What was your first office investment like?

Question

I purchased my first office space this year. I have deliberately started out with a small space so as to better understand the market. It is a mixed use building half commercial office space and half residential. IMO this was a good way to get started.

So, how did you get started in office buildings? If you haven't started how might you consider getting started?

So, how did you get started in office buildings?  If you haven't started how might you consider getting started?

Jon Klaus · Answer

I bought my one and only office building 3 years ago.  It's 10,000SF just off the IH635 loop northeast of Dallas.

My IT services business had always leased space.  We were in a 7000SF flex space on a 5 year lease and renewed for another 5 years.  We spent @ $600K of rent over the 10 years.  Previously, we thought we needed more flexibility in terms of size and location, but if we were going to be so stable that the same space worked for us for 10 years, why not buy?

It was hard to find the right size, type, location, and priced building.  Finally we found one that would work, but didn't have all the cash and wanted to be sure about the location.

We signed a 7 year lease with a 2 year purchase option.  We executed the purchase option in July of 2008.  This transaction kick started my REI focus.

We use 7000 SF and have 3000SF available.  I haven't been aggressive about leasing the 3000 because the market's been down.  Also, a new freeway ramp and access road will be constructed adjacent to our property.  That will increase the exposure and value.  We'll look for a tenant that can capitalize on the great loop access and that is a good strategic next door neighbor for our IT business.

(Commercial) The available space is about 60'x50', open except for a corner office or conference room and 2 restrooms.  All glass to the front.  Showroom or some types of retail could work.  Additional 1000SF available with overhead door to the rear,  We offer all IT services, including network, phones, Internet and support.

Since we signed the purchase option 5 years ago, a new Walmart has been built a few hundred yards away.  And the freeway ramp/access was announced.  Our current plan is to keep the building long term.

At the same time, I may buy another office building in the next 1-2 years and move our business into it.  One reason is the availability of favorable owner-occupant SBA financing.  Then we'd lease the other one out, possibly on a NNN lease.

The experience has been positive.  If I had waited a year or two, I could have gotten a better deal and been in a stronger financial position, but I'm grateful anyway because this deal got me started in a great direction.

Numbers?  All I'll say is we paid about the same as we paid our previous landlord in rent for 10 years.  15% down, and 6.3% fixed for 10 years on a 20 year amortization.

Rob Gillespie · Answer

Depending on the area, office space is tough! We have 7k sq feet of office space in a decent area, and I have it broken down into individual offices with a shared cafeteria and conference room. Space starts as low as 300 per month! I still have a hard time gettin tenants. I really believe the web, smart phones, and fax machines killed the office space. Just my opinion! :mrgreen:

Account Closed · Answer

My office space is a mixed use building and I bought it right.  It is doing quite well Karen M.

Jon Klaus · Answer

Update on my office building described above:  we refinanced earlier this year for 2.99% fixed.  Lowered the payment several hundred per month and shortened the term by 5 years.

Dale Osborn · Answer

Charles Perkins we did not have a very good experience with our attempt to move into the office building arena. I happened to read a book that was talking about the most money could be made with office buildings, especially if in a downtown location. So in early 2000, we bought a 31,000 SF office building in downtown Colorado Springs, CO. It had 3-floors with the upper two having larger spaces for rent. Lower level had numerous little dinky offices that were very hard to lease out. The roof top HVAC systems had been jury rigged to allow heat and A/C to run at the same time. How hot & cold air could come out of the same ducts at the same time was a total mystery to me. I had one attorney's office that had coats on trying to type up documents - room temperature of 35 degrees. Next door another attorneys office everyone is in T-shirts as room temperature was 85 degrees. Took a year to finally get the system to operate properly. We were located a block away from where the local soup kitchen so the homeless guys would come in and try to sleep in the hallways. Restrooms were controlled by keys so they would not go in and try to take a bath in the sinks. We were the janitorial service so three times a week all of the offices got cleaned. For about 6 months we also spent every weekend there sweeping up the parking lot dirt, trash and dead leaves. It was not a very fun experience so in 2002 we sold it for the same price we paid for it and went back to managing our apartment building. Having the apartments during the day and cleaning the offices at night was a real drag. It was a relief to just go back to our 43 unit apartment building.

Karen Margrave · Answer

Charles Perkins I found this old post of yours and wanted to follow up.  How did things end up working out for you on the office space you purchased? What is the market like in Seattle?

Account Closed · Answer

Jason, can you clarify?  Is it your believe that office space is a saturated market or that business are not looking for office space?

One kind of innovations might you suggest?

Jason Sandquist · Answer

Office space isn't going anywhere. Those that don't innovate with it will be the ones disappearing.

Account Closed · Answer

7K of office space is a good sized building.  I'm sure that is much tougher now because of the economy.  Are you thinking it will continue to be tough when the economy gets better?

What was your first office investment like?

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