However, for traditional space occupiers, the office condo ismuch more than just another occupancy alternative—it's a strategic,long-term business opportunity. A well-located, well-timed condoplay remains a solid investment for an entrepreneur, even inoverbuilt markets.For a select group of businesses, ownership ofoffice space delivers the optimum facilities solution and yieldsfinancial benefits not achieved through leasing.

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The following key considerations should be reviewed by anyonewanting a better understanding of this alternative to thetraditional office lease:

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The Converter: The converter is the ownership group thateither converts a traditional leased building or develops a newproject as an office condo. It is abundantly clear that the successof a project from a buyer's perspective is firmly grounded on whothe converter is and the experience that they posses in all facetsof the office condo continuum. If the converter does not buy thebuilding correctly and apply the appropriate pricing fundamentals,the project will be challenged.

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The Buyer: Office condo ownership is not for large publiccorporations or businesses that do not have a firm handle on theirgrowth expectations. Office condos are best suited for companiesthat are for the most part stable in their space requirements. Itis appropriate to dispel a myth about the perception of the spaceflexibility inherent with an office condo. If a business firmlybelieves in its growth expectations, and the converter apportionedthe unit sizing correctly, the buyer can purchase smallerincremental units and successfully offset the costs via third partyleasing.

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Pricing Fundamentals: For the pricing fundamentals towork in favor of the office condo buyer and converter, it isnecessary for the converter to purchase the building at anappropriate price (below retail pricing) that allows for a returnon their investment while at the same time pricing the asset inalignment with the after-tax-cost of leasing. This is where some ofthe converters missed the boat, for they did not perform this duediligence up front. They simply purchased a building and embedded adesirable profit without any consideration for marketfundamentals.

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Financial Considerations: The three most significantbenefits to owning office space are long-term cost containment,wealth accumulation (equity buildup) and initial up-front capitalcosts.

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In leases, the rental rates are increased yearly based upon anegotiated amount. Lease renewals are subject to adjustment basedon market pricing. Historically over the last several years, rentshave increased across all submarkets.

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In ownership, the buyer has an option to lock down long-termfacilities costs based on a fixed-rate mortgage. This uniquelyprovides for fixing and containing expenses so that the businessowner can plan and not succumb to dreaded surprises.

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From an equity buildup perspective, by virtue of paying downdebt service every month, office condo owners increase their networth. Also, if an owner requires capital for business acquisitionor expansion, equity in the asset can be used to fund such aninitiative. Try asking your landlord for some of your moneyback!

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Oftentimes, especially considering the SBA 504 program, theamount of equity required to buy an office condo is actually thesame or less than the capital required to outfit an office spacebeyond the tenant-improvement allowance.

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Interest Rate Considerations: Given today's interest rateenvironment, there could not be a better time to consider owning anoffice. Rate compression over the last couple of months has reducedownership costs, while leasing costs have remained flat orincreased slightly in most South Florida submarkets.

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The views expressed here are those of the author and not ofReal Estate Media or its publications.

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Alan Kleber is a senior director at Cushman &Wakefield of Florida, where he leads the firm's corporate advisorypractice specializing in office tenant representation. He can bereached at [email protected]

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