We've known for years that it makes good sense to own where you live, rather than pay even-higher apartment rents. A growing number of business and professional people are coming to think that it also makes sense to own where you work.
But instead of buying an extire building they are borrowing an idea from individuals. They're turning to condominiums. Under the commercial condominium arrangement, you own a certain amount of space in a building, provide your own mortgage financing, and contribute to a general fund to keep up the lobby and grounds. If you ever decide to move, you can sell the space -- presumably at a good profit.
The case for owning office space, however, is not a cut-and-dried as is the case for owning a home. After considering all the angles, a business person might see more advantages in continuing to rent. Here are the pros and cons of commercial condominiums, taking the disadvantages first:
There is no flexibility. A growing business would be locking itself into sufficient space. You could buy more space than you need right now and lease the excess, but this would tie up capital. Condominiums are best suited to professional people and service businesses whose space needs are fixed.
There are no tax advantages. You can deduct your mortgage interest, the money you pay to maintain the building's grounds, and the depreciation of your space. But if you rented, instead, the entire lease cost would be deductible. When you sell your office condo at a profit, you will owe a capital gains tax.
You tie up a lot of money in real estate. A store owner might make more money by investing his or her cash in inventory rather than office space, consultant Sheldon F. Good of Chicago told my associate, Virginia Wilson. A doctor might make more money by investing in stocks or in beach-front properties. There is no guarantee that a commercial condo is the best place for your spare cash.
If your company is publicly held, owning property and depreciating it will reduce reported earnings per share.
But for many business owners, these problems are minor compared with the advantages:
You cannot be asked to move. This is especially important to business people who have to install expensive, built-in equipment in their office spaces.
You can relieve yourself of the burden of rising rents. A recent survey by the Chicago-based consultants, Howard Ecker & Co., found that, over the past two years, commercial rents have jumped 39 percent in newly constructed buildings and 51 percent in older buildings.
You can also control costs by negotiating a fixed-rate mortgage on the property. Fixed-rate mortgages are a vanishing breed; within a few years, most loans will probably be floaters, with interest rates rising when inflation spurts ahead. A fixed-rate mortgage, seized now, may be your best hedge against the uncertainties of the future.