About a decade ago, Tim Wagener wanted to sell a small piece of industrial property he owned in Crestwood. After several months, he had no takers.
Then he decided to convert the building into four units and sell them as corporate condominiums. They sold right away–and Wagener found a new business.
Commercial condominiums, also known as corporate condos, operate very much like the residential version. Entrepreneurs and business owners buy rather than lease their individual offices, warehouses or workspaces within a larger building or complex of buildings.
By virtue of their purchases, they become members of an owners’ association that elects officers, collects assessments and maintains the building.
“Corporate condos give the small business person an opportunity to own a piece of real estate,” said Wagener of Schaumburg-based Mercury Investments, which develops corporate condos, and Owen Wagener & Co., which markets and manages them. “Many of these units are fairly small. There aren’t many places an entrepreneur can go to get a 1,000-square-foot office building and own it.”
Jan Zajac decided six years ago to buy into a corporate condominium association in Frankfort for his advertising agency, West and Zajac, when along with a new lease came a hefty raise in rent.
“In my mind, it’s an outstanding concept,” Zajac said. “In another eight years we’ll have it paid off and we own it–and it’s going up in value. Otherwise all we’d have to show for our money would be a pile of rent receipts.”
“Even if the units don’t appreciate in value, and most of the time they do, you’re paying the mortgage down,” Wagener said. “You get a return on your investment.”
Mark Cantey, a Wheaton certified public accountant who serves the residential community association industry, considered buying a corporate condo a few years back, but instead renewed his lease for another three years. When that lease ended, he revisited the condos only to find the prices had gone up. He decided to buy before they went up further.
“It’s one of the best decisions I’ve made,” said Cantey, who is treasurer of his association. “Instead of buying the whole building, I just buy the part I need. The resale value is higher, and I know I can unload it quickly if I have to.”
He also likes the fact that he spends his working hours in a community of like-minded professionals, all of who want to maintain the building in a way that is attractive to their clients.
Both Zajac and Cantey said their mortgage and assessment costs are significantly less than what they paid to rent their offices. The biggest downside Cantey sees is that expansion could be a bit of a challenge.
“When you buy a personal residence, you can usually forecast your growth–you know whether your family is going to expand,” he said. “When you own a corporate one, you don’t know if your business is going to expand or not. If you buy and you’re landlocked, it’s tough to expand in your current place. If you rent and the place is available next door, you bust down the wall. If all of a sudden I need 10,000 square feet of space, I have to go. I’d have to move.”
Wagener pointed out that renters, who are usually required to sign three-year leases, don’t have a great deal of flexibility themselves. “You can’t go month-to-month,” he said.
His solution? Buy two or more units and lease out the ones you don’t initially use. Unlike residential condominiums, many corporate condos permit leasing. Wagener said, “You have to allow a person whose business isn’t doing well the flexibility of continuing to own and lease the space out.”
The terms for financing corporate condos also are different from those on the residential market. Corporate mortgages are tougher to get. Also, traditional lenders will typically ask for down payments of 20 to 25 percent. Loans backed by the Small Business Administration are available with 10 percent down, but interest rates tend to be higher and the paperwork more detailed.
– Loss-prevention seminar. The Association of Condominium, Townhouse and Homeowners Associations and the Illinois Chapter of the Community Associations Institute are co-sponsoring a seminar on loss prevention from 7 to 9 p.m. Oct. 11 at the Chicago Marriott O’Hare, 8535 W. Higgins Rd. in Chicago. Admission is free for members and $25 for non-members. For information and registration, call 312-987-1906.
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Do you have an issue you’d like to see discussed in a future column?
You can write to Pamela Dittmer McKuen in care of Community Living, Chicago Tribune, Your Place section, 435 N. Michigan Ave., 4th floor, Chicago, IL 60611. Please include your phone number. Or e-mail PMckuen@aol.com.
