One of the largest of operating expenses for any business is real estate, and credit unions can save significant amounts of money by purchasing rather than leasing office space.
While there are arguments both pro and con for owning, the incentives and bonuses associated with purchasing can make owning office space an attractive option for a stable credit union.
Briefly, an office condo is an office building with two or more suites that are individually owned. The owners of the individual suites own the remainder of the property's common areas.
Office condos tend to be found in active, growing markets and are often found in areas boasting robust population growth as well as a strong residential condo market.
Credit unions with established space needs can shed the real estate tax component of their office cost by electing to purchase rather than rent.
The Decision To Purchase
Credit unions may gain from the exchange of a monthly rent payment for a monthly payment of principal and interest, one that gradually builds up equity. The decision to purchase is to accrue benefit from ownership of an important business asset.
What do you get for renting besides all those payment receipts? You always want to keep building equity and the best way to do that is by purchasing space which can mature, according to Tim Hartnett, senior VP-Real Estate Services Group with Draper and Kramer in Chicago.
Experts such as Hartnett use some quick rules of thumb: If your credit union has been in existence for more than 10 years, is successful, and if the space needs are likely to remain constant, then purchase of office space may make more sense for you than renting.
If it's decided that a purchase is something the credit union should explore, the next step is to analyze the option with the help of financial advisers.
They can help decide whether the office purchase is affordable; they can also advise about available financing sources, and can help judge the impact on the business and its bottom line.
A Broker Can Offer Advice
A commercial real estate broker can offer advice about all the features of a real estate location, from the appropriate price to the quality of a property and its location. The broker's fee will be paid by the property seller when a transaction takes place.
The rule of thumb for expenditures is to think in the same manner one would when buying a house: expect a down payment of 15% to 20%. Factor in mortgage costs, just as a loan officer tells members when they are buying a home. There will also be monthly assessment fees and, at times, special assessments the owners levy for certain repairs or improvements.
When the credit union management decides that an office purchase makes sense and is within its means, the purchase process begins. Accountants and lawyers may recommend that a separate entity for ownership of the property is formed, so the credit union will rent from the new legal entity. Having the separate entity for ownership can help protect assets if a business problem leads to a lawsuit against the credit union.
This is also the time for diligent consideration of costs and risks. Research the accuracy of projected assessments, the cost of renovations and replacements over time, and the requirements of the condominium association membership. Consider the sales history of the property that interests you, and think about the firms that will be your neighbors. Finally, take note of the property's sales progress.
The prospective lender will require the completion of forms and copies of tax records, both corporate and personal.
One of the most important factors to a successful transaction is a broker who is on the same page as you, is honest and who will check the fine print come signing day.
Having the foresight to learn about the process and move the transaction along accordingly can bring solace and peace of mind to the first-time commercial property buyer.
Bert Scherb is president of Ameritus, LLC, a real estate advisory, transaction and management services firm in Chicago.
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