To Buy or Not to Buy, revisited

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 new client who is actively seeking a small office space to own.  As I mentioned in the post, there are definitely valid reasons for buying versus leasing and my client has several.  Interestingly, the one that I hadn’t considered in the past is the fact that they are an international firm.

Being based in another country, the American dollar and dollar-denominated assets, including real estate, still look pretty cheap by comparison.  Overseas firms that meet other office condo acquisition guidelines would do well to consider relocating to an office condo and parking some of their capital in American real estate.  Whether analysts are bullish or bearish on real estate prices, the strength of the American dollar can be an attractive hedge for the international business or investor.


4 Responses

  1. Jacob,

    Very good point! I was an avid office condo financier for a while, until that niche collapsed in several markets, due to rising interest rates making the mortgage payment too much higher than renting. However, I am starting to follow the whole story of US dollar being “on sale” in Europe. So these types of deals would definitely pencil differently to a European company using a local cost of debt (lower interest rate) and a cheaper dollar to boot. Again, good capital story.

  2. Lisa, it will be interesting to watch the residential and commercial real estate markets over the next couple of years to see how activity changes based on the weakened dollar. I’ve already heard that high-end condos, like the Chicago Spire, are drawing attention from foreign investors and travelers, much like New York a couple decades ago.

    Since office condos haven’t caught on as aggressively in Chicago as some other markets, I’m curious to know in which markets you were seeing the most financing activity.

  3. Jacob,

    As Sales Director for The Cape Horn Group (owners of 55 W Wacker and The LaSalle Wacker in Chicago), i would like to add my 2 Cents (US) for what it’s worth.
    We have had recent success at one of our properties from foreign buyers primarily i think due to the US dollar value as you and Lisa allude to but equally important is the cultural aspect. Many or even most businesses in other parts of the world (e.g., South America and Europe) customarily own their office space. This shows a committment to their business and business clients. Cape Horn was the first commercial office condo converter in Miami in 2002, presently 10% of the downtown office market there is office condos. Cape Horn has three successful conversions in Miami and is just starting to market its Chicago properties.
    The concept works really well for: owners/end users (i.e., not for profits -especially those that are exempt from paying RE taxes, legacy firms, stable service oriented companies; investor owners who will buy office space with an existing tenant in place and those buyers who coming coming out of a “trade” or 1031 exchange.
    Jacob, i hope to see you again soon.


  4. Larry – happy to see you providing a comment on Corporate Real Estate. It’s useful for readers to hear both sides of the story.

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