Saying ‘Good Buy’ to Office Rentals
For Norfolk, Va., solo Mary Commander, owning her office building means flexibility in everything from decor to who–and what–shares her space.
The “what” is Bradley, an “ancient” cat, says Commander, a family law practitioner. “Not many landlords would allow visits from pets, much less a live-in security cat,” Commander adds. She also has two fish tanks and welcomes occasional visits from staffers’ and friends’ dogs–despite their tendency to christen the carpet.
Many solos prefer owning their office buildings to following a landlord’s rules in a leased space. They accept the risks of ownership, such as maintenance headaches, in exchange for control and the potential for an increase in the value of their commercial properties. When she bought the building in 2003, Commander realized she could own for about the same monthly cost as renting. Luckily, she was able to arrange owner financing. The interest rate was “slightly more than market,” but she liked not having to apply for a conventional mortgage.
If seller financing isn’t an option–and it never hurts to inquire–look for a lender whose primary business is lending to small businesses, because they will be more attuned to the market, says Bruce Feffer, a New York City real estate attorney.
“Call a few places that seem to have small business lending programs that would work for your situation. You’ll know you’ve found the right kind of place when they start offering to come to you,” Feffer says.
Feffer also advises that you be prepared to sign a personal guaranty, especially if your practice is just a few years old. Banks will look closely at the creditworthiness of the business and the primary guarantor, he notes.
Commander rents to another solo lawyer about half of the 2,550-square-foot office building occupying a quarter acre on a main thoroughfare in historic Norfolk. But she says she doesn’t need his rent payment to afford the mortgage.
Well worth the Risk
Commander acknowledges that owning has its downside: She has had to replace some plumbing and will put a new roof on this year. In general, she says, the pitfalls are no different from buying a house–and, as with a house, the payoff of growing equity tends to offset the risk.
Geri Pomerantz also takes in rental income from a portion of her mixed-use building near Albany, N.Y. Pomerantz, who spent 20 years as a public interest lawyer, opened her solo practice this year.
Before deciding to buy, Pomerantz looked at the limited options for rental office space in her semirural area. “I just didn’t like the spaces. They were too big or too small or had all sorts of rules about when the building would be open and closed. Plus, I just didn’t want to automatically be associated with other lawyers in those buildings. I don’t want people assuming we’re all practicing together,” Pomerantz says.
The 2,200-square-foot building is in a small commercial district that draws people from the immediate area as well as from Albany, about 12 miles away. Her 500-square-foot office fronts the street, and two residential apartments are in back. One is occupied, and she hopes to rent the other apartment as soon as renovations are complete. The building is in a rapidly developing area, so even if Pomerantz is unable to make a go of her solo practice, she and her domestic partner will likely be able to sell at a profit in a year or two.
Like Commander, Pomerantz appreciates that she can make the space, inside and out, look the way she wants it. And, like Commander, she relishes the chance to bring her pet to work–in this case, her elderly dog.
“I’m putting in Pergo floors just for him.”