owners’ finances, I recommended they purchase the building under their personal names and then lease it to their business. This model allows the company to utilize its capital to grow the business, while giving the owners an opportunity to increase and diversify their personal wealth with commercial real estate. Think of it as an investment. When the opportunity is right, small businesses and owners can greatly benefit from owning commercial property. The money they pay toward a real estate loan each month goes toward building equity, instead of lining someone else’s pocket. They have more control over their environment and can put money into a long-term asset that meets their specific needs, instead of improving someone else’s building. Ownership also insulates companies from higher rent payments, which are likely to surge as the economy recovers. While the economy has produced challenges for everyone, it has also created one of the greatest buyers’ market for commercial real estate in recent history. Eleanor Roosevelt once said, “It’s better to light a candle than to curse the darkness.” Those words still ring true today. If you are qualified to purchase commercial real estate, this might be the ideal time to light a candle by investing in yourself and your business. Richard Gray is senior vice president of commercial lending and SBA lending at Bank of American Fork, Utah’s largest community bank with 12 branches across Salt Lake and Utah counties. Located out of the bank’s Murray office, Gray has assisted local small businesses with obtaining SBA funding for over 25 years.
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