Easy way to own the office

THE BALTIMORE SUN

Attorneys Robert Jacobson and Bernard Kraft own their business: the law practice, the files, the furniture - and for the last year, the walls that surround them.

Put off by rising rents, the partners made a decision to buy their office space. With just three employees - including the two lawyers - they weren't in the market for a building. Instead, they bought Suite 401 in 606 Baltimore Ave. in Towson.

"It was a no-brainer," said Jacobson, who has worked with Kraft for 25 years. "We had always rented, so when we knew we had to move we looked at both renting and buying. We ended up taking out a 15-year loan to buy offices, and our monthly costs are about the same as our rent would have been."

With interest rates near historic lows, the business condominium is increasingly becoming an option for small businesses tired of paying rent and changing locations. While relatively few business condominiums exist in the Baltimore area, demand is increasing, real estate brokers say.

R. Colfax Schnorf Jr., a senior vice president and director of development for Manekin LLC, said more small businesses are inquiring about buying space and cannot find it because supply has not caught up with demand.

As a result, Manekin, along with partners, is constructing three office buildings, totaling 142,000 square feet, and will allow tenants to buy space according to their needs. Prices range from $150 to $180 a square foot.

Two of the office buildings are planned in Harford County and one in the city of Frederick. The first, a four-story complex at 4690 Millennium Drive in Belcamp, is expected to open next month with one floor sold to an engineering firm, G.W. Stephens.

"What makes them attractive now is the interest rates," Schnorf said. "Owners are not dropping rental rates commensurate with interest rates because they're long-term owners and they anticipate the interest rates going back up. But buyers can lock in the rates."

Though the buildings do not require any special construction features, they do incur extra legal work to record each office condo separately with local government.

Schnorf also said that small businesses, like their larger counterparts and homeowners, are seeking investments other than stocks.

Lewis Bolan, a real estate consultant and a Johns Hopkins University professor of real estate, said office condos are gaining in appeal nationally but only among very small businesses.

Larger firms and public companies generally do not want to tie up their money in real estate, he said. "The distinguishing features of the businesses is that their space needs do not change over time and they are privately held," he said.

"They are small, professional firms, doctors, dentists, lawyers and accountants with just two or three partners and some support staff," he said. "They can assure themselves long-term relatively predictable costs. That, combined with the lowest interest rates in 30 years, makes perfect sense."

Neil Ruther, a lawyer who plans to build a small building on Key Highway at the base of Baltimore's Federal Hill, said he expects to sell each floor separately.

He wants to move into one, and his architect plans to take over another. There will be four more floors, each smaller than an average Starbucks coffee bar.

"There's definitely interest," he said. "And if we can't sell them, we'll rent them. But it's appealing - the ability to buy your own office space without having to buy your building."

Bill Miller, a broker at KLNB, said owning is not for every business, just like it is not for every person. It's more responsibility for small businesses and less flexibility. If they outgrow the space, which generally ranges from 800 to 3,000 square feet, the offices must be sold.

But small businesses are dealing with flexibility issues. Those that anticipate growth, for instance, are buying extra space.

Kraft and Jacobson bought 1,600 square feet and rearranged the space so there would be an extra office to rent out - and reclaim if they ever needed it.

James M. Jones, president and owner of the commercial interior design firm American Design Associates, did the same. Just down the hall from Kraft and Jacobson, Jones bought just less than 4,000 square feet of space for his eight employees and some renters.

He also funded his purchase himself, and his business makes lease payments to him: $3,500 a month. That way he can lower payments if he has a slow month. He can also borrow against his equity.

"I bought my first home at 21 because I never believed in renting," he said. "I don't see why with my business I should be any different."

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