Purchasing Business Real Estate Alameda County SBDC

Transcription

1 Purchasing Business Real Estate Alameda County SBDC Oakland City Hall October 25, 2016

2 Local SBA Ecosystem

3 Partnership and Hosting We are the premier provider of Business Advisory Services to the small business community. Our mission is to create economic opportunity by empowering entrepreneurs.

4 Our Services Free One-on-One Consulting Free & Low Cost Seminars

5 Seminar Examples Access to Capital Starting a Business Social Media Marketing Worker Owned Businesses Starting a Restaurant Starting a Food Business Finding Your Core Customer Website Development Successful Business Plans Meet the Lenders Government Contracts Law for Entrepreneurs Buying a Business Crowdfunding and Alternatives How to Pitch Your Company Exporting Home Based Businesses

6 ACSBDC Consultants Ron Barrett Loan Specialist Deb Doyle Branding FJ Cava Generalist David Bokash Technology Deagon Williams Food & Restaurants Paula Mattisonsierra Retail Mari Lovalvo Human Resources Tara Lynn Gray Crowdfunding Lee Lambert Director

7 ACSBDC Consultants Tom Yeh Strategy Carolyn Johnson Operations Dorian Webb Operations Mary Passarella Accounting Ed Duarte Construction Bob Komoto Export/Import Maria Mejia Finance David Mitroff Social Media Tom Camerato Financial Modeling

8 How to register for services

9 Our Client Results! Key Economic Impact Metrics Alameda County SBDC Clients Capital Infusion (Loans + Equity) $16,572,582 $24,858,802 Jobs Created/Retained Increase in Sales $7,395,765 $14,390,219

10 Presentation Download

11 Panelists Name Organization Area of Expertise Claudia Cohen Capital Access Commercial RE Financing Darrell Dante SBA SBA Loan Programs Terry Guillory California Bank of Commerce Commercial RE Financing Chris van Keulen CBRE Sale/Lease Commercial Property Anne Phillips Anne Phillips Architecture Business Owner

12 Ownership Advantages Lock-in costs for a long period of time No worries about rent increases or displacement No worries about landlord restrictions image control Control operating expenses and maintenance Potential income from tenants

13 Ownership Advantages Builds equity over time Appreciation - Your real estate may become more valuable than your business Tax Advantages lower the overall cost - depreciation, other deductions

14 Ownership Disadvantages Ties up some capital up front Down payment, deal expenses, etc. Will usually cost more in early years Responsibility to manage and maintain the asset

15 Ownership Disadvantages May lose some flexibility due to real estate commitment - Not a liquid asset Time requirements to manage property - Not your core business - Improvement, maintenance and repair decisions take time Capital costs may not be predictable - Roof replacement, plumbing, electrical etc.

16 Average Price per Square Foot Recent Trend 200 Oakland/East Bay Industrial User Sales YTD* $ $ $ $ $68.14 $85.86 $ $ $66.17 $ ,000-30,000 sq. ft. 30,000+ sq. ft.

17 Lease Versus Buy Analysis A Methodology to determine what works for you may include factors and assumptions such as: Purchase price Lease rates and terms Operating Expenses Economic Environment Property Appreciation Assumptions Expansion Requirements Lease Buyout Costs Financing Options Tax Considerations Risk Tolerance

18 Lease Versus Buy Analysis A financial expert can build a model to demonstrate the lease versus buy options for your personal needs. Usually based on Net Present Value or Internal Rate of Return analysis. Don t worry if the terminology sounds complicated a good advisor can demystify the analysis and make it less intimidating.

19 Lease Versus Buy There is no one size fits all solution Your own assessment is based upon both quantitative and qualitative factors Work with a professional to assess your alternatives

20 Purchase Example

21 Purchase Example Monthly Cost for Foley Street: To Rent Foley Street $18,713 To Buy before Taxes $17,876 To Buy after Taxes $5,753

22 Purchase Example

23 Purchasing Property Get familiar with the area where you are interested to purchase a property The more homework you do, and the more focused your search, the better the likelihood of getting good results. Begin to track the market(s) of interest, what is listed and what is new. Ways to get familiar with a market: Broker Websites Broker provided market information Online sites such as loopnet.com, rofo.com, showcase.com, others

24 Purchasing Property Note: Listed properties are only a subset of the market experienced brokers will often know of property that is coming to market prior to a formal listing. By becoming familiar with the market, you will be able to better recognize a good opportunity when it appears. You don t really know a property until you see it!

25 Purchasing Property Issues to Consider: Location Purchase Price Ongoing Costs Physical Condition Allowable Uses Restrictions on renovation Adequacy of Access and Parking Opportunity to Expand or Lease

26 Purchasing Property Assemble a Team of Experts Commercial broker Lender(s) Attorney Accountant Build relationships so if/when the time is right, you can execute

27 Financing Many options for business real estate: Traditional Commercial Mortgage 5-25 year term Recent interest rates 4.5% - 7.5%, typically variable 20-30% down payment May have balloon payment SBA 7(a) loan year term, fully amortized 20% minimum down payment Interest rates 5.25% %, usually variable CDC/SBA 504 Loan Typically 20 year term Combines with a 1 st mortgage lender to up to 90% of purchase

28 SBA 504 CDC Loans at a glance Maximum Loan Amount $5,000,000 ($5.5M for manufacturers & energy efficiency projects) Average Loan Amount $869,000 Interest Rate Fixed. 3.99% as of October 2016 Maximum Loan Term Collateral Use of Proceeds 20 years, fully amortizing 2 nd D/T on project property Only for acquisition or construction of commercial RE, or heavy equipment Volume of Loan Activity in SFDO 262 loans for $279 million, FY 2015 Lenders Special Features Non-profit Certified Development Companies (CDC s) approved by SBA SBA loan is 100% guaranteed, may not exceed 40% of project value, & is in 2 nd lien position behind a non-guaranteed bank loan. Minimum 10% borrower injection.

29 504 Borrower Typically a seasoned business that can demonstrate repayment ability from historical cash flow Can be a start-up in certain situations Owners has sufficient personal assets to cover minimum 10% down payment (20% for less proven situations) Owner must occupy a minimum of 51% of the property to operate their business

30 504 Application Process Buyer contacts either a 504 CDC, or a bank 1st mortgage lender (often introduced by a real estate broker or an advisor such as the SBDC) CDC and bank 1st mortgage lender work together to coordinate the dual application process

31 Refinancing Real Estate Debt 504 loans are eligible to refinance existing real estate debt Prior debt must be in place for two years and in good standing for prior 12 months Business must be two years old with no ownership changes during that time 90% loan to value, except can take up to 25% cash out if the loan is no more than 75% of loan to value Can not be used to refinance SBA, USDA or other government loan

32 Panelists Name Organization Area of Expertise Claudia Cohen Capital Access Commercial RE Financing Darrell Dante SBA SBA Loan Programs Terry Guillory California Bank of Commerce Commercial RE Financing Chris van Keulen CBRE Sale/Lease Commercial Property Anne Phillips Anne Phillips Architecture Business Owner

33 THANKS EVERYONE Written & created by P. Mattisonsierra