The owner-user real estate model has been thriving for decades. Business owners looking to control  their occupancy and build their own real estate portfolios have done quite well through the years. I  routinely speak with people who bought a piece of commercial real estate in the 70’s or 80’s for $30-40  per square foot. That same building today, which is still in good condition, is worth over $300 per square  foot. Even after adjusting for inflation, the return on the buyer’s original 20% down payment is nothing  short of phenomenal. There are literally hundreds of similar success stories, but you do not have to have  purchased a property 40+ years ago to make the list. Those who made acquisitions as recently as 2011  have seen their property’s value more than double.  

Following the Great Financial Crisis and now Post-Pandemic, real estate, while constantly changing,  remains essential to most businesses. After riding out the most uncertain year in recent memory, people  are getting back to business and executives have real estate decisions to make. A frequent discussion I  have is leasing versus owning and its noticeable that businesses prefer the latter. For those of you Baby  Boomers on the cusp of retirement, the idea of selling and riding off into the sunset with a huge bankroll  is exciting but refuse to do so because they are either tax adverse or do not know what they would do  with the money if they cashed out. 2021 is off to a good start even though the long-term implications of  the pandemic have yet to filter through the entire system so until then, it makes good sense to evaluate  all options and at least consider taking some chips off the table. 

Scenario 1: For those not interested in disposing of their assets, but want access to their equity,  refinancing is a viable option. Taking cash out of a property through the placement of new debt  is not a taxable event and the cash generated can be used to acquire additional assets, improve  the existing asset or for any other purpose. Refinancing is especially attractive today due to the  low fixed interest rates precipitated by the Fed’s current monetary policy. Refinancing will  

increase monthly occupancy cost, but for many that cost will be lower than it would be in  another property.  

Scenario 2: Irrespective of refinancing, many decide to lease their buildings out for income. At  today’s lease rates, this can be a good option but its not without risk. Holding the property  entails leasing risks like vacancy, tenant default, management problems, deferred maintenance,  functional obsolescence, and market pricing correction. My previous post went into detail on  “owning a vacant building”. You can find it here.  

Scenario 3: Owner-users may be ready to access their equity by selling, but still want to operate  their business without moving. In this case, a sale-leaseback transaction is a good option. You  sell the property to a third-party investor and agree to lease the property for a period. You  eliminate the risk of ongoing ownership but continue to operate the business without  disruption. For those who are more tax averse owners, they can 1031 the sale proceeds into  another income property, presumably with a lower risk profile that reflects their retirement  plan.  

In parts 2, 3 & 4, I will go into detail on strategies involving 1031 exchange, sale-leaseback, and  installment sales. It costs you nothing to stay informed but now, more than ever, it could be very  expensive if you don’t. If you already own real estate or have a lease coming due and want to acquire a  facility, I welcome the opportunity to continue the conversation. I’m here to help.