To buy or not to buy?

Sometimes I think Crain’s Chicago Business should change its moniker to Crain’s Chicago Small Business, because their articles that give advice seem to apply more to small and mid-market business than to those in the enterprise space.  That, however, is a discussion for another day, as I am writing to discuss Samantha Stainburn’s recent article aptly entitled Buy or lease space? Although the concept of a business owning its building or office space is not new, it does feel like there has been a lot more evaluation of when to lease or buy your commercial space.  Perhaps it is a result of the exploding office condo market, which was fueled by low interest rates and aggressive real estate investors and developers.  Randyl Drummer’s article on CoStar.com speaks specifically to the commercial condo market, for those of you interested in learning more – Time To Jump On the Office Condo Wave, or Jump Off?.

Stainburn’s write-up avoids the politics of commercial condos, instead focusing simply on the pros and cons of buying a building or space to house your business’s operations and employees.  One thing I like quite a bit is Stainburn’s profiling of two different business owners – one who owned but ultimately opted to lease going forward and the other who is very bullish on possessing a space.  As intriguing as the two profiles are, the best value can be gleaned from the pros and cons that Stainburn highlights in the first few paragraphs.  To save you time, I’ve pulled out the key pros and cons into a simple table:

Option Pros Cons
Buy Predictable payments, additional tax deductions, potential property appreciation Locked-up working capital, maintenance responsibilities, fixed space and location
Lease Not responsible for building maintenance, flexible options to expand or contract space needs or location No return on dollars spent, risk of unpredictable tax and operating expense hikes

I have not yet had the privilege of advising a client on the buy vs. lease strategy, so I can’t personally comment on the challenges that this would pose.  However, I can say with confidence that any firm that is considering buying space for the investment value should reflect on their intent for buying.  If it makes sound business sense, go ahead and buy; if, on the other hand, it does not make business sense, lease your business’s space.  Should you be that gung-ho on investing in real estate, I can put you in touch with brokers who specialize in investment buildings and tenant-in-common deals to stoke your real estate fires.

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2 Responses

  1. […] unknown wrote an interesting post today onHere’s a quick excerptSometimes I think Crain’s Chicago Business should change its moniker to Crain’s Chicago Small Business, because their articles that give advice seem to apply more to small and mid-market business than to those in the enterprise space. … […]

  2. […] Posted on December 7, 2007 by Jacob Cynamon Back in October, I took some time to write about the pros and cons of buying your office space.  Just this week, I had the opportunity to reflect on my own opinions, after a friend referred a […]

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