For those businesses lucky enough to find themselves in the position to either rent or buy, this article is certainly for you.
In this post I’ll be discussing buying or leasing in regards to Industrial (warehouses etc) and Commercial Lofts.
Brooklyn has been undergoing for the last 20 years a huge metamorphosis to the point where you can say “Brooklyn is the best Borough” and no one would laugh. DUMBO has Brooklyn’s most successful neighborhood where rental numbers in Residential and Commercial are rivaling Manhattan. Dumbo is reporting vacancy for commercial properties at 2%, those are Michael Jordan numbers.
The rest of Brooklyn is beggining to see vacancy rates drop, especially in properties such as warehouses and lofts. Anyone who has tried to find space in East Williamsburg or Bushwick was in for a rude awakening when they saw how competitive it was to find a space.
Industrial rental prices have risen to the point where industrial users find out that it no longer makes sense to stay in Brooklyn and leave. Only manufacturers of higher end products, and certain food products remain.
Taking it’s place is an exciting assortment of new creative businesses ranging from tech companies, to unique event spaces, art galleries, and music studios.
If you are considering renting or buying I want to illustrate a few key points.
Leasing has a few advantages, 1) You don’t have to commit to a property long term 2) You are not responsible for the upkeep of the structure of the building 3) In an industrial lease, you are typically (not all cases!) not responsible for the base taxes (just any increases) 4) You don’t have to worry about the fluctuations of property values. 5) Industrial and loft properties are expensive
However I feel that purchasing has many more advantages. Here I list a few.
1) The market in Brooklyn looks expensive. Where are the deals? Don’t let the high numbers fool you, despite it’s expense, it has not peaked, and I would bet that 10 years from now, your purchase will look like a heck of a deal. Much like what has happened in places like the meat packing district and the rest of lower manhattan, the same change will be applied to Brooklyn, only on a much larger scale, ranging as far north Greenpoint, as far east as Bushwick/Bed Stuy, and as far south as Coney Island. Buying a building is a terrific investment for your business’s future and can hedge against your business failing.
2) Capital Improvements. Let’s face it, Brooklyn Industrial properties are typically a sight for sore eyes. They are old, beat up, kind of creepy. The chances are you will put in a lot of money to improve the space. Do you want your landlord to reap the benifits of $100,000 of your work or would you like to reap the benefits?
3) Expansion: What if your business expands and you feel like you need to purchase? If you sell your building for a profit to move to larger facility, don’t you have to pay capital gains tax? NO YOU DON’T. The IRS allows to do a “1031 exchange”. A 1031 Exchange allows you to sell a building and purchase another commercial property, no matter the size and you don’t have to pay taxes.
4) Get a bigger space then you need! Divide it up and rent it out and it will cushion you on your mortgage payments, or if you buy it out right, you provide yourself with additional income. If you don’t feel like playing landlord, there are management companies that will just take a small percentage of the monthly rent to manage the upkeep of the building, rent out the space, collect rents, evict, and deal with the city.
5) You are protected against the perils of a lease contract. The lease contract almost always favors the landlord. There are loopholes your attorney might not of saw, and if you are not smart, your lease can be a huge detriment to your business.
6)Very few landlords are willing to give longterm on a lease. Landlords in Brooklyn think there property are gold mines. With projects like Atlantic Yards (arena), renovated water fronts, and businesses exiting from Manhattan to be part of the Brooklyn brand, landlords are preferring to keep their leases short despite their properties needing extensive improvements.
I just listed a few reasons on why you should, there are many others. For those businesses that might not have the cash to buy, but have been in business for years, have good credit, and have been profitable, you might want to consider a SBA loan. It can help you purchase a building for up to five million dollars with just 10 percent down. I’ll get to that in another post.
Feel free to contact me at firstname.lastname@example.org for any further questions.
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