[ By Jim Riggs ]
Office building construction has slowed or halted in many parts of the country due to lease rates that have leveled off or declined and mounting vacancy rates. One bright spot, however, has been office condominiums, which have continued to gain in popularity.
Last year, The Wall Street Journal's RealEstateJournal.com noted in an article, "Amid Low Interest Rates, Office Condos Multiply," that "while average office-rental rates in Manhattan have fallen about 30 percent during the last three years, prices for office condos have increased 50 percent during the same period." Skyline News & Research newsletter reported that "In Florida, Arizona, Minnesota and cities such as New York, Atlanta, Washington, DC, and Los Angeles, commercial condominium development has yielded high returns for investors."
As with any real estate development, the most important element for success in developing office condominiums is location, location, location. Shea Commercial always locates its projects in highly visible locations with great accessibility and accessibility to a freeway. Since many purchasers are medical professionals, the ideal location is on a major thoroughfare, close to both a freeway and a major medical center.
Because office condominiums are a long-term investment, it is vital that they are built in areas that will appreciate or retain their value for at least 10 to 20 years. Shea does extensive market research to identify sites that also have a high traffic count and that are surrounded by other high-end office developments. Existing office tenants who want to stay in a convenient location for their patients, clients or customers are an excellent source of future office condominium buyers.
Nearby residential neighborhoods should be populated by white-collar workers with higher than average annual incomes. Not only do these demographics support the long-term prosperity and desirability of an area, but also, local business owners often decide to reduce their daily commute by buying office condominiums near their homes. The needs of small and mid-sized established businesses are often more specific than those of larger companies. They are more cost conscious and do not want to purchase excess capacity. This requires working very closely with potential purchasers to help them design a space that will meet, but not exceed, their current and future needs. Over the past four years, Shea hasn't had one resale in any of its developments and there is a waiting list for sold-out projects.
Small and medium-sized businesses may not have the in-house resources needed for the due diligence required to get the best deals and are vulnerable to being short-changed in the market. Shea has solved that problem by developing a Buyers/Tenants Package that provides the information new owners need so they can remain focused on their core business. Shea does the research for them and identifies a wide array of businesses, ranging from lenders to designers to general contractors that will offer great service and products with extremely competitive rates.
Shea does not convert existing space; all of its developments are new single-story or low-rise buildings, averaging 5,000 to 25,000 square feet, in park-like settings. The buildings are designed to easily accommodate three to four tenants per building. To accommodate multiple businesses, Shea tries whenever possible to eliminate support columns that could create space planning challenges. Each tenant has a separate entrance, easily seen signage and separately metered utilities. The roofing, windows, walls and heating/cooling systems are designed for energy efficiency.
The availability of adequate, convenient parking is just as important to an office condominium development's success as the buildings and amenities. In the Dallas metropolitan area, where more than 60 percent of purchasers are medical professionals, there is constant, heavy in-and-out visitor traffic. Shea provides ground-level visitor parking that allows quick, easy access to a company's entrance.
Several marketing tactics help generate interest and sales in new office condominium developments. They include:
Shea provides contacts at lenders who are motivated and will fight to get a loan through their system, sometimes with no money down. Most office condominiums are financed through a 25-year loan with a 10 percent down payment based on the cost of the shell plus tenant improvements.
Although office condominiums don't work everywhere, they have evolved from a niche into a mainstream product. With net annual returns ranging from 15 percent to more than 40 percent, the likelihood of continuing low interest rates and the pent-up unmet demand for the long-term financial benefits that office ownership provides to small and mid-sized businesses, the outlook for office condominiums is extremely positive.
Jim Riggs is the CEO and founder of Shea Commercial, the largest developer and broker of office condominiums in the United States.
"Although office condominiums don't work everywhere, they have evolved from a niche into a mainstream product." "Office condominiums are uniquely positioned to meet the needs of small to mid-sized businesses, usually professional service firms, small businesses and entrepreneurs. "