In other words, the aerospace firm bought the building based on the strategic business decision that it will need to expand in the future, rather than buying in hopes of cashing in on rising property values. Buyers of small industrial buildings today, Bouma says, "are making decisions on the basis of whether they need a different kind of space, or whether they need to move or expand or consolidate, or other strategic business reasons."

When the for-sale market for small industrial buildings first heated up, Bouma explains, many if not most of the buyers chose to own rather than lease because the cost of owning was lower, the same or nearly the same as leasing--or because owning made more sense for strategic reasons. But as time went on and the last cycle climbed to its peak, "It seemed that everyone wanted to buy a building rather than lease," Bouma says. He estimates that at the peak of the market, sales of small industrial spaces represented about 70% of the transactions while leases represented about 30%. Now, he says, "It has probably reached equilibrium" or may even have swung in favor of leasing.

Many of the small industrial sales that are closing these days are funded via SBA financing, which remains attractive despite the "very challenging" environment for conventional financing, according to Bouma. He also closed some seller-financed deals last year, is working on a couple more right now and expects that the number of seller-financed sales will increase in the coming months.

Seller-financed deals can be advantageous to sellers who own the property free and clear by providing them with payments, at a market interest rate, that "are almost always surely higher than they can lease the building for," Bouma explains. An advantage for buyers is that in seller-financed deals, the sellers "look at the deal differently than the banks do" and can often offer better terms, he points out.

Regardless of how readily available financing is, Bouma observes that, the biggest factor that potential buyers of small buildings are considering, even when financing is available with low down payments like the 10% on SBA loans, is whether buying a building is the best use of their capital. "People are looking at their working capital and deciding how much cash they have available to put into operating their businesses versus how much they might have to put into the real estate for their business," he says.

The values of small buildings for sale rose so dramatically for a time that, with lease rates remaining relatively low, "It became less advantageous from a business standpoint to buy instead of lease," Bouma says. But as building sales prices start to level out, "We can once again make a favorable comparison showing the long-term advantages of ownership versus leasing," the Voit broker says.

In today's market, there is no hard-and-fast rule that owning is a wiser choice than leasing, or vice versa, Bouma says, because the decision to own or to lease depends upon a variety of factors that must be decided on a case-by-case basis. He says he advises business owners today that they should be less concerned about whether the building they are thinking of buying is going to increase in value over the next two years than what their business plan is for the next five to 10 years. "You have to go back to looking at real estate as a long-term investment, not a short-term speculation," he says.

Instant Insights /

Industrial Sales Reflect Changing Market

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