Savvy business owners take note – owning the commercial real estate you occupy is not always best for your business. In many cases, the total occupancy cost, tax consequences and “headache factors” suggest that leasing business’ real estate is more beneficial than owning. Sit down with your accountant and commercial real estate broker and perform a relatively basic lease-versus-own analysis.

Carefully compare the following factors from each of the two scenarios:

Total occupancy costs including base rent or mortgage plus all operating expenses. Who pays for property tax, maintenance and capital repairs of the property in each scenario?

Tax consequences including mortgage interest deduction with depreciation versus expensing rental occupancy costs.

Growth/consolidation. Will you need to grow/downsize and if so, which scenario offers more flexibility and/or benefit?

“Headache factors” such as who manages routine maintenance, maintenance emergencies and capital repairs.

Which scenario is better for your business?

After analysis you may find your business is better off leasing. Or, you may find you wish to unlock capital that is tied up in your business’ real estate. In either event, given today’s commercial real estate investor appetite you may consider selling the real estate you occupy to a 3rd party investor. Investors currently remain willing to pay a premium for properties that are fully or nearly fully occupied by a quality tenant willing to enter into a long term lease of 5 to 10 years. Such properties are scarce, bank financing remains favorable, and commercial real estate investors remain financially strong.

Here’s a quick snapshot of why you may want to consider a sale/leaseback of your business real estate:

Sellers can free up working capital that is tied up as equity in their real estate for use elsewhere in their business;

Sellers can take advantage of today’s low 15% Federal long term capital gains tax, estimated to increase to 25% in 2010;

Sellers can usually achieve the highest and best value for their property right now via sale/leaseback to an investor, versus an empty building in the future;

Commercial financing rates from local and national banks remain at 30-year lows, maximizing buying power which increases property values;

If positioned properly, a good commercial real estate broker will create a competition among qualified investors to purchase your leaseback property at the most favorable price and terms.

In summary, take a moment to sit down with your financial and real estate professionals to review your business’ real estate situation – it could materially improve your business’ bottom line.

For more information, please contact Daren Hebold at NAI The Dunham Group, 773-7100 or [email protected].